ASPECT MEDICAL SYSTEMS INC, S-1/A, 2000-01-21

ASPECT MEDICAL SYSTEMS INC
S-1/A, 2000-01-21
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 2000

REGISTRATION NO. 333-86295
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 5

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 125 HIGH STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 248-7000
TELECOPY: (617) 526-5000 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. [ ]
------------------------

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 January , 2000

3,000,000 Shares

[Aspects Medical Systems Logo]
COMMON STOCK
------------------------
ASPECT MEDICAL SYSTEMS, INC. IS OFFERING SHARES OF ITS 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 $11.00 AND
$13.00 PER SHARE.
------------------------

WE HAVE BEEN APPROVED 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 9.
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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
450,000 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
, 2000.
------------------------
MORGAN STANLEY DEAN WITTER
DEUTSCHE BANC ALEX. BROWN
U.S. BANCORP PIPER JAFFRAY
, 2000.
<PAGE> 3
[Aspect logo]

[Photograph depicting Aspect's A-2000 BIS Monitor and the BIS Sensor affixed to
the forehead of a model of a human head]

The following words are to the right of the photograph:

The A-2000 BIS Monitor is a compact, portable monitor that displays the BIS
index and supporting information and includes Aspect's digital signal converter.

[Photograph depicting Aspect's BIS Sensor affixed to the forehead of a woman]

The following words are to the right of the photograph:

The BIS Sensor is a single-piece, single-use disposable product for use
with the A-2000 BIS Monitor, the A-1050 Monitor and the BIS Module Kit. The BIS
Sensor is applied to a patient's forehead to acquire the EEG, a measure of the
electrical activity of the brain.

[Photograph depicting Aspect's BIS Sensor, BIS Module Kit and digital signal
converter products]

The following words are to the right of the photograph:

In 1996, Aspect introduced the BIS Module Kit, which is designed to
facilitate the integration of Aspect's BIS index into monitoring products
marketed by third parties that enter into original equipment manufacturer
arrangements with us.

<PAGE> 4

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 5
RISK FACTORS.......................... 9
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS.......................... 17
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 20
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BUSINESS.............................. 30
MANAGEMENT............................ 45
RELATED-PARTY TRANSACTIONS............ 54
PRINCIPAL STOCKHOLDERS................ 56
DESCRIPTION OF CAPITAL STOCK.......... 59
SHARES ELIGIBLE FOR FUTURE SALE....... 62
UNDERWRITERS.......................... 64
LEGAL MATTERS......................... 66
EXPERTS............................... 66
WHERE YOU CAN FIND MORE INFORMATION... 66
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 , 2000 (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
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[THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY]

4
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PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding our company, 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.

Clinical trials and routine clinical use of the BIS system have shown that
patient monitoring with the BIS system results in:

- lower drug costs,

- 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, which
is the unintentional regaining of consciousness during surgery.

As of December 31, 1999, more than 5,650 BIS monitors have been installed
worldwide, including 4,881 BIS monitors in approximately 675 sites in North
America. These sites include 35 of the 100 largest hospitals and 32% of all
teaching hospitals with anesthesia residency programs. We believe that over
1,000,000 patients have been monitored using the BIS index during surgery.

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. 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 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.
Consequently, traditional 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. 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.

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 original equipment manufacturer relationships
with several patient monitoring and anesthesia equipment companies that will
incorporate our BIS technology into their equipment using the BIS Module Kit.
5
<PAGE> 7

Aspect's objective is to establish the BIS system as a global standard in
anesthesia and sedation monitoring. Key elements of our strategy to accomplish
this objective are to:

- accelerate market penetration through a direct sales force,

- educate and promote the use of the BIS system through clinical
specialists,

- broaden distribution channels through original equipment manufacturer
relationships,

- maintain market leadership through continuous product improvements and
extensions, and

- target new product opportunities through technology development.

------------------------

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.

6
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common stock offered................................. 3,000,000 shares
Common stock to be outstanding after this offering... 15,883,078 shares
Over-allotment option................................ 450,000 shares
Use of proceeds...................................... For general corporate purposes, including
working capital and capital expenditures. For
more detailed information, see "Use of
Proceeds" on page 18.
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.
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 is based on shares outstanding as of December 31,
1999 and excludes 2,695,680 shares issuable upon the exercise of stock options
with a weighted average exercise price of $4.60 per share and warrants to
purchase 192,902 shares of common stock with an exercise price of $12.50 per
share.

7
<PAGE> 9

SUMMARY CONSOLIDATED FINANCIAL DATA

The following is a summary of financial data included elsewhere in the
prospectus. 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>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1998 1999
-------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue................................... $ 1,067 $ 1,389 $ 3,068 $ 11,238 $27,187
Costs of revenue.......................... 704 1,096 3,602 5,880 9,324
Research and development.................. 2,870 2,338 2,603 4,042 4,847
Sales and marketing....................... 1,285 1,561 4,813 10,354 16,543
General and administrative................ 1,815 1,871 2,358 4,254 4,829
-------- ------- -------- -------- -------
Loss from operations...................... (5,607) (5,477) (10,308) (13,292) (8,356)
Interest income, net...................... 61 81 422 459 1,317
Other expense............................. -- -- -- (774) --
-------- ------- -------- -------- -------
Net loss.................................. $ (5,546) $(5,396) $ (9,886) $(13,607) $(7,039)
======== ======= ======== ======== =======
Net loss per share:
Basic and diluted....................... $(281.65) $(57.76) $ (15.63) $ (11.70) $ (4.57)
======== ======= ======== ======== =======
Pro forma basic and diluted............. $ (0.56)
=======
Shares used in computing net loss per
share:
Basic and diluted....................... 20 93 632 1,163 1,539
Pro forma basic and diluted............. 12,606
</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 116,719 at December 31, 1999, 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
3,000,000 shares of common stock in this offering at an assumed initial public
offering price of $12.00 per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $ 14,535 $ 47,568
Working capital............................................. 12,279 44,859
Total assets................................................ 29,402 61,982
Long-term debt.............................................. 3,872 3,872
Total stockholders' equity.................................. 13,079 45,659
</TABLE>

8
<PAGE> 10

RISK FACTORS

You should carefully consider the risks described below before making an
investment decision. 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

WE WILL NOT BE PROFITABLE IF HOSPITALS AND ANESTHESIA PROVIDERS DO NOT BUY AND
USE OUR BIS SYSTEM IN SUFFICIENT QUANTITIES.

Customers may determine that the cost of the BIS system exceeds cost
savings in drugs, personnel and post-anesthesia care recovery resulting from use
of the BIS system. In addition, hospitals and anesthesia providers may not
accept the BIS system as an accurate means of assessing a patient's level of
consciousness during surgery if patients regain consciousness during surgery
while being monitored with the BIS system. If extensive or frequent malfunctions
occur, these providers may also conclude that the BIS system is unreliable. If
hospitals and anesthesia providers do not accept the BIS system as
cost-effective, accurate or reliable, they will not buy and use the BIS system
in sufficient quantities to enable us to be profitable.

WE DEPEND ON OUR BIS SYSTEM FOR SUBSTANTIALLY ALL OF OUR REVENUE, AND IF THE
BIS SYSTEM DOES NOT GAIN WIDESPREAD MARKET ACCEPTANCE, THEN OUR REVENUE WILL NOT
GROW.

We began selling our current BIS system in early 1998. To date, we have not
achieved widespread market acceptance of the BIS system. Because we currently
depend on our BIS system for substantially all of our revenue and we have no
other significant products, if we fail to achieve widespread market acceptance
we will not be able to sustain or grow our product revenue.

WE EXPECT TO INCUR LOSSES IN THE FUTURE.

We have incurred net losses in each year since inception. 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.
Failure to become and remain profitable may depress the market price of our
common stock and our ability to raise capital and continue our operations.

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 35 cases of possible surgical
awareness during surgical procedures monitored with the BIS system as of
December 31, 1999. 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. If anesthesia
providers and hospitals do not purchase and use the BIS system, then we may not
sustain or grow our product revenue. Although we do not claim that patient
monitoring with 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.

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<PAGE> 11

WE MAY NOT BE ABLE TO KEEP UP WITH NEW PRODUCTS OR ALTERNATIVE TECHNIQUES
DEVELOPED BY OTHERS, WHICH COULD IMPAIR OUR ABILITY TO REMAIN COMPETITIVE AND
ACHIEVE FUTURE GROWTH.

The medical industry in which we market our products is characterized by
rapid product development and technological advances. 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.

We may not be able to improve our products or develop new products or
technologies quickly enough to maintain a competitive position in our markets
and continue to grow our business.

IF WE DO NOT SUCCESSFULLY DEVELOP AND INTRODUCE ENHANCED OR NEW PRODUCTS WE
COULD LOSE REVENUE OPPORTUNITIES AND CUSTOMERS.

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 successfully adapt the BIS system for new products and
applications both within and outside the field of anesthesia monitoring, then we
could lose revenue opportunities and customers.

IF WE DO NOT DEVELOP AND IMPLEMENT A SUCCESSFUL SALES AND MARKETING STRATEGY,
WE WILL NOT EXPAND OUR BUSINESS.

Our current sales and marketing operation is not sufficient to achieve the
level of market awareness and sales we need to expand our business. 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:

- provide or assure that distributors and original equipment manufacturers
provide the technical and educational support customers need to use the
BIS system successfully,

- promote frequent use of the BIS system so that sales of our disposable
BIS Sensors increase,

- encourage our customers to purchase our products prior to availability of
products that are made by original equipment manufacturers incorporating
our technology,

- manage geographically dispersed operations, and

- modify our products for foreign markets.

10
<PAGE> 12

IN ORDER TO REACH THE LEVEL OF SALES WE NEED TO ACHIEVE PROFITABILITY, WE NEED
TO FURTHER DEVELOP OUR DIRECT AND INDIRECT SALES CHANNELS.

In order to increase our sales, we need to add domestic and international
distributors, original equipment manufacturers and other sales channels and
increase sales through these channels. In addition, we need to hire and train
more sales persons and clinical specialists. If we do not further develop our
direct and indirect sales channels, we will not reach the level of sales
necessary to achieve profitability.

OUR THIRD-PARTY DISTRIBUTION AND ORIGINAL EQUIPMENT MANUFACTURER RELATIONSHIPS
COULD NEGATIVELY AFFECT OUR PROFITABILITY, CAUSE SALES OF OUR PRODUCTS TO
DECLINE AND BE DIFFICULT TO TERMINATE IF WE ARE DISSATISFIED.

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 original
equipment manufacturers 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.

WE MAY NOT BE ABLE TO GENERATE ENOUGH ADDITIONAL REVENUE FROM OUR PLANNED
INTERNATIONAL EXPANSION TO OFFSET THE COSTS ASSOCIATED WITH ESTABLISHING AND
MAINTAINING FOREIGN OPERATIOns.

A component of our growth strategy is to expand our presence in foreign
markets. We conduct international business primarily in Europe and we are
attempting to increase the number of countries in which we do business. It will
be costly to establish international facilities and operations and to promote
the BIS system in international markets. In addition, we have little experience
in marketing and distributing products for these markets. Revenue from
international activities may not offset the expense of establishing and
maintaining these foreign operations.

WE MAY NOT BE ABLE TO MEET THE UNIQUE OPERATIONAL, LEGAL AND FINANCIAL
CHALLENGES THAT WE WILL ENCOUNTER IN OUR INTERNATIONAL OPERATIONS, WHICH MAY
LIMIT THE GROWTH OF OUR BUSINESS.

We are increasingly subject to a number of challenges which specifically
relate to our international business activities. These challenges include:

- 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,
which could slow our growth in international markets,

- less acceptance by foreign anesthesia providers of the use of disposable
products similar to the BIS Sensor,

- longer sales cycles to sell products like the BIS system to hospitals and
outpatient surgical centers, which could slow our revenue growth from
international sales, and

- longer accounts receivable payment cycles and difficulties in collecting
accounts receivable.

If we are unable to meet and overcome these challenges, our international
operations may not be successful which would limit the growth of our business.

WE MAY EXPERIENCE CUSTOMER DISSATISFACTION AND OUR REPUTATION 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. We have only
one manufacturing facility and we expect to move our manufacturing facility to a
new
11
<PAGE> 13

location in the first quarter of 2000. If we fail to produce enough products at
our own manufacturing facility or at a third-party manufacturing facility, if we
experience delays in moving to our new facility or if we experience a
termination or modification of any manufacturing arrangement with a third party,
we may be unable to deliver products to our customers on a timely basis. Our
failure to deliver products on a timely basis could lead to customer
dissatisfaction and damage our reputation.

OUR RELIANCE ON SOLE SUPPLIERS COULD ADVERSELY AFFECT OUR ABILITY TO MEET OUR
CUSTOMERS' DEMANDS FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN BUDGET.

Some of the components that are necessary for the assembly of our BIS
system, including some of the 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 some of the 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, which could affect our
profitability. A disruption or termination in the supply of components could
also result in our inability to meet demand for our products, which could lead
to customer dissatisfaction and damage our reputation. 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 the verification of a new
manufacturer could delay our ability to manufacture BIS systems in a timely
manner or within budget.

WE MAY BE REQUIRED TO BRING LITIGATION TO ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS, WHICH MAY RESULT IN SUBSTANTIAL EXPENSE AND MAY DIVERT OUR ATTENTION
FROM THE IMPLEMENTATION OF OUR BUSINESS STRATEGY.

We believe that the success of our business depends, in part, on obtaining
patent protection for our products, defending our patents once obtained and
preserving our trade secrets. 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 our attention from the growth of
the business and may not be adequate to protect our intellectual property
rights.

WE DO NOT OWN THE TRADEMARK "ASPECT" AND ANY COMPETITIVE ADVANTAGE WE DERIVE
FROM THE NAME MAY BE IMPAIRED BY THIRD-PARTY USE.

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 MAY BE SUED BY THIRD PARTIES WHICH CLAIM THAT OUR PRODUCTS INFRINGE ON
THEIR INTELLECTUAL PROPERTY RIGHTS, PARTICULARLY BECAUSE THERE IS SUBSTANTIAL
UNCERTAINTY ABOUT THE VALIDITY AND BREADTH OF MEDICAL DEVICE PATENTS.

We may be exposed to future litigation by third parties based on claims
that our products infringe the intellectual property rights of others. This risk
is exacerbated by the fact that the validity and breadth of claims covered in
medical technology patents involve complex legal and factual questions for which
important legal principles are unresolved. Any litigation or claims against us,
whether or not valid, could result in substantial costs, could place a
significant strain on our financial resources and could harm our reputation. In
addition, 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, which would adversely
affect our revenue,

12
<PAGE> 14

- 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, which would be costly and time-consuming.

WE COULD BE EXPOSED TO SIGNIFICANT PRODUCT LIABILITY CLAIMS WHICH COULD DIVERT
MANAGEMENT ATTENTION AND ADVERSELY AFFECT OUR CASH BALANCES, OUR ABILITY TO
OBTAIN AND MAINTAIN INSURANCE COVERAGE AT SATISFACTORY RATES OR IN ADEQUATE
AMOUNTS AND OUR REPUTATION.

The manufacture and sale of our products expose us to product liability
claims and product recalls, including those which may arise from misuse or
malfunction of, or design flaws in, our products or use of our products with
components or systems not manufactured or sold by us. 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.

FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS COULD CAUSE OUR STOCK PRICE TO
DECREASE.

Our operating results have fluctuated significantly from quarter to quarter
in the past and are likely to vary in the future. These fluctuations are due to
several factors relating to the sale of our products, including the timing and
volume of customer orders for our BIS system, customer cancellations, reductions
in orders by our distribution partners and the timing and amount of our
expenses. Because of these fluctuations, it is likely that in some future
quarter or quarters our operating results could fall below the expectations of
securities analysts or investors. If so, the market price of our stock would
likely decrease.

In addition, because we do not have a significant backlog of customer
orders for our BIS system, revenue in any quarter depends on orders received in
that quarter. 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, which may result in decreased product orders
or an increase in bad debts in any quarter.

WE MAY NOT RESERVE AMOUNTS ADEQUATE TO COVER PRODUCT OBSOLESCENCE, CLAIMS AND
RETURNS, WHICH COULD RESULT IN UNANTICIPATED EXPENSES AND FLUCTUATIONS IN
OPERATING RESULTS.

Depending on factors such as the timing of our introduction of new products
which utilize our BIS technology, as well as 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.
These reserves may not be adequate to cover all costs associated with these
items. If these reserves are inadequate, we would be required to incur
unanticipated expenses which could result in unexpected fluctuations in
quarterly operating results.

WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY, WHICH COULD RESULT IN PRICE
REDUCTIONS AND DECREASED DEMAND FOR OUR PRODUCTS.

We expect to face substantial competition from larger medical device
companies that may have greater financial, technical, marketing and other
resources than we do. We may not be able to compete effectively with these
potential competitors. For example, 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
13
<PAGE> 15

their competing products. Competition in the sale of anesthesia-monitoring
systems could result in price reductions, fewer orders, reduced gross margins
and loss of market share.

OUR ABILITY TO MARKET AND SELL OUR PRODUCTS AND GENERATE REVENUE DEPENDS UPON
RECEIPT OF 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, we will not be able to market and sell our products, which will limit
our ability to generate revenue. 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 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.

IF WE DO NOT RETAIN OUR SENIOR MANAGEMENT AND OTHER KEY EMPLOYEES, WE MAY NOT
BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY.

Our President and Chief Executive, Nassib Chamoun, joined Aspect at its
inception in 1987. Our Chairman, J. Breckenridge Eagle, began serving as a
director of Aspect in 1988. Many other members of our management and key
employees have extensive experience with Aspect and other companies in the
medical device industry. Our success is substantially dependent on the ability,
experience and performance of these members of our senior management and other
key employees. Because of their ability and experience, if we lose one or more
of the members of our senior management or other key employees, our ability to
successfully implement our business strategy could be seriously harmed.

IF WE DO NOT ATTRACT AND RETAIN SKILLED PERSONNEL, WE WILL NOT BE ABLE TO
EXPAND OUR BUSINESS.

Our products are based on complex signal-processing technology.
Accordingly, we require skilled personnel to develop, manufacture, sell and
support our products. Our future success will depend largely on

14
<PAGE> 16

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, if we are not able to attract and retain skilled
personnel, we will not be able to expand our business.

FAILURE OF USERS OF THE BIS SYSTEM TO OBTAIN ADEQUATE REIMBURSEMENT FROM
THIRD-PARTY PAYORS COULD LIMIT MARKET ACCEPTANCE OF THE BIS SYSTEM, WHICH COULD
PREVENT US FROM ACHIEVING PROFITABILITY.

Anesthesia providers are generally not 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, which
could prevent us from achieving profitability.

OUR SOFTWARE PRODUCTS AND THOSE OF OUR SUPPLIERS COULD FAIL AS A RESULT OF THE
YEAR 2000 PROBLEM, WHICH COULD CAUSE DISRUPTIONS IN OUR BUSINESS, CAUSE US TO
INCUR UNANTICIPATED EXPENSES, DAMAGE OUR REPUTATION AND CAUSE DELAYS IN PRODUCT
SHIPMENTS OR IN CUSTOMER PURCHASES FROM US.

The year 2000 problem refers to the potential for system and processing
failures as a result of software using two digits rather than four to define the
applicable year. For example, computer programs may recognize a date represented
as "00" as the year 1900 rather than the year 2000. 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 cause disruptions to our business. 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 these 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. Additionally, if we are unable to make our
products and internal systems year 2000 compliant in a timely manner, then we
may experience disruptions in our business operations, our reputation may suffer
and customers may delay or cancel purchases from us, which would decrease our
product revenue.

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 original
equipment manufacturer partners could cause a reduction in their orders from us.
Any reduction in purchases of our products could decrease our product revenue.

RISKS RELATED TO THIS OFFERING

OUR STOCK PRICE WILL FLUCTUATE AFTER THIS OFFERING WHICH MAY CAUSE YOUR
INVESTMENT IN OUR STOCK TO SUFFER A DECLINE IN VALUE.

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

15
<PAGE> 17

upon an assessment of the valuation of our stock. The public market may not
agree with or accept this valuation, in which case you may not be able to sell
your shares at or above the initial offering price. See "Underwriters" on page
64. The market price of our common stock may fluctuate significantly in response
to factors which are beyond our control.

In addition, 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 operating performance of these companies. These broad market fluctuations
could result in extreme fluctuations in the price of our common stock, which
could cause a decline in the value of your shares.

WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION DUE TO OUR
EXPECTED STOCK VOLATILITY.

Our stock price may fluctuate for many reasons, including addition or
departure of key Aspect personnel, variations in our quarterly operating results
and changes in market valuations of medical device companies. Recently, when the
market price of a stock has been volatile as our stock price may be, 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 a lawsuit of this type 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 TO EXPAND OUR BUSINESS 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 a number of 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 BIS systems,

- 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
BIS systems, 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.

OUR STOCK PRICE COULD BE DEPRESSED BY SHARES BECOMING AVAILABLE FOR SALE.

Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their stock for the first time.
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 62.

16
<PAGE> 18

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 26.9% 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, including a sale of substantially all of our assets, or

- 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 TRANSACTIONS THAT STOCKHOLDERS MAY FAVOR.

Provisions of our restated certificate of incorporation and amended and
restated by-laws may discourage, delay or prevent a merger or acquisition that
stockholders may consider favorable, including transactions in which you might
otherwise receive a premium for your shares. These provisions include:

- authorizing the issuance of "blank check" preferred stock without any
need for action by stockholders,

- providing for a classified board of directors with staggered three-year
terms,

- requiring supermajority stockholder voting to effect certain amendments
to our restated certificate of incorporation and amended and restated
by-laws,

- eliminating the ability of stockholders to call special meetings of
stockholders,

- prohibiting stockholder action by written consent,

- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings, and

- providing for the automatic acceleration of the vesting of stock options
upon a change of control of Aspect.

PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
OF THEIR INVESTMENT.

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.

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.

17
<PAGE> 19

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the 3,000,000 shares of
common stock will be approximately $32,580,000, assuming an initial public
offering price of $12.00 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 $37,602,000.

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 relating to an 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 loan
agreement with a bank which prohibits the declaration or payment of cash
dividends without the consent of the lender.

18
<PAGE> 20

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 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 5,000,000 shares of
preferred stock and 60,000,000 shares of common stock. The as adjusted
information also gives effect to the issuance and sale of the 3,000,000 shares
of common stock in this offering at an assumed initial public offering price of
$12.00 per share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt.............................................. 3,872 $ 3,872
Stockholders' equity:
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding (actual); 5,000,000 shares
authorized, no shares issued or outstanding (as
adjusted).............................................. -- --
Convertible preferred stock, $.01 par value; 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); 1,815,840 shares issued and outstanding
(actual); 60,000,000 shares authorized (as adjusted);
15,883,078 shares issued and outstanding (as
adjusted).............................................. 18 159
Additional paid-in capital................................ 1,274 101,273
Warrants.................................................. 146 146
Notes receivable from employees and directors............. (305) (305)
Deferred compensation..................................... (225) (225)
Accumulated deficit....................................... (55,389) (55,389)
======== ========
Total stockholders' equity........................ 13,079 45,659
======== ========
Total capitalization......................... $ 16,951 $ 49,531
======== ========
</TABLE>

The outstanding share information excludes 2,695,680 shares of common stock
issuable upon exercise of outstanding options as of December 31, 1999 with a
weighted average exercise price of $4.60 and warrants to purchase 192,902 shares
of common stock with an exercise price of $12.50 per share.

19
<PAGE> 21

DILUTION

Our pro forma net tangible book value as of December 31, 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
$12.6 million, or $.98 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 12,883,078 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 3,000,000 shares of common stock in this offering, at an assumed
offering price of $12 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 December 31, 1999 would have been $45.7
million, or $2.87 per share. This represents an immediate increase in pro forma
net tangible book value to existing stockholders of $1.89 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 $9.13 per
share. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of December
31, 1999.................................................... $ .98
Increase in pro forma net tangible book value per share
attributable to new investors.......................... 1.89
Pro forma net tangible book value per share after this
offering.................................................. 2.87
Dilution per share to new investors......................... $ 9.13
======
</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 December 31, 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 34.4% of the total consideration for, and own 18.9% of
the outstanding shares of, the common stock of Aspect. The calculation below is
based on an assumed initial public offering price of $12 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................ 12,883,078 81.1% $ 68,503,012 65.6% $ 5.32
New investors........................ 3,000,000 18.9 36,000,000 34.4 $12.00
---------- ----- ------------ ------
Total...................... 15,883,078 100.0% $104,503,012 100.0%
========== ============
</TABLE>

The table above assumes no exercise of stock options or warrants
outstanding at December 31, 1999. As of December 31, 1999, there were
outstanding options to purchase 2,695,680 shares of common stock with a weighted
average exercise price of $4.60 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 these outstanding options and warrants had been exercised as of December
31, 1999, pro forma net tangible book value per share after this offering would
be $60 million and total dilution per share to new investors would be $8.78.

If the underwriters' over-allotment option is exercised in full, the number
of shares held by new investors will increase to 3,450,000 shares, or 21.1% of
the total number of shares of common stock outstanding after this offering.

20
<PAGE> 22

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,
1997, 1998 and 1999 and the consolidated balance sheet data as of December 31,
1998 and 1999 are derived from our audited consolidated financial statements
included in this prospectus. The consolidated statements of operations data for
the years ended December 31, 1995 and 1996 and the consolidated balance sheet
data as of December 31, 1995, 1996 and 1997 are derived from our audited
consolidated financial statements not included in this prospectus. The
historical results presented here are not necessarily indicative of future
results.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1995 1996 1997 1998 1999
-------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue................................... $ 1,067 $ 1,389 $ 3,068 $ 11,238 $27,187
Costs and expenses:
Costs of revenue........................ 704 1,096 3,602 5,880 9,324
Research and development................ 2,870 2,338 2,603 4,042 4,847
Sales and marketing..................... 1,285 1,561 4,813 10,354 16,543
General and administrative.............. 1,815 1,871 2,358 4,254 4,829
-------- ------- -------- -------- -------
Total costs and expenses............. 6,674 6,866 13,376 24,530 35,543
Loss from operations...................... (5,607) (5,477) (10,308) (13,292) (8,356)
Interest income, net...................... 61 81 422 459 1,317
Other expense............................. -- -- -- (774) --
-------- ------- -------- -------- -------
Net loss.................................. $ (5,546) $(5,396) $ (9,886) $(13,607) $(7,039)
======== ======= ======== ======== =======
Net loss per share:
Basic and diluted....................... $(281.65) $(57.76) $ (15.63) $ (11.70) $ (4.57)
======== ======= ======== ======== =======
Pro forma basic and diluted............. $ (0.56)
=======
Shares used in computing net loss per
share:
Basic and diluted....................... 20 93 632 1,163 1,539
Pro forma basic and diluted............. 12,606
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities................................ $3,329 $2,231 $4,981 $21,273 $14,535
Working capital............................. 3,054 1,334 3,572 19,104 12,279
Total assets................................ 4,552 3,973 7,603 28,589 29,402
Long-term debt.............................. 333 270 118 1,441 3,872
Total stockholders' equity.................. 3,028 1,066 4,067 19,688 13,079
</TABLE>

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<PAGE> 23

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.

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 10%, 27% and 15% of
revenue in 1997, 1998 and 1999, respectively.

We derive our revenue primarily from sales of monitors, including related
accessories and BIS Module Kits, and sales of disposable sensors. In 1997, 1998
and 1999 revenue from the sale of monitors represented approximately 80%, 67%
and 53%, respectively, of our revenue, and revenue from the sale of disposable
sensors represented approximately 20%, 33% and 47%, respectively, of our
revenue. We expect that revenue from the sale of single-use disposable sensors
will continue to increase as a percentage of revenue as the installed base of
monitors continues to grow.

Revenue from domestic sales in 1997, 1998 and 1999 was approximately $1.9
million, $10.3 million and $24.6 million, respectively, which represented
approximately 61%, 92% and 91%, respectively, of our revenue. Revenue from
international sales in 1997, 1998 and 1999 was approximately $1.2 million,
$942,000 and $2.6 million, respectively, which represented approximately 39%, 8%
and 9%, respectively, of our revenue.

Effective July 1, 1998, our agreement with Spacelabs Medical, Inc. to
distribute our monitors internationally, except in Japan, was terminated
pursuant to the terms of the agreement. Sales to Spacelabs represented
substantially all of our revenue from international sales in 1997 and 1998. In
the year ended December 31, 1999, sales to Spacelabs 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. The sales and marketing
efforts of these subsidiaries resulted in the majority of the international
sales for the year ended December 31, 1999. 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 original
equipment manufacturer relationships. We expect to enhance our international
third-party distribution program through direct sales efforts and to support our
customers with clinical specialists. In January 1998, we entered into a
three-year

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<PAGE> 24

distribution agreement with Nihon Kohden Corporation to distribute BIS monitors
in Japan. During 1998 and 1999, sales to Nihon Kohden represented approximately
3% of international revenue. 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,
-------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue..................................................... 100% 100% 100%
Costs and expenses:
Costs of revenue.......................................... 117 52 34
Research and development.................................. 85 36 18
Sales and marketing....................................... 157 92 61
General and administrative................................ 77 38 18
---- ---- ---
Total costs and expenses............................... 436 218 131
Loss from operations........................................ (336) (118) (31)
Interest income, net........................................ 14 4 5
Other expense............................................... -- (7) --
---- ---- ---
Net loss.................................................... (322)% (121)% (26)%
==== ==== ===
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Revenue. Our revenue increased to approximately $27.2 million in 1999 from
approximately $11.2 million in 1998, an increase of approximately 143%. Revenue
from the sale of monitors increased to approximately $14.3 million in 1999 from
approximately $7.5 million in 1998, an increase of approximately 91%. Revenue
from the sale of disposable sensors increased to approximately $12.9 million in
1999 from approximately $3.7 million in 1998, an increase of approximately 249%.
The growth in revenue from the sale of monitors was primarily attributable to an
increase of approximately 108% in the number of monitors sold, which resulted
from the growth of our direct sales force and the contribution of our
international organization. In addition, sales of the BIS Module Kit, which was
introduced in the second half of 1998, contributed to the increase in monitor
revenue. The increase in revenue from the sale of disposable sensors was
primarily attributable to growth in the installed base of monitors, which
resulted in an increase of approximately 223% in the number of disposable
sensors sold. An increase of approximately 8% in the average selling price of
the disposable sensors also contributed to the increase in revenue.

Our gross profit was approximately 66% of revenue in 1999 as compared to a
gross profit of approximately 48% of revenue in 1998. The increase in the gross
profit percentage in 1999 as compared to 1998 was primarily attributable to an
increase in sales of disposable sensors as a percentage of revenue. Disposable
sensors have a higher profit margin than monitors and contributed approximately
62% of the increase in gross profit. The increase in the gross profit percentage
in 1999 also resulted from improved manufacturing efficiencies. We expect that
sales of higher margin disposable sensors will continue to increase as a
percentage of revenue as the installed base of monitors continues to grow.

Research and Development. Research and development expenses increased to
approximately $4.8 million in 1999 from approximately $4.0 million in 1998, an
increase of approximately 20%. Research and development expenses decreased as a
percentage of revenue. The increase in absolute dollars was primarily
attributable to an increase in research and development personnel and related
payroll and other expenses, which represented approximately 65% of the increase.
These expenses were incurred in connection with the

23
<PAGE> 25

continued product development efforts related to the A-2000 BIS Monitor, BIS
Sensor and BIS Module Kit and the development of products for use outside the
operating room in the intensive care unit and for procedural sedation. 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 $16.5 million in 1999 from approximately $10.4 million in 1998, an
increase of approximately 59%. 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, which represented approximately 84% of the increase, the
establishment of our international subsidiaries, 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 $4.8 million in 1999 from approximately $4.3 million in 1998,
an increase of approximately 12%. 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
$1.3 million in 1999 from approximately $459,000 in 1998, an increase of
approximately 183%. Interest income increased to approximately $1.5 million in
1999 from approximately $553,000 in 1998, an increase of approximately 171%. 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, which resulted
in approximately 31% of the increase, and an increase in our investment in
sales-type leases, which resulted in approximately 69% of the increase. Interest
expense increased to approximately $204,000 in 1999 from approximately $94,000
in 1998, an increase of approximately 117%, as a result of higher average
outstanding debt obligations under an equipment loan in the second half of 1998
and debt obligations related to the sale of a portion of our investments in
sales-type leases in the second half of 1999. We expect interest income to
increase in absolute dollars because of higher cash and investments balances
resulting from our initial public offering.

Other Expense. Other expense in 1998 primarily related to the costs
incurred in our proposed initial public offering, which was terminated in August
1998.

Net Loss. Our net loss decreased to approximately $7.0 million in 1999
from approximately $13.6 million in 1998, a decrease of approximately 49%, 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 approximately $606,000 in 1997, an increase of approximately 511%. The
increase in revenue from the sale of monitors was primarily attributable to an
increase of approximately 195% in the number of monitors sold, primarily
resulting from the commercial introduction of the A-2000 BIS Monitor. The
introduction of the BIS Module Kit in 1998 and the growth of the direct sales
force in 1998 also contributed to the growth in monitor revenue. The increase in
revenue from the sale of disposable sensors was primarily attributable to the
growth in the installed base of monitors, which resulted in an increase of
approximately 309% in the number of disposable sensors sold. An increase of
approximately 49% in the average selling price of the disposable sensors also
contributed to the increase in revenue.

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<PAGE> 26

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 an increase in research and development personnel and related
payroll and other expenses, which represented approximately 30% of the increase,
an increase in consultants expense, which represented approximately 28% of the
increase, and an increase in expenses related to clinical studies, which
represented approximately 15% of the increase. These expenses were incurred in
connection with 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.

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, which represented approximately 68% of the increase, and an
increase in professional education and trade show activities, which together
represented approximately 10% of the increase.

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, which represented
approximately 37% of the increase, an increase in leased space, which
represented approximately 17% of the increase, and an increase in professional
services, which represented approximately 21% of the increase.

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 primarily 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.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited selected operating results for
each of the eight fiscal quarters in the two years ended December 31, 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. Our results of operations have fluctuated in the
past and

25
<PAGE> 27

are likely to continue to fluctuate significantly from quarter to quarter in the
future. Therefore, results of operations for any previous periods are not
necessarily indicative of results of operations to be recorded in the future.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
APRIL 4, JULY 4, OCTOBER 3, DECEMBER 31, APRIL 3, JULY 3, OCTOBER 2, DECEMBER 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- ------- ---------- ------------ -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. $ 1,733 $ 2,687 $ 3,082 $ 3,736 $ 5,327 $ 6,385 $ 7,126 $ 8,349
Gross margin......... 522 1,236 1,620 1,980 3,274 4,202 4,800 5,587
Operating expenses... 3,463 5,109 4,830 5,248 5,674 6,531 6,773 7,241
Net loss............. (2,817) (3,700) (3,942) (3,148) (2,120) (1,964) (1,630) (1,325)
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations primarily from the
sale of our convertible preferred stock. Through December 31, 1999, we raised
approximately $67.6 million from equity financings and have received
approximately $3.4 million in equipment financing and approximately $1.9 million
of financing related to our investments in sales-type leases. We have received
approximately $2.8 million of financing under a term loan in 1999. At December
31, 1999, we had approximately $1.1 million primarily committed to the purchase
of equipment related to the expansion of our automated BIS Sensor production
line.

Working capital at December 31, 1999 was approximately $12.3 million
compared to approximately $19.1 million at December 31, 1998. The decrease in
working capital from December 31, 1998 to December 31, 1999 was primarily
attributable to continued operating losses of approximately $7.0 million and an
increase in accounts payable and accrued liabilities of approximately $3.0
million, offset by increases in net accounts receivable of approximately $2.4
million, investment in sales-type leases of approximately $2.1 million and
inventory of approximately $1.2 million.

We used approximately $7.9 million of cash for operations in 1999. Cash
used for operations during this period was primarily driven by operating losses,
increases in net accounts receivable, investment in sales-type leases and
inventory offset by increases in accounts payable, accrued liabilities and
deferred revenue. We used approximately $29.7 million for operations during the
three years ended December 31, 1999. Cash used for operations during this period
was also primarily driven by operating losses, increases in net 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 $523,000 of cash from investing activities in
1999. We sold approximately $3.1 million, net, of marketable securities and
invested approximately $2.6 million primarily in manufacturing equipment and
information systems. We used approximately $5.5 million for investing activities
during the three years ended December 31, 1999. We invested approximately
$123,000, net, in marketable securities and approximately $5.4 million in
manufacturing equipment, leasehold improvements and new information systems.

We received approximately $3.8 million of cash from financing activities in
1999 primarily as a result of approximately $2.8 million of borrowings under our
term loan and the sale of approximately $1.9 million of our investments in
sales-type leases offset by approximately $900,000 of debt repayments. We
received approximately $47.4 million of cash from financing activities during
the three years ended December 31, 1999. Cash provided by financing activities
during this period was primarily the result of the sale of our convertible
preferred stock and proceeds from our equipment loan and term loan and the sale
of a portion of our investments in sales-type leases in the three year period
ended December 31, 1999.

In December 1999, we renegotiated our loan agreement with Imperial Bank.
Borrowings outstanding at December 31, 1999 of approximately $1.4 million under
the equipment portion of the new loan agreement are payable in monthly
installments of approximately $60,000 plus interest through December 31, 2001.
The working capital portion of the original June 1998 loan agreement was
replaced with a term loan portion. Borrowings under the term loan portion
outstanding at December 31, 1999 of approximately $2.8 million are

26
<PAGE> 28

payable in 36 monthly installments of approximately $79,000 plus interest
commencing January 2000. Interest on both the equipment portion and the term
loan portion of the new loan agreement is at the prime rate plus 1.0% through
the closing date of our initial public offering of common stock. After the
closing of our initial public offering, the interest rate becomes the prime rate
plus 0.5%. The new loan agreement contains restrictive covenants that require us
to maintain liquidity and borrowing base ratios. The new loan agreement also
restricts us from declaring and paying cash dividends. The new loan agreement is
secured by substantially all of our assets. At December 31, 1999, no additional
amounts may be borrowed under the equipment portion or term loan portion of the
new loan agreement. Approximately $1.5 million is available under the standby
letter of credit portion of the new loan agreement.

In July 1999, we entered into an agreement under which we can sell a
portion of our existing and future investments in sales-type leases to AmeriCorp
Financial, Inc. In the second half of 1999, we sold approximately $1.9 million
of our investments in sales-type leases. In accordance with Statement of
Financial Accounting Standards No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, the proceeds from these
sales are classified as debt. Payments on the outstanding principal under this
debt match the timing of the payments due on the underlying investments in
sales-type leases.

We anticipate that capital expenditures for 2000 will be approximately $5.8
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 the first quarter of 2000.

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.

INCOME TAXES

We have net operating loss and research and development tax credit
carryforwards for federal income tax purposes of approximately $47,254,000 and
$1,953,000, respectively, at December 31, 1999 that will expire commencing in
the year 2002 through the year 2019 if not utilized.

The net operating loss and research and development tax credit
carryforwards are subject to review by the Internal Revenue Service. Ownership
changes, as defined in the Internal Revenue Code, may limit the amount of these
tax attributes that can be utilized annually to offset future taxable income or
tax liabilities. The amount of the annual limitation is determined based on our
value immediately prior to the ownership change. Subsequent ownership changes
may further affect the limitation in future years.

YEAR 2000 COMPLIANCE

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,
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<PAGE> 29

- 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.

We have described below steps taken by us to assess our year 2000
readiness. As of January 19, 2000, customers have not reported to us any year
2000 related problems or disruptions with any of our systems or products. In
addition, we are not aware of any year 2000 related problems with any of our
equipment, facilities, material suppliers or sub-contract manufacturers.

State of Readiness. We have assessed the year 2000 readiness of our
operating, financial and administrative systems, including the hardware and
software that support our systems. This review included 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 has conducted an inventory of and test procedures for all
software and related systems believed to 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 was to ensure that these third-party systems are
year 2000 compliant. The internal evaluation has determined that all our
critical hardware and software are year 2000 compliant. We 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 were
upgraded. Our current scientific software has been transferred and validated.

We assessed our non-information technology systems. Some aspects of our
facilities and manufacturing equipment 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
identified the potential problem areas and developed a remediation plan to
correct any issues. This plan included contacting vendors to obtain year 2000
compliance certification for the equipment provided by them as well as executing
date forwarding test protocols to validate the equipment. We completed
distribution of a survey of our material suppliers and sub-contract
manufacturers. All but one survey was returned. Two of the eighteen material
suppliers and sub-contract manufacturers who completed our survey have indicated
that they have year 2000 activities to complete. Overall, based upon their
responses to our survey, we believe our material suppliers and sub-contract
manufacturers are taking the necessary steps to ensure that their systems are
year 2000 compliant so that they will be able to continue providing us with
material and services without interruption or delay.

We did not contact or survey our customers to determine whether their
systems are year 2000 compliant. We do not use electronic data interchange
software with our customers and believe that our risk resulting from our
customer's year 2000 non-compliance is not significant.

Costs. Our costs 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

28
<PAGE> 30

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. 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 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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<PAGE> 31

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 December
31, 1999, more than 5,650 BIS monitors have been installed worldwide, including
4,881 BIS monitors in approximately 675 sites in North America. These sites
include 35 of the 100 largest hospitals and 32% of all teaching hospitals with
anesthesia residency programs. We believe that over 1,000,000 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 original equipment manufacturer 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, which
is 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 consciousness, including
blood pressure and heart rate. This approach cannot always account for
variability in
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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, we believe that there are approximately
91,000 intensive care unit beds, and over 22 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 200 million patients undergo diagnostic and
therapeutic procedures outside the operating room and intensive care unit. We
estimate that sedation is used in approximately 15% of these procedures. We
refer to diagnostic and therapeutic procedures done under sedation 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.
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

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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 continue to complement our direct sales force with medical
products distributors in selected markets, the sales organizations of our
original equipment manufacturers and contracts with hospital group
purchasing organizations. In North America, we had installed 1,926
monitors in approximately 270 sites as of December 31, 1998 and we had
installed 4,881 monitors in approximately 675 sites as of December 31,
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
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for the installed base and to promote use of BIS systems. As of December
31, 1999, we estimate that more than 1,000,000 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 33% of revenue for the year ended
December 31, 1998 to 47% of revenue for the year ended December 31, 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 Original Equipment Manufacturer
Relationships. We have entered into original equipment manufacturer
agreements with Agilent Technologies, Inc., formerly part of
Hewlett-Packard Company, Drager Medizintechnik GmbH, GE Marquette Medical
Systems, Inc., Nihon Kohden Corporation and Spacelabs Medical, Inc. Under
these agreements, our original equipment manufacturers 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 original equipment manufacturer 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 original equipment
manufacturer 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.

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 monitors sold by original
equipment manufacturers
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>

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<PAGE> 35

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
original equipment manufacturers. The BIS Module Kit consists of two pieces, our
proprietary digital signal converter and a small circuit board that resides in
the original equipment manufacturer's system. 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 original equipment manufacturer's system.

The common architecture of the BIS Module Kit facilitates integration of
the BIS index into the original equipment manufacturer's system and simplifies
any future software updates of the BIS index technology. Each original equipment
manufacturer 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

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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.

We conducted two clinical trials in which we evaluated the use of patient
monitoring with the BIS system as a measure of sedation, consciousness and
memory function. 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

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- 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 and others of which we
partially funded, 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 system 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 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. This
hospital is one of our customers. We sold or gave some of the products used in
this study to the hospital.

There are more than 385 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 December 31, 1999, we believe
that more than 1,000,000 patients have been monitored with the BIS system during
surgery. Although we have not systematically solicited reports of surgical
awareness, only 35 cases of possible surgical awareness during BIS monitoring
had been reported to us as of December 31, 1999. 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 35 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

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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 December 31, 1999, BIS systems
have been installed in approximately 675 sites in North America.

We market our BIS system in the United States primarily through a direct
sales force. As of December 31, 1999, our domestic sales force was comprised of
22 sales professionals and 32 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 begun to complement our direct sales force with medical products
distributors in selected markets, including Canada and locations in the United
States not currently targeted by our direct sales force. We have also begun to
market our products through the sales organizations of our original equipment
manufacturers and contracts with hospital group purchasing organizations.

We entered into a distribution agreement, effective October 1, 1999, with
Agilent Technologies, Inc., formerly part of Hewlett-Packard Company, under
which Agilent has agreed to act as a nonexclusive distributor of our A-2000 BIS
Monitor and related products in some territories. Unless earlier terminated in
accordance with the terms of the agreement, this agreement extends for a
two-year term.

We have entered into an agreement, dated August 13, 1998, 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
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.

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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.

For the fiscal years ended December 31, 1998 and 1999, sales to Spacelabs
accounted for approximately 13% and 2%, respectively, of our total revenue. For
the fiscal year ended December 31, 1999, no one customer accounted for 10% or
more of our total revenue.

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 original equipment manufacturer 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 December 31, 1999, we employed 13 persons in our
international organization. Substantially all international sales are
denominated in United States dollars. See Note 16 of notes to our consolidated
financial statements for domestic and international financial information.

ORIGINAL EQUIPMENT MANUFACTURER RELATIONSHIPS

We have entered into agreements with four patient monitoring companies,
Agilent Technologies, Inc., formerly part of Hewlett-Packard Company, GE
Marquette Medical Systems, Inc., 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 four original equipment
manufacturers will be available within the next several years.

Under an OEM Development and Purchase Agreement, dated August 6, 1999,
between Aspect and Agilent, we have agreed with Agilent to integrate our BIS
technology with Agilent's patient monitors. Unless terminated sooner if
milestones are not achieved by October 31, 2001, this agreement expires on
August 6, 2005. The term of the agreement automatically renews for one-year
periods unless either party provides written notice of termination to the other
party, at least 60 days prior to expiration of the agreement.

Under an OEM Development and Purchase Agreement, dated December 22, 1999,
between Aspect and GE Marquette Medical Systems, Inc., we have agreed with GE
Marquette to integrate our BIS technology with GE Marquette's patient monitors.
Unless terminated sooner if milestones are not achieved by October 31, 2001, in
the case of GE Marquette, or December 31, 2000, in the case of Aspect, the
agreement expires three years following the introduction of a GE Marquette
patient monitor which integrates Aspect's BIS technology.

Under an International License Agreement, dated January 21, 1998, between
Aspect and Nihon Kohden, we have licensed our technology to Nihon Kohden on a
worldwide non-exclusive basis. Nihon Kohden has the right to incorporate our
technology into its patient monitoring systems. Unless terminated sooner, the
agreement expires four years following approval by the Japanese Ministry of
Health and Welfare of a Nihon Kohden patient monitor which integrates Aspect's
BIS technology.

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<PAGE> 40

Pursuant to the terms of a Distribution and License Agreement, dated April
1, 1996, between Aspect and Spacelabs Medical, Inc., we have granted to
Spacelabs a worldwide, non-exclusive license to the BIS index to develop,
manufacture, market and sell Spacelabs monitoring equipment that incorporates
the BIS index. Spacelabs also has the right to distribute BIS Sensors on a
non-exclusive basis throughout the world with the exception of the United
States. Unless earlier terminated, the license expires in April 2006.

Under a Product Agreement with Drager Medizintechnik GmbH, dated May 5,
1999, we have agreed to integrate our technology with Drager's patient therapy
and monitoring technology. Unless terminated sooner, this agreement will expire
on December 31, 2005. This agreement automatically renews for successive one-
year periods thereafter unless either party provides written notice of
termination to the other party, at least twelve months prior to expiration of
the renewal period.

For the fiscal years ended December 31, 1997, 1998 and 1999, sales to
Spacelabs accounted for approximately 35%, 13% and 2%, respectively, of our
total revenue.

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, 1997, 1998 and 1999, we spent
approximately $2.6 million, $4.0 million and $4.8 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.

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.

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<PAGE> 41

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 the first quarter of 2000, we expect to move into
approximately 61,000 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 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.

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<PAGE> 42

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 December 31, 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 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> <C>
- --------------------------------------------------------------------------------------------------------
NUMBER NUMBER PATENT
OF ISSUED OF PATENT EXPIRATION
PATENTS APPLICATIONS TECHNOLOGY COVERED DATE
- --------------------------------------------------------------------------------------------------------
4 -- Application of Bispectral and higher order March 13, 2007
analysis and various statistical modeling April 30, 2008
technologies to EEG signals June 14, 2011
October 17, 2012
1 1 Methods of ensuring the reliability of the
computed values December 24, 2016
-- 1 Method of evaluating BIS information to facilitate
clinical decision making
2 -- Application of bispectral and higher order May 15, 2007
analysis to electrocardiogram signals June 4, 2008
1 -- Zipprep self-prepping disposable electrode April 26, 2011
technology
1 1 Technology relating to the interface between the
BIS Sensor and the BIS monitor October 20, 2015
-- 3 BIS Sensor technology
1 -- Signal acquisition technology for digital signal
------ ------ converter October 15, 2012
10 6
------ ------
------ ------
- --------------------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 43

We have also been granted a perpetual, royalty-free, non-exclusive license by
Siemens Medical Systems, Inc. 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
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

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<PAGE> 44

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, including Medicare, Medicaid, private health insurance
carriers, managed care organizations, health care administration authorities in
foreign countries and other organizations, may affect the pricing or demand for
our products by regulating the maximum amount of reimbursement provided for by
these 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 December 31, 1999, we had 184 full-time employees, of which:

- 21 persons were engaged in research and development activities,

- 37 persons were engaged in manufacturing and engineering,

- 11 persons were engaged in clinical and regulatory affairs,

- 90 persons were engaged in sales and marketing and clinical support, and
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<PAGE> 45

- 25 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 seven-year lease
of approximately 61,000 square feet of development, production and
administrative space in Newton, Massachusetts beginning in the first quarter of
2000. We expect to move our operations to this space in the first quarter of
2000. 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 the first quarter of 2000, will 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 claims of these types 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 our insurance coverage limits and our
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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<PAGE> 46

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of Aspect, their respective ages as of
December 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................ 50 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..................... 43 Vice President of Research and Development
Steven H. Kane....................... 47 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.............. 53 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 bachelors

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<PAGE> 47

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
equipment. Mr. Bollen

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<PAGE> 48

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 (Messrs. Coit and McGuire and Dr.
Stanski), three Class II Directors (Messrs. Bollen, Eagle and Kania) and two
Class III Directors (Messrs. Chamoun and Lloyd). 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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<PAGE> 49

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. Our 1998 Director Stock Option Plan was
initially adopted by our board of directors and stockholders in February 1998.
Under the terms of the director plan, our 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. On October 5, 1999, our board of directors
approved an amendment, subject to stockholder approval, to increase to 200,000
shares of common stock the number of shares that may be issued upon exercise of
options granted under the director plan. The amendment was approved by our
stockholders in December 1999. As of December 31, 1999, options to purchase an
aggregate of 55,000 shares of common stock at a weighted average exercise price
of $4.94 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).

48
<PAGE> 50

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 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, 1999, 1998 and 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, 1999, 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...................................... 1999 $200,000 50,000
Chief Executive Officer and President 1998 $190,000 $63,250 110,000
1997 $170,000 $40,000 200,000

J. Breckenridge Eagle.................................. 1999 $175,350 25,000
Chairman of the Board of Directors 1998 $167,000 $41,750 74,500
1997 $157,500 $27,565 --

J. Neal Armstrong...................................... 1999 $171,150 25,000
Vice President, Chief Financial Officer 1998 $163,000 $40,750 37,500
and Secretary 1997 $153,750 $26,910 70,000

Steven H. Kane......................................... 1999 $181,125 38,750
Vice President of Sales and Field Operations 1998 $172,000 $80,935 28,750
1997 $127,153 $58,648 180,000

Paul J. Manberg........................................ 1999 $153,300 20,000
Vice President of Clinical, Regulatory 1998 $146,000 $32,850 27,500
and Quality Assurance 1997 $137,500 $24,065 50,000
</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.

Annual compensation for 1997 and 1998 includes bonuses paid or accrued for
services rendered in those years. Aspect has not yet determined bonuses for
services rendered in 1999.

49
<PAGE> 51

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............ 50,000 5.2% $10.20 10/5/09 $320,736 $812,809
J. Breckenridge Eagle........ 25,000 2.6% $10.20 10/5/09 $160,368 $406,404
J. Neal Armstrong............ 25,000 2.6% $10.20 10/5/09 $160,368 $406,404
Steven H. Kane............... 12,500 1.3% $ 6.00 3/9/09 $ 47,167 $119,531
6,250 .7% $ 7.50 5/14/09 $ 29,479 $ 74,707
20,000 2.1% $10.20 10/5/09 $128,295 $325,123
Paul J. Manberg.............. 20,000 2.1% $10.20 10/5/09 $128,295 $325,123
</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, 1999 by our named executive
officers. There was no public trading market for our common stock as of December
31, 1999. 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, $10.20, 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........ -- -- 124,583 193,750 $1,030,830 $1,117,500
J. Breckenridge Eagle.... -- -- 32,563 66,937 $ 221,278 $ 277,522
J. Neal Armstrong........ -- -- 43,230 74,687 $ 358,548 $ 387,372
Steven H. Kane........... -- -- 16,771 50,729 $ 116,458 $ 176,667
Paul J. Manberg.......... -- -- 41,563 55,937 $ 355,628 $ 279,372
</TABLE>

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 December 31, 1999, 3,360,000 shares of
common stock were authorized for issuance upon exercise of

50
<PAGE> 52

outstanding options under this plan and options to purchase an aggregate of
1,521,356 shares of common stock at a weighted average exercise price of $2.05
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 the amendment is approved by our
stockholders.

1998 Stock Incentive Plan. Our 1998 Stock Incentive Plan was initially
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. On October 5, 1999, our board of directors approved an amendment to
the plan to increase to 3,000,000 the number of shares that may be issued
pursuant to awards granted under this plan. The amendment was approved by our
stockholders in December 1999. As of December 31, 1999, options to purchase an
aggregate of 1,119,324 shares of common stock at a weighted average exercise
price of $8.05 were outstanding under this plan.

51
<PAGE> 53

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.

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.

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 the amendment is approved by our
stockholders.
52
<PAGE> 54

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. On October 5, 1999, our board of directors
approved an amendment to increase to 200,000 shares of common stock the number
of shares that may be issued upon exercise of options granted under the director
plan. The amendment was approved by our stockholders in December 1999. As of
December 31, 1999, options to purchase an aggregate of 55,000 shares of common
stock at a weighted average exercise price of $4.94 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 October 5, 1999 and was approved by the
stockholders in December 1999, to be effective upon the closing of this
offering. The purchase plan provides for the issuance of a maximum of 300,000
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.

53
<PAGE> 55

RELATED-PARTY 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
192,902 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 December 31, 1999, $60,634 of the principal amount of the loan plus
accrued interest was outstanding.

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
December 31, 1999, $65,927 of the principal amount of the loan plus accrued
interest was outstanding.

54
<PAGE> 56

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 December 31, 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 December 31, 1999, 60,000 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 December 31,
1999, $11,813 of the principal amount of the loan plus accrued interest was
outstanding. Pursuant to the terms of the promissory note, on each of September
24, 1998 and 1999 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, 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 these options as collateral for the loan. The loan bears
interest at 8% per annum. As of December 31, 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 of $0.80 per share, up to the number of
shares which have not yet vested. As of December 31, 1999, 36,458 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 December 31, 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.

55
<PAGE> 57

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership
of our common stock as of December 31, 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 December 31, 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 community property laws. 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 3,000,000 shares of common stock being offered for sale in this offering but
assumes no exercise of the underwriters' over-allotment option.

<TABLE>
<CAPTION>
SECURITIES BENEFICIALLY OWNED SECURITIES TO BE BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER OFFERING
---------------------------------------- ----------------------------------------
NUMBER PERCENT NUMBER PERCENT
------------------------------ ------- ------------------------------ -------
STOCK OPTIONS WARRANTS STOCK OPTIONS WARRANTS
--------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Charles River Partnership VII, Limited
Partnership........................... 1,585,953 -- 550 12.3% 1,585,953 -- 550 10.0%
1000 Winter Street, Suite 3300
Waltham, MA 02154
One Liberty Fund III, L.P.(1)........... 1,530,596 -- 275 11.9 1,530,596 -- 275 9.6
OneLiberty Ventures
One Liberty Square
Boston, MA 02109
Polaris Venture Partners, L.P.(2)....... 1,012,143 -- 549 7.9 1,012,143 -- 549 6.4
Bay Colony Corporate Center
1000 Winter Street, Suite 3350
Waltham, MA 02154
QuestMark Partners, L.P.(3)............. 825,000 -- 90,750 7.1 825,000 -- 90,750 5.7
QuestMark Advisers, LLC
One South Street, Suite 800
Baltimore, MD 21202
New Enterprise Associates IV, Limited
Partnership(4)........................ 654,493 -- -- 5.1 654,493 -- -- 4.1
1119 St. Paul Street
Baltimore, MD 21202
Orchid & Co., Nominee for T. Rowe Price
Threshold Fund III, L.P.(5)........... 643,382 -- 2,750 5.0 643,382 -- 2,750 4.1
T. Rowe Price Assoc. Inc.
100 East Pratt
Baltimore, MD 21202

DIRECTORS AND NAMED EXECUTIVE OFFICERS
Nassib G. Chamoun(6).................... 375,490 145,833 -- 4.0% 375,490 145,833 -- 3.3%
J. Breckenridge Eagle(7)................ 210,447 40,347 -- 1.9 210,447 40,347 -- 1.6
Lester John Lloyd(8).................... 47,974 6,667 71 * 47,974 6,667 71 *
Stephen E. Coit......................... 3,572 6,666 -- * 3,572 6,666 -- *
Edwin M. Kania, Jr.(9).................. 1,530,596 6,666 275 11.9 1,530,596 6,666 275 9.7
Donald R. Stanski....................... 20,000 34,000 -- * 20,000 34,000 -- *
</TABLE>

56
<PAGE> 58

<TABLE>
<CAPTION>
SECURITIES BENEFICIALLY OWNED SECURITIES TO BE BENEFICIALLY
PRIOR TO OFFERING OWNED AFTER OFFERING
---------------------------------------- ----------------------------------------
NUMBER PERCENT NUMBER PERCENT
------------------------------ ------- ------------------------------ -------
STOCK OPTIONS WARRANTS STOCK OPTIONS WARRANTS
--------- ------- -------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Terrance McGuire(10).................... 1,012,143 6,666 549 7.9 1,012,143 6,666 549 6.4
J. Neal Armstrong....................... 173,155 51,876 -- 1.7 173,155 51,876 -- 1.4
Steven H. Kane.......................... 210,239 22,084 -- 1.8 210,239 22,084 -- 1.5
Paul J. Manberg(11)..................... 77,636 48,124 -- 1.0 77,636 48,124 -- *
Boudewijn L.P.M. Bollen................. -- 17,500 -- * -- 17,500 -- *
All current executive officers and
directors as a group (15
persons)(12)(13)...................... 3,913,861 496,116 895 33.0 3,913,861 496,116 895 26.9
</TABLE>

- ------------
* Less than 1% of the outstanding common stock.

(1) 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.

(2) Includes 55,111 shares held by Polaris Venture Partners Founders' Fund 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.

(3) Includes 186,661 shares held by QuestMark Partners Side Fund, L.P. and
20,537 shares of common stock subject to a warrant exercisable by QuestMark
Partners Side Fund upon completion of this offering.

(4) 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.

(5) 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.

(6) Includes 50,000 shares of common stock held by The Nassib G. Chamoun 1998
Irrevocable Trust, of which Mr. Chamoun disclaims beneficial ownership.

(7) Includes 35,000 shares of common stock held by Jeanne Warren Eagle as
Trustee for the Trust for John Warren Eagle, of which Mr. Eagle disclaims
beneficial ownership.

(8) 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. Mr. Lloyd also
disclaims beneficial ownership of the warrant, which is held by Lester John
Lloyd and/or Lynne Dewar Lloyd, Trustees or Successor Trustees under the
Lloyd Trust U/A/D 10/05/88.

(9) Includes 1,530,871 shares held by One Liberty. See Note 1 above.

(10) Includes 957,550 shares held by Polaris Venture Partners and 55,142 shares
held by Polaris Venture Partners Founders' Fund. See Note 2 above.

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<PAGE> 59

(11) Includes 3,571 shares of common stock held by Paul Manberg, as Custodian
under the Uniform Transfer to Minors Act, for Shawn Joseph Manberg, and
3,571 shares of common stock held by Paul Manberg, as Custodian under the
Uniform Transfer to Minors Act, for Kate Michelle Manberg.

(12) The foregoing table includes shares of common stock subject to repurchase
by Aspect from certain officers if the officers cease to be employed by or
provide services to Aspect as follows:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
J. Neal Armstrong........................................... 15,000
Steven H. Kane.............................................. 60,000
</TABLE>

(13) The foregoing table does not include shares of common stock underlying
stock options held by certain officers and directors which will not become
exercisable within 60 days of December 31, 1999 as follows:

<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Nassib G. Chamoun........................................... 172,500
J. Breckenridge Eagle....................................... 59,153
Lester John Lloyd........................................... 8,333
Stephen E. Coit............................................. 8,334
Edwin M. Kania, Jr. ........................................ 8,334
Donald R. Stanski........................................... 16,000
Terrance McGuire............................................ 8,334
J. Neal Armstrong........................................... 66,041
Steven H. Kane.............................................. 45,416
Paul J. Manberg............................................. 49,376
Boudewijn L.P.M. Bollen..................................... 22,500
</TABLE>

58
<PAGE> 60

DESCRIPTION OF CAPITAL STOCK

After this offering, we will be authorized to issue 60,000,000 shares of
common stock, $.01 par value per share, and 5,000,000 shares of preferred stock,
$.01 par value per share. As of December 31, 1999, we had outstanding:

- 1,815,840 shares of common stock held by 179 stockholders of record;

- 11,067,238 shares of preferred stock held by 95 stockholders of record;

- options to purchase 2,695,680 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 15,883,078 shares of common stock outstanding,
based on shares outstanding as of December 31, 1999. The options and warrants
will remain outstanding.

The following summary 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, without further stockholder approval,
to issue up to an aggregate of 5,000,000 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> 61

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 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 the meeting,

- stockholder action not be taken by written action in lieu of a meeting,

- 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
60
<PAGE> 62

- 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 a 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 this
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.

61
<PAGE> 63

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 15,917,425 shares of our common stock assuming no exercise of outstanding
options or warrants. Of these shares, the 3,000,000 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
12,917,425 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:

- 71,496 shares which are not subject to the 180-day lock-up period
described below may be sold immediately after completion of
this offering,

- 13,868 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

- 12,832,061 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

Our officers and directors and stockholders holding an aggregate of
12,832,061 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, 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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<PAGE> 64

RULE 144(k)

Shares eligible for sale under Rule 144(k) may be sold immediately upon the
completion of this offering. Under Rule 144(k), a person may sell shares
acquired from us immediately upon completion of this offering, without regard to
manner of sale, the availability of public information or volume, if:

- the person is not one of our affiliates at any time during the three
months preceding a sale, and

- the person 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.

RULE 701

In general, under Rule 701 of the Securities Act of 1933, 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 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 60.

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 6,860,000
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 limitations
as to the volume of shares that may be sold by our affiliates under Rule 144
described above, be available for sale in the open market immediately after the
180-day lock-up period expires.

As of December 31, 1999, options to purchase 2,695,680 shares of common
stock were issued and outstanding. Upon the expiration of the lock-up period
described above, at least 1,380,762 shares of common stock will be subject to
vested options, based on options outstanding as of December 31, 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.

63
<PAGE> 65

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............................................. 3,000,000
=========
</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
customary closing 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 these 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 450,000
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 substantially
all other stockholders 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,

whether any transaction described above is to be settled by delivery of our
common stock or other securities, in cash or otherwise.

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<PAGE> 66

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.

Our common stock has been approved for listing 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. No offer to buy any shares will be accepted and no
part of the purchase price will be received by Morgan Stanley & Co. Incorporated
prior to the date of this prospectus. Individuals purchasing these shares must
commit to the purchase 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.

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.

65
<PAGE> 67

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, 1998 and
1999 and for each of the three years in the period ended December 31, 1999
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.

66
<PAGE> 68

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, 1998 and
1999........................................................ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999 ......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 69

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, 1998 and 1999, and the related statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 20, 2000

F-2
<PAGE> 70

ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1999
1998 1999 (NOTE 2)
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 17,122,993 $ 13,535,364 $ 13,535,364
Marketable securities............................ 4,150,336 1,000,000 1,000,000
Accounts receivable, net of allowance of $200,000
and $407,000 at December 31, 1998 and 1999,
respectively.................................. 2,108,944 4,300,235 4,300,235
Current portion of investment in sales-type
leases........................................ 776,275 1,689,585 1,689,585
Inventory........................................ 270,189 1,514,702 1,514,702
Other current assets............................. 316,773 1,006,023 1,006,023
------------ ------------ ------------
Total current assets..................... 24,745,510 23,045,909 23,045,909
Property and equipment, net........................ 2,121,915 3,449,252 3,449,252
Long-term investment in sales-type leases.......... 1,721,825 2,906,447 2,906,447
------------ ------------ ------------
Total assets............................. $ 28,589,250 $ 29,401,608 $ 29,401,608
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations..... $ 126,775 $ -- $ --
Current portion of long-term debt................ 720,670 2,125,526 2,125,526
Accounts payable................................. 891,943 1,569,093 1,569,093
Accrued liabilities.............................. 3,663,407 5,937,554 5,937,554
Deferred revenue................................. 239,159 1,135,225 1,135,225
------------ ------------ ------------
Total current liabilities................ 5,641,954 10,767,398 10,767,398
------------ ------------ ------------
Deferred revenue................................... 1,817,734 1,682,509 1,682,509
Long-term debt..................................... 1,441,339 3,872,484 3,872,484
------------ ------------ ------------
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred Stock, $.01 par value; (pro forma
5,000,000 shares authorized, no shares issued
or outstanding)............................... -- -- --
Convertible Preferred Stock, $.01 par value;
22,363,224 shares authorized, 11,067,238
shares issued and outstanding at December 31,
1998 and 1999 (pro forma - no shares
authorized, issued or outstanding)............ 67,560,365 67,560,365 --
Common Stock, $.01 par value; 17,030,000 shares
authorized, 1,778,692 and 1,815,840 shares
issued and outstanding at December 31, 1998
and 1999, respectively (pro forma - 60,000,000
shares authorized, 12,883,078 shares issued
and outstanding).............................. 17,787 18,158 128,831
Additional paid-in capital....................... 933,467 1,273,725 68,723,417
Warrants......................................... 146,606 146,606 146,606
Notes receivable from employees and directors.... (306,182) (305,324) (305,324)
Deferred compensation............................ (317,564) (225,111) (225,111)
Accumulated other comprehensive income........... 3,641 -- --
Accumulated deficit.............................. (48,349,897) (55,389,202) (55,389,202)
------------ ------------ ------------
Total stockholders' equity............... 19,688,223 13,079,217 13,079,217
------------ ------------ ------------
Total liabilities and stockholders'
equity................................. $ 28,589,250 $ 29,401,608 $ 29,401,608
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 71

ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Revenue........................................... $ 3,067,573 $ 11,238,205 $27,187,650
Costs and expenses:
Costs of revenue................................ 3,601,569 5,880,288 9,324,111
Research and development........................ 2,603,117 4,041,753 4,847,237
Sales and marketing............................. 4,813,505 10,354,411 16,543,112
General and administrative...................... 2,357,695 4,253,712 4,829,266
------------ ------------ -----------
Total costs and expenses................ 13,375,886 24,530,164 35,543,726
------------ ------------ -----------
Loss from operations.............................. (10,308,313) (13,291,959) (8,356,076)
Interest income................................... 500,485 553,365 1,520,480
Interest expense.................................. (78,027) (94,137) (203,709)
Other expense (Note 19)........................... -- (774,502) --
------------ ------------ -----------
Net loss.......................................... $ (9,885,855) $(13,607,233) $(7,039,305)
============ ============ ===========
Net loss per share:
Basic and diluted............................... $ (15.63) $ (11.70) $ (4.57)
============ ============ ===========
Pro forma basic and diluted..................... $ (0.56)
===========
Shares used in computing net loss per share:
Basic and diluted............................... 632,377 1,162,695 1,538,653
Pro forma basic and diluted..................... 12,605,891
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 72

ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
CONVERTIBLE --------------------
PREFERRED STOCK ADDITIONAL
COMPREHENSIVE ------------------------- PAR PAID-IN
LOSS SHARES AMOUNT SHARES VALUE CAPITAL
------------- ----------- ----------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......................... $ -- 4,207,326 $25,891,270 93,424 $ 934 $ 31,096
Issuance of Series C convertible preferred stock,
net of issuance costs of approximately $61,000... -- 3,439,949 12,834,800 -- -- --
Issuance of common stock upon exercise of common
stock options.................................... -- -- -- 1,454,603 14,546 307,874
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 15,480 338,970
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 2,307 180,595
Deferred compensation related to stock options..... -- -- -- -- -- 758,152
Reversal of unamortized deferred compensation
related to canceled stock options................ -- -- -- -- -- (344,250)
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 17,787 933,467
Issuance of common stock upon exercise of common
stock options.................................... -- -- -- 37,148 371 46,924
Payments on notes receivable from employees and
directors........................................ -- -- -- -- -- --
Deferred compensation related to stock options..... -- -- -- -- -- 293,334
Amortization of deferred compensation related to
stock options.................................... -- -- -- -- -- --
Comprehensive loss:
Net loss........................................... (7,039,305) -- -- -- -- --
Other comprehensive loss -
Unrealized loss on marketable securities......... (3,641) -- -- -- -- --
------------
Comprehensive loss................................. $ (7,042,946) -- -- -- -- --
----------- ----------- ---------- ------- ----------
Balance, December 31, 1999.......................... 11,067,238 $67,560,365 1,815,840 $18,158 $1,273,725
=========== =========== ========== ======= ==========

<CAPTION>
NOTES
RECEIVABLE ACCUMULATED
FROM OTHER
EMPLOYEES DEFERRED COMPREHENSIVE ACCUMULATED
WARRANTS AND DIRECTORS COMPENSATION INCOME(LOSS) DEFICIT
-------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.......................... $ -- $ -- $ -- $ (162) $(24,856,809)
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.................................... -- (273,579) -- -- --
Comprehensive loss:
Net loss........................................... -- -- -- -- (9,885,855)
Other comprehensive income -
Unrealized gain on marketable securities......... -- -- -- 3,260 --
Comprehensive loss................................. -- -- -- -- --
-------- --------- --------- ------- ------------
Balance, December 31, 1997.......................... -- (273,579) -- 3,098 (34,742,664)
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.................................... -- (63,001) -- -- --
Deferred compensation related to stock options..... -- -- (758,152) -- --
Reversal of unamortized deferred compensation
related to canceled stock options................ -- -- 344,250 -- --
Payments on notes receivable....................... -- 30,398 -- -- --
Amortization of deferred compensation related to
stock options.................................... -- -- 96,338 -- --
Comprehensive loss:
Net loss........................................... -- -- -- -- (13,607,233)
Other comprehensive income -
Unrealized gain on marketable securities......... -- -- -- 543 --
Comprehensive loss................................. -- -- -- -- --
-------- --------- --------- ------- ------------
Balance, December 31, 1998.......................... 146,606 (306,182) (317,564) 3,641 (48,349,897)
Issuance of common stock upon exercise of common
stock options.................................... -- -- -- -- --
Payments on notes receivable from employees and
directors........................................ -- 858 -- -- --
Deferred compensation related to stock options..... -- -- (293,334) -- --
Amortization of deferred compensation related to
stock options.................................... -- -- 385,787 -- --
Comprehensive loss:
Net loss........................................... -- -- -- -- (7,039,305)
Other comprehensive loss -
Unrealized loss on marketable securities......... -- -- -- (3,641) --
Comprehensive loss................................. -- -- -- -- --
-------- --------- --------- ------- ------------
Balance, December 31, 1999.......................... $146,606 $(305,324) $(225,111) $ -- $(55,389,202)
======== ========= ========= ======= ============

TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance, December 31, 1996.......................... $ 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)
Other comprehensive income -
Unrealized gain on marketable securities......... 3,260
Comprehensive loss................................. --
------------
Balance, December 31, 1997.......................... 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)
Other comprehensive income -
Unrealized gain on marketable securities......... 543
Comprehensive loss................................. --
------------
Balance, December 31, 1998.......................... 19,688,223
Issuance of common stock upon exercise of common
stock options.................................... 47,295
Payments on notes receivable from employees and
directors........................................ 858
Deferred compensation related to stock options..... --
Amortization of deferred compensation related to
stock options.................................... 385,787
Comprehensive loss:
Net loss........................................... (7,039,305)
Other comprehensive loss -
Unrealized loss on marketable securities......... (3,641)
Comprehensive loss................................. --
------------
Balance, December 31, 1999.......................... $ 13,079,217
============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 73

ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (9,885,855) $(13,607,233) $(7,039,305)
Adjustments to reconcile net loss to net cash
used for operating activities -
Depreciation and amortization................ 192,571 623,133 1,296,296
Provision for doubtful accounts.............. 14,333 146,500 212,100
Compensation expense related to stock
options.................................... -- 96,338 385,787
Changes in assets and liabilities -
Increase in accounts receivable............ (437,525) (1,536,272) (2,403,392)
Decrease (increase) in inventory........... 763,483 117,290 (1,244,513)
Increase in other current assets........... (108,343) (70,811) (689,250)
Increase in investment in sales-type
leases.................................. (345,466) (2,152,634) (2,097,932)
Increase (decrease) in accounts payable.... 459,778 (227,112) 677,150
Increase in accrued liabilities............ 776,260 2,162,816 2,274,147
(Decrease) increase in deferred revenue.... (180,000) 1,413,893 760,841
------------ ------------ -----------
Net cash used for operating
activities............................ (8,750,764) (13,034,092) (7,868,071)
------------ ------------ -----------
Cash flows from investing activities:
Acquisition of property and equipment........... (958,271) (1,821,489) (2,623,633)
Purchases of marketable securities.............. (65,379,625) (42,947,415) (1,810,895)
Proceeds from sales of marketable securities.... 61,647,164 43,410,084 4,957,593
------------ ------------ -----------
Net cash (used for) provided by
investing activities.................. (4,690,732) (1,358,820) 523,065
------------ ------------ -----------
Cash flows from financing activities:
Principal payments on capital lease
obligations.................................. (427,558) (145,811) (126,775)
Proceeds from term loan......................... -- -- 2,827,399
Proceeds from equipment loan.................... -- 2,162,009 --
Principal payments on equipment loan............ -- -- (720,672)
Proceeds from sale of investment in sales-type
leases....................................... -- -- 1,852,092
Principal payments on debt related to investment
in sales-type leases......................... -- -- (122,820)
Proceeds from issuance of convertible preferred
stock and warrants, net of issuance costs.... 12,834,800 28,980,901 --
Proceeds from issuance of common stock.......... 48,841 119,901 47,295
Payments received on notes receivable from
employees and directors...................... -- 30,398 858
------------ ------------ -----------
Net cash provided by financing
activities............................ 12,456,083 31,147,398 3,757,377
------------ ------------ -----------
Net (decrease) increase in cash and cash
equivalents..................................... (985,413) 16,754,486 (3,587,629)
Cash and cash equivalents, beginning of period.... 1,353,920 368,507 17,122,993
------------ ------------ -----------
Cash and cash equivalents, end of period.......... $ 368,507 $ 17,122,993 $13,535,364
============ ============ ===========
Supplemental disclosure of cash flow information:
Interest paid................................... $ 78,027 $ 94,137 $ 203,709
============ ============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 74

ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 $9,885,855, $13,607,233 and $7,039,305
for the years ended December 31, 1997, 1998 and 1999, respectively. At December
31, 1999, the Company had an accumulated deficit of $55,389,202. 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:

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 60,000,000 shares of common stock
and 5,000,000 shares of preferred stock, the terms of which will not be
designated. The unaudited pro forma balance sheet information at December 31,
1999 reflects the conversion of all series of preferred stock into 11,067,238
shares of common stock as if the conversion occurred on December 31, 1999.

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.

F-7
<PAGE> 75
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1998 and 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.

ADVERTISING COSTS

Advertising costs are expensed as incurred. These costs are included in
sales and marketing expense in the consolidated statements of operations.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the related equipment.
Equipment held under capital leases is stated at the lower of the fair market
value of the equipment or the present value of the minimum lease payments at the
inception of the lease and is amortized on a straight-line basis over the
shorter of the lives of the related assets or the term of the leases.
Maintenance and repair expenditures are charged to expense as incurred.

INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequences, utilizing
currently enacted tax rates, of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Deferred tax assets are
recognized, net of any valuation allowance, for the estimated future tax effects
of deductible temporary differences and tax operating loss and credit
carryforwards.

CONCENTRATION OF CREDIT RISK, SIGNIFICANT CUSTOMER AND SINGLE OR LIMITED
SOURCE SUPPLIERS

Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of trade accounts receivable, investment in
sales-type lease receivables and investments. To minimize the risk with respect
to accounts receivable and investment in sales-type lease receivables, the
Company maintains reserves for potential credit losses and such losses, in the
aggregate, have not exceeded management's expectations. The Company maintains
cash, cash equivalents and investments with various financial institutions. The
Company performs periodic evaluations of the relative credit quality of
investments
F-8
<PAGE> 76
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1998 and 1999, accounts receivable from one of the
Company's international distributors accounted for approximately 14% and less
than 1%, respectively, of the total amounts due to the Company. For the years
ended December 31, 1997, 1998 and 1999, sales to this customer accounted for
approximately 35%, 13% and 2%, respectively, of the Company's total revenue.
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 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.

RECLASSIFICATIONS

Certain amounts in the prior years' financial statements have been
reclassified to conform with current year presentation.

F-9
<PAGE> 77
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) CASH EQUIVALENTS AND MARKETABLE SECURITIES

Cash and cash equivalents consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash...................................................... $11,122,993 $13,535,364
Certificates of deposit................................... 6,000,000 --
----------- -----------
$17,122,993 $13,535,364
=========== ===========
</TABLE>

Available-for-sale securities included in marketable securities at December
31, 1998 and 1999 consist of the following:

<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ====== ===== ==========
December 31, 1999 --
U.S. Government debt securities............ $1,000,000 $ -- $ -- $1,000,000
---------- ------ ----- ----------
$1,000,000 $ -- $ -- $1,000,000
========== ====== ===== ==========
</TABLE>

The amortized cost and estimated fair value of investments in debt
securities at December 31, 1999, by contractual maturity, were as follows:

<TABLE>
<CAPTION>
ESTIMATED
FAIR
COST VALUE
----------- ----------
<S> <C> <C>
Maturing in one to two years................................ $1,000,000 $1,000,000
---------- ----------
$1,000,000 $1,000,000
========== ==========
</TABLE>

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,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Total minimum lease payments receivable............. $3,300,533 $5,737,674
Less -- unearned interest........................... 802,433 1,141,642
---------- ----------
Net investment in sales-type leases................. 2,498,100 4,596,032
Less -- current portion........................... 776,275 1,689,585
---------- ----------
$1,721,825 $2,906,447
========== ==========
</TABLE>

F-10
<PAGE> 78
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments due under non-cancelable leases as of
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
2000........................................................ $2,202,273
2001........................................................ 1,624,736
2002........................................................ 1,055,141
2003........................................................ 683,694
2004........................................................ 171,830
----------
$5,737,674
==========
</TABLE>

(5) INVENTORY

Inventory consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- ----------
<S> <C> <C>
Raw materials............................................... $165,682 $ 421,117
Work-in-progress............................................ -- 100,586
Finished goods.............................................. 104,507 992,999
-------- ----------
$270,189 $1,514,702
======== ==========
</TABLE>

(6) PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE --------------------------
IN YEARS 1998 1999
---------------------------- ----------- -----------
<S> <C> <C> <C>
Computer equipment...................... 3 $ 1,626,676 $ 2,173,878
Construction in progress................ -- 98,866 1,456,784
Machinery and equipment................. 3 to 5 887,046 1,467,425
Furniture and fixtures.................. 3 308,656 387,431
Shorter of the life of the
lease or the estimated
Leasehold improvements.................. remaining useful life 273,313 298,198
----------- -----------
3,194,557 5,783,716
Accumulated depreciation and
amortization.......................... (1,072,642) (2,334,464)
----------- -----------
$ 2,121,915 $ 3,449,252
=========== ===========
</TABLE>

At December 31, 1998 and 1999, property and equipment held under capital
leases totaled approximately $86,944. Accumulated depreciation of these assets
totaled approximately $67,850 and $86,944 at December 31, 1998 and 1999,
respectively.

F-11
<PAGE> 79
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) INCOME TAXES

Deferred income tax assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforwards........................ $ 16,693,000 $ 16,895,000
Tax credit carryforwards................................ 1,292,000 1,953,000
Other................................................... 1,507,000 2,125,000
------------ ------------
Gross deferred tax assets............................. 19,492,000 20,973,000
Valuation allowance................................... (19,492,000) (20,973,000)
------------ ------------
Net deferred tax asset................................ $ -- $ --
============ ============
</TABLE>

The Company has provided a full valuation allowance against its gross
deferred tax assets at December 31, 1998 and 1999 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 $47,254,000 and
1,953,000, respectively, at December 31, 1999 that will expire commencing in the
year 2002 through the year 2019 if not utilized.

The net operating loss and research and development tax credit
carryforwards are subject to review by the Internal Revenue Service. Ownership
changes, as defined in the Internal Revenue Code, may limit the amount of these
tax attributes that can be utilized annually to offset future taxable income or
tax liabilities. The amount of the annual limitation is determined based on the
Company's value immediately prior to the ownership change. Subsequent ownership
changes may further affect the limitation in future years.

(8) STOCKHOLDERS' EQUITY

AUTHORIZED CAPITAL STOCK

As of December 31, 1999, 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.

F-12
<PAGE> 80
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONVERTIBLE PREFERRED STOCK

Convertible preferred stock outstanding consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <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
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
Series C convertible preferred stock; 3,439,949 shares
issued and outstanding, at issuance price, net of issuance
costs..................................................... 12,834,800 12,834,800
Series D convertible preferred stock; 1,666,234 shares
issued and outstanding, at issuance price, net of issuance
costs..................................................... 11,573,816 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
----------- -----------
$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.

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 which occurs either (i) prior to June 30,
2000 and which results in gross proceeds of at least $20,000,000 or (ii) after

F-13
<PAGE> 81
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

June 30, 2000 and 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. Upon the automatic conversion of the
Company's convertible preferred stock into common stock at the time of an
initial public offering, the number of authorized but unissued shares of
convertible preferred stock will be reduced to zero.

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.

COMMON STOCK

At December 31, 1999, the Company has reserved 11,067,238 shares of common
stock for issuance upon conversion of the preferred stock, 4,831,164 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

At December 31, 1999, the Company's stock option plans provided for the
granting, at the discretion of the Board of Directors, of options for the
purchase of up to 6,560,000 shares of common stock to employees, directors and
advisors. Option prices are determined by the Board of Directors. At December
31, 1999, 2,135,484 shares were available for future grant under the Company's
stock option plans.

F-14
<PAGE> 82
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 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........................................... 961,415 6.00-11.05 8.84
Exercised......................................... (37,148) .20-6.00 1.27
Canceled.......................................... (65,603) .375-11.05 4.66
---------- ----------- -----
Outstanding, December 31, 1999...................... 2,695,680 $.20-$45.83 $4.60
========== =========== =====
Exercisable, December 31, 1997...................... 170,747 $.20-$45.83 $ .96
Exercisable, December 31, 1998...................... 406,706 $.20-$45.83 $ .83
Exercisable, December 31, 1999...................... 989,572 $.20-$45.83 $2.27
</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.

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
December 31, 1999, an aggregate of 116,719 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.

F-15
<PAGE> 83
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of outstanding and exercisable options as of December 31, 1999 is
as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
EXERCISE NUMBER CONTRACTUAL NUMBER
PRICE OUTSTANDING LIFE EXERCISABLE
-------- ----------- ----------- -----------
<S> <C> <C> <C>
$0.20 186,085 6.36 169,539
0.375 99,604 7.39 65,407
0.80 570,051 7.79 308,364
2.80 185,257 8.28 96,792
4.20 719,706 7.91 272,740
6.00 212,219 9.15 49,051
7.50 127,791 8.01 18,459
10.20 575,747 9.78 9,000
11.05 19,000 9.55 --
16.67 207 .63 207
45.83 13 4.25 13
--------- ----- -------
$0.20-$45.83 2,695,680 8.30 989,572
</TABLE>

In 1998, the Company recorded deferred compensation in connection with
certain stock option grants, of approximately $506,250, which represents the
aggregate difference between the estimated fair market value of the common stock
and the exercise price of the stock options. 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. In
1998 and 1999, the Company recorded additional deferred compensation of
approximately $252,000 and $293,300, respectively, which represents the
estimated fair value of stock options granted to non-employees. The remaining
unamortized deferred compensation of $225,111 at December 31, 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 1997,
1998 and 1999 using the Black-Scholes option-pricing model prescribed by SFAS
No. 123. The following table shows the weighted average assumptions used in the
applicable periods and the weighted average fair market value of the options
granted in each period.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
----------- ------- --------------
<S> <C> <C> <C>
Risk-free interest rate................................... 6.5%-6.75% 5.47% 4.34%-5.91%
Expected dividend yield................................... -- -- --
Expected life............................................. 7 years 7 years 7 years
Expected volatility....................................... 60% 60% 60%
Weighted average fair market value of options granted..... $0.48 $1.92 $6.29
</TABLE>

F-16
<PAGE> 84
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------------ ------------ -----------
<S> <C> <C> <C>
Net loss
As reported....................................... $ (9,885,855) $(13,607,233) $(7,039,305)
============ ============ ===========
Pro forma....................................... $(10,073,236) $(13,842,377) $(7,901,550)
============ ============ ===========
Basic and diluted net loss per common share
As reported..................................... $ (15.63) $ (11.70) $ (4.57)
============ ============ ===========
Pro forma....................................... $ (16.54) $ (11.91) $ (5.14)
============ ============ ===========
Pro forma basic and diluted net loss per common
share
As reported..................................... $ (.56)
===========
Pro forma....................................... $ (.63)
===========
</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.

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. At December 31, 1999, the Incentive Plan provided for the granting, at
the discretion of the Compensation Committee, of options for the purchase of up
to 3,000,000 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

F-17
<PAGE> 85
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

nonstatutory options to purchase shares of common stock. At December 31, 1999, a
total of 200,000 shares of common stock could 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.

1999 EMPLOYEE STOCK PURCHASE PLAN

In December 1999, the Company adopted its 1999 Employee Stock Purchase Plan
(the "Purchase Plan"), subject to the closing of its initial public offering.
The Purchase Plan allows eligible employees the right to purchase shares of
common stock at the lower of 85% of the closing price per share of common stock
on the first or last day of an offering period. Each offering period is six
months. An aggregate of 300,000 shares of common stock have been reserved for
issuance pursuant to the Purchase Plan.

(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 both the domestic
and the international markets. These agreements have terms ranging from two to
ten years. In connection with these agreements, approximately $1,770,000 and
$2,674,000 in revenue was deferred as of December 31, 1998 and 1999,
respectively. The deferred revenue relates to prepayments for monitoring systems
under minimum purchase obligations and also includes prepaid license and royalty
fees. The deferred revenue will be recognized upon product shipment and as
license and royalty fees are earned. License and royalty fees are related to
future technological developments and will be recognized upon shipment of units
incorporating 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, 1997, 1998 and 1999.

F-18
<PAGE> 86
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases office space under operating leases that expire in
October 2000. Rent expense was approximately $346,000, $414,000 and $440,000 in
1997, 1998 and 1999, respectively. The Company has entered into a seven-year
lease of approximately 61,000 square feet of development, production and
administrative space beginning in the first quarter of 2000. Future gross
minimum lease commitments for all operating leases as of December 31, 1999 are
as follows:

<TABLE>
<S> <C>
2000..................................................... $1,156,541
2001..................................................... 996,171
2002..................................................... 1,021,197
2003..................................................... 996,180
2004..................................................... 952,306
Thereafter............................................... 1,848,597
----------
Total minimum lease payments............................. $6,970,992
==========
</TABLE>

SUBLEASES

During 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 1997 approximated $113,000. 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, 1998 and 1999 was approximately $138,000 and
$131,000, respectively.

(15) ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Payroll and payroll-related......................... $1,220,000 $2,390,343
Clinical studies.................................... 254,000 255,500
Warranty............................................ 599,037 1,348,000
Other............................................... 1,590,370 1,943,711
---------- ----------
$3,663,407 $5,937,554
========== ==========
</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.

F-19
<PAGE> 87
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Revenue by geographic destination and as a percentage of total revenue is
as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
Domestic..................................... $1,881,409 $10,296,424 $24,629,484
International.............................. 1,186,164 941,781 2,558,166
---------- ----------- -----------
$3,067,573 $11,238,205 $27,187,650
========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
GEOGRAPHIC AREA BY DESTINATION
Domestic..................................... 61% 92% 91%
International.............................. 39 8 9
--- --- ---
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, 1997........................... $ 50,000 $ 14,333 $1,933 $ 62,400
December 31, 1998......................... 62,400 146,500 8,900 200,000
December 31, 1999......................... 200,000 212,100 5,100 407,000
</TABLE>

(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 could borrow up to
$5.0 million for working capital and equipment. At December 31, 1998, the
Company had outstanding approximately $2,162,000 under the equipment portion of
the loan agreement and there were no borrowings under the working capital
portion of the loan agreement.

In December 1999, the Company renegotiated its loan agreement with the
bank. Borrowings outstanding at December 31, 1999 of approximately $1.4 million
under the equipment portion of the new loan agreement are payable in monthly
installments of approximately $60,000 plus interest through December 31, 2001.
The working capital portion of the original loan agreement was replaced with a
term loan portion. Borrowings under the term loan portion outstanding at
December 31, 1999 of approximately $2.8 million are payable in 36 monthly
installments of approximately $79,000 plus interest commencing January 2000.
Interest on both the equipment portion and the term loan portion of the new loan
agreement is at the prime rate plus 1.0% (9.5% at December 31, 1999) 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 plus 0.5%. At December 31, 1999, no additional amounts may be
borrowed under the equipment portion or term loan portion of the new loan
agreement. Approximately $1.5 million is available under the standby letter of
credit portion of the new loan agreement.

The new loan agreement contains restrictive covenants that require the
Company to maintain liquidity and borrowing base ratios. The new loan agreement
also restricts the Company from declaring and paying cash dividends. The new
loan agreement is secured by substantially all of the Company's assets.

F-20
<PAGE> 88
ASPECT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In July 1999, the Company entered into an agreement under which it can sell
a portion of its existing and future investments in sales-type leases to a
third-party finance company. In the second half of 1999, the Company sold
approximately $1.9 million of investments in sales-type leases. In accordance
with Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
the proceeds from these sales are classified as debt. Payments on the
outstanding principal under this debt match the timing of the payments due on
the underlying investments in sales-type leases.

Future principal payments under the Company's debt agreements are as
follows:

<TABLE>
<S> <C>
2000..................................................... $2,125,526
2001..................................................... 2,146,209
2002..................................................... 1,345,792
2003..................................................... 315,224
2004..................................................... 65,259
----------
Total principal payments................................. $5,998,010
==========
</TABLE>

(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> 89

[Aspect Medical Systems LOGO]
<PAGE> 90

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........................................ $ 12,405
NASD filing fee........................................ 4,985
Nasdaq National Market listing fee..................... 95,000
Blue Sky fees and expenses............................. 15,000
Transfer Agent and Registrar fees...................... 2,000
Accounting fees and expenses........................... 250,000
Legal fees and expenses................................ 350,000
Printing and mailing expenses.......................... 150,000
Miscellaneous.......................................... 20,610
--------
Total............................................. $900,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article EIGHTH of the Registrant's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.

Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.

Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within 60 days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether

II-1
<PAGE> 91

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.

Some of the transactions described below involved directors, officers and
5% stockholders of the Registrant. See "Related-Party 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 December 31, 1999, options to purchase 1,719,466 shares of
Common Stock had been exercised for an aggregate consideration of $649,969 and
options to purchase 1,521,356 shares of Common Stock, at a weighted average
exercise price of $2.05 per share, were outstanding under the plan.

II-2
<PAGE> 92

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
December 31, 1999, options to purchase 4,370 shares of Common Stock had been
exercised for an aggregate consideration of $21,533 and options to purchase
1,119,324 shares of Common Stock, at a weighted average exercise price of $8.05
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 December 31, 1999, options to purchase 5,000 shares of Common Stock
had been exercised for an aggregate consideration of $14,000 and options to
purchase 55,000 shares of Common Stock, at a weighted average exercise price of
$4.94 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:

II-3
<PAGE> 93

<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 and Security Agreement, dated as of December 10, 1999,
by and between the Registrant and Imperial Bank; together
with an Intellectual Property Security Agreement, dated as
of December 10, 1999, by and between the Registrant and
Imperial Bank and a Securities Account Control Agreement,
dated as of December 10, 1999, 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.
10.25+ Medical Products Distribution Agreement, dated October 1,
1999, between Hewlett-Packard Company and the Registrant.
</TABLE>

II-4
<PAGE> 94

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.26+ OEM Development and Purchase Agreement, dated December 22,
1999, by and between the Registrant and GE Marquette Medical
Systems, Inc.
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.
27.1** Financial Data Schedule for fiscal year end December 31,
1998.
27.2 Financial Data Schedule for fiscal year end December 31,
1999.
</TABLE>

- ------------

+ 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.

** Previously filed.

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> 95

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 5 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Natick,
Massachusetts on January 20, 2000.

ASPECT MEDICAL SYSTEMS, INC.

By: /s/ J. NEAL ARMSTRONG
------------------------------------
J. Neal Armstrong
Vice President and Chief Financial
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 5 to 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 January 20, 2000
- --------------------------------------------------- Officer and Director
Nassib G. Chamoun (Principal Executive Officer)

/s/ J. BRECKENRIDGE EAGLE* Chairman of the Board of January 20, 2000
- --------------------------------------------------- Directors
J. Breckenridge Eagle

/s/ J. NEAL ARMSTRONG Vice President and Chief January 20, 2000
- --------------------------------------------------- Financial Officer (Principal
J. Neal Armstrong Financial and Accounting
Officer)

/s/ BOUDEWIJN L.P.M. BOLLEN* Director January 20, 2000
- ---------------------------------------------------
Boudewijn L.P.M. Bollen

/s/ STEPHEN E. COIT* Director January 20, 2000
- ---------------------------------------------------
Stephen E. Coit

/s/ EDWIN M. KANIA* Director January 20, 2000
- ---------------------------------------------------
Edwin M. Kania

/s/ LESTER J. LLOYD* Director January 20, 2000
- ---------------------------------------------------
Lester J. Lloyd

/s/ TERRANCE MCGUIRE* Director January 20, 2000
- ---------------------------------------------------
Terrance McGuire

/s/ DONALD STANSKI* Director January 20, 2000
- ---------------------------------------------------
Donald Stanski

*By: /s/ J. NEAL ARMSTRONG
---------------------------------------------
J. Neal Armstrong
Attorney-In-Fact
</TABLE>

II-6
<PAGE> 96

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 Agilent
Technologies, Inc. (formerly part of Hewlett-Packard
Company).
10.8+ Letter Agreement, dated August 3, 1999, by and between the
Registrant and Agilent Technologies, Inc. (formerly part of
Hewlett-Packard Company).
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 and Security Agreement, dated as of December 10, 1999,
by and between the Registrant and Imperial Bank; together
with an Intellectual Property Security Agreement, dated as
of December 10, 1999, by and between the Registrant and
Imperial Bank and a Securities Account Control Agreement,
dated as of December 10, 1999, 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> 97

<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.
10.25+ Medical Products Distribution Agreement, dated October 1,
1999, between Hewlett-Packard Company and the Registrant.
10.26+ OEM Development and Purchase Agreement, dated December 22,
1999, by and between the Registrant and GE Marquette Medical
Systems, Inc.
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.
27.1** Financial Data Schedule for fiscal year end December 31,
1998.
27.2 Financial Data Schedule for fiscal year end December 31,
1999.
</TABLE>

- ------------

** Previously filed.

<PAGE> 1
Exhibit 10.2

Aspect Medical Systems, Inc.
has requested that the marked portions of this agreement be granted confidential
treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.

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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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 no more than [**], 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[**], on a one-time basis, 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 50 A-1050 and/or A-2000 monitors to be purchased by NK
pursuant to this Agreement. Such additional pre-payment shall be paid to Aspect
on the earlier of: (A) the date on which the first 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

(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, NK shall
not, directly or indirectly, develop, market or manufacture monitoring
equipment, either as stand-alone monitors or as modules for monitors which is
designed to (x) monitor the depth or effects of anesthesia being administered to
patients; and (y) indicate any index of the depth or effects of anesthesia to
assist anesthesiologists to evaluate the depth or effects of anesthesia;
PROVIDED, HOWEVER, that: (I) NK shall be permitted, at any time, to develop
monitoring equipment designed to monitor the depth or effects of anesthesia
using physiological measures other than EEG; (II) NK shall be permitted, at any
time, to market and manufacture monitoring equipment designed to monitor the
depth or effects of anesthesia using physiological measures other than EEG, so
long as such equipment has been developed and manufactured by NK; (III) NK shall
be permitted after the expiration or termination of this Agreement to
manufacture and market monitoring equipment developed and manufactured by NK or
by any third party that is designed to monitor the depth or effects of
anesthesia using physiological measures other than EEG; and (IV) NK shall be
permitted to continue to market and improve its existing EEG monitors and
modules. Specifically, it will not be considered a violation of this Section
3(f) for NK to market and improve its existing EEG monitors or modules that
display any of the following parameters of brain function: EEG, EEG trends, CSA,
DSA, EP, EMG, or NCV, 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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(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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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 the greater of: (i)
[**] monitors, [**] monitors or any combination
thereof; and (ii) [**] monitors in the United States
in the immediately preceding [**].

(B) For the second (2nd) Contract Year, NK's minimum
purchase requirement shall be the greater of: (i)
[**] monitors, [**] monitors or any combination
thereof; and (ii) [**] monitors in the United States
in the immediately preceding [**].

(C) For the third (3rd) Contract Year, NK's minimum
purchase requirement shall be the greater of: (i)
[**] monitors, [**] monitors or any combination
thereof; and (ii) [**] the United States in the
immediately preceding [**].

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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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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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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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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<PAGE> 20

ACCESSORIES CONTINUED:

PRINTER INTERFACE CABLE:

DB25 parallel port, Centronics 36, shielded

PERMANENT THERMAL PAPER: 4 ROLLS/CASE

100 feet per roll
For use with Printrex printer

PERMANENT THERMAL PAPER: 8 ROLLS/CASE

100 feet per roll
For use with Printrex printer

A-1050 OPERATOR'S MANUAL - ENGLISH

A-1050 SERVICE MANUAL - ENGLISH

GCX POLYMOUNT ROLL STAND FOR THE A-1050 MONITOR

Includes:
Baseweight for added stability
Roll stand handle
12" X 8" X 3.5" basket

GCX POLYMOUNT ROLL STAND ADAPTER FOR THE PRINTREX PRINTER

Includes:
6" utility basket

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<PAGE> 21
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.

EXHIBIT B: PRICE LIST

MONITORING SYSTEM COMPONENTS PRICE
---------------------------- -----

A-1050(TM) MONITOR WITH THE BISPECTRAL INDEX(TM) (BIS(TM)) [**]
Includes:
(1) A-1050 BIS(TM) (Bispectral Index(TM)) Monitor with power cord
(1) Digital Signal Converter (DSC-2) with cable
(1) A-1050 Operator's Manual-English
MONITOR AND DIGITAL SIGNAL CONVERTER INCLUDE ONE YEAR WARRANTY

A-1050 DIGITAL SIGNAL CONVERTER (DSC-2) [**]
INCLUDES ONE YEAR WARRANTY

A-2000(TM) MONITOR WITH THE BISPECTRAL INDEX(TM) (BIS(TM)) TO BE DETERMINED
Includes:
(1) A-2000 BIS(TM) (Bispectral Index(TM)) Monitor with power cord
(1) Digital Signal Converter (DSC-2) with cable
(1) A-2000 Operator's Manual-English
MONITOR AND DIGITAL SIGNAL CONVERTER INCLUDE ONE YEAR WARRANTY

A-2000 DIGITAL SIGNAL CONVERTER (DSC-2) TO BE DETERMINED
INCLUDES ONE YEAR WARRANTY

ACCESSORIES

BIS SENSOR(TM): 1 CASE [**]
1 case contains 50 sensors (25/box, 2 boxes/cases)

BIS SENSOR PATIENT INTERFACE CABLE (PIC-S) [**]

ZIPPREP(TM) SELF-PREPPING, DISPOSABLE ELECTRODES: 1 CASE [**]
1 case contains 60 packs (15/box, 4 boxes/case)

2-CHANNEL BIPOLAR PATIENT INTERFACE CABLE [**]
For use with Zipprep electrodes

PRINTREX INKLESS, NON-IMPACT THERMAL PRINTER WITH INTEGRAL
ROLL PAPER
Compatible for use with the A-1050. Includes
one Centronics parallel port interface cable.

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<PAGE> 22

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.

INCLUDES ONE YEAR WARRANTY

PRINTER INTERFACE CABLE: [**]
DB25 parallel port, Centronics 36, shielded

PERMANENT THERMAL PAPER: 4 ROLLS/CASE [**]
100 feet per roll
For use with Printrex printer

PERMANENT THERMAL PAPER: 8 ROLLS/CASE [**]
100 feet per roll
For use with Printrex printer

A-1050 OPERATOR'S MANUAL - ENGLISH [**]

A-1050 SERVICE MANUAL - ENGLISH [**]

GCX POLYMOUNT ROLL STAND FOR THE A-1050 MONITOR [**]
Includes:
Baseweight for added stability
Roll stand handle
12" x 8" x 3.5" basket

GCX POLYMOUNT ROLL STAND ADAPTER FOR THE PRINTREX PRINTER [**]
Includes:
6" utility basket

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<PAGE> 23

EXHIBIT C:

WARRANTY

Aspect warrants to the initial Purchaser that the A-1050 EEG monitor, the A-2000
monitor, and the Digital Signal Converter ("Warranted Product") will be free
from defects in workmanship or materials, when given normal, proper, and
intended usage for a period of 18 months from the date of its initial shipment
to Purchaser or 12 months from the date of resale by Purchaser, whichever period
first expires. Excluded from this warranty are expendable components and supply
items such as, but not limited to, electrodes, cables, and prep solutions.
Aspect's obligations under this warranty are to repair or replace any Warranted
Product or part thereof that Aspect reasonably determines to be covered by this
warranty and to be defective in workmanship or materials provided that the
Purchaser has given notice of such warranty claim within the Warranty Period and
the Warranted Product is returned to the factory with freight prepaid. Repair or
replacement of Products under this warranty does not extend the Warranty Period.

To request repair or replacement under this warranty, Purchaser should contact
Aspect at 2 Vision Drive, Natick, Massachusetts 01760, 800-442-2051 or
508-647-2088. Aspect will authorize Purchaser to return the Warranted Product
(or part thereof) to Aspect. Aspect shall determine whether to repair or replace
Products and parts covered by this warranty and all Products or parts replaced
shall become Aspect's property. In the course of warranty service, Aspect may
but shall not be required to make engineering improvements to the Warranted
Product or part thereof. If Aspect reasonably determines that a repair or
replacement is covered by the warranty, Aspect shall bear the costs of shipping
the repaired or replacement Product to Purchaser. All other shipping costs shall
be paid by Purchaser. Risk of loss or damage during shipments under this
warranty shall be borne by the party shipping the Product. Products shipped by
Purchaser under this warranty shall be packaged in the original shipping
container or equivalent packaging to protect the Product. If Purchaser ships a
Product to Aspect in unsuitable packaging, any physical damage present in the
Product on receipt by Aspect (and not previously reported) will be presumed to
have occurred in transit and will be the responsibility of Purchaser.

Unless authorized or instructed by Aspect in advance, this warranty does not
extend to any Warranted Products or part thereof: that have been subject to
misuse, neglect or accident; that have been damaged by causes external to the
Warranted Product, including but not limited to failure of or faulty electrical
power; that have been used in violation of Aspect's instructions; that have been
affixed to any nonstandard accessory attachment; on which the serial number has
been removed or made illegible; that have been modified by anyone other than
Aspect; or that have been disassembled, serviced, or reassembled by anyone other
than Aspect, unless authorized by Aspect. Aspect shall have no obligation to
make repairs, replacements,

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<PAGE> 24

or corrections which result, in whole or in part, from normal wear and tear.
Aspect makes no warranty (a) with respect to any products that are not Warranted
Products, (b) with respect to any products purchased from a person other than
Aspect or an Aspect-authorized distributor or (c) with respect to any product
sold under a brand name other than Aspect.

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<PAGE> 25
EXHIBIT D
Proposal of Partnership between
Aspect Medical Systems & Nihon Kohden
July 1997

Market Development(1)
Before MHW Approval
- - Medical Conventions
- - Invited Lectures
- - Invite Key Japanese Anesthesiologists to ASPECT Booth at ASA
- - Sales & Service Training for Specialists and Engineers
- - Catalog, Sales Manual, Operation Manual, Service Manual

Market Development(2)
After MHW Approval
- - Demonstrations to all University hospitals
- - Promote/Support Key Anesthesiologists to publish clinical Data and Efficacy
- - Advertisements
- - Sales & Service Training for Field reps.

Medical Conventions
- - Japan Society of Anesthesiology (April)
- - The Japan Society for Clinical Anesthesia (November)
- - The Japanese Association for Clinical Monitoring (March)
- - International Symposium on Computing in Anesthesia and Intensive Care
(March '98)
- - Japanese Association for Acute Medicine (November)
- - Local meetings for Anesthesiology

SALES AND MARKETING STAFF IN IMPORT DIVISION
Marketing Manager
Clinical Specialist
Sales Specialist

- - Start with 3 dedicated members with support from our Service section
- - Sales promotion will be made through 650 direct sales representatives

Advertisement Plan

1. The Japanese Journal of Anesthesiology
2. The Journal of Japan Society for Clinical Anesthesia
3. Lisa (Journal for Anesthesiologist)
4. Japanese Journal of Clinical Monitor
5. Program of Each Medical Convention

<PAGE> 26

EXHIBIT E:

U.S. TRADEMARK LISTING
FOR
ASPECT MEDICAL SYSTEMS, INC.
11/6/97

TRADEMARK
---------

ASPECT(R)

ZIPPREP(TM)

A-1050(TM)

A-1000(TM)

A-2000(TM)

BISPECTRAL INDEX(TM)

BIS(TM)

[GRAPHIC DEPICTION OF BIS LOGO](TM)

<PAGE> 1
EXHIBIT 10.3

Aspect Medical Systems, Inc.
has requested that the marked portions of this agreement be granted confidential
treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.

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.

-3-
<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

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: (I) NK shall be permitted, at any time, to develop
monitoring equipment designed to monitor the depth or effects of anesthesia
using physiological measures other than EEG; (II) NK shall be permitted, at any
time, to market and manufacture monitoring equipment designed to monitor the
depth or effects of anesthesia using physiological measures other than EEG, so
long as such equipment has been developed and manufactured by NK; (III) NK shall
be permitted after the expiration or termination of this Agreement to
manufacture and market monitoring equipment developed and manufactured by NK or
by any third party that is designed to monitor the depth or effects of
anesthesia using physiological measures other than EEG; and (IV) NK shall be
permitted to continue to market and improve its existing EEG monitors and
modules. Specifically, it will not be considered a violation of this Section
3(f) for NK to market and improve its existing EEG monitors or modules that
display any of the following parameters of brain function: EEG, EEG trends, CSA,
DSA, EP, EMG, or NCV, subject to the terms and conditions of this Section 2.7.

2.8 CHANGES TO KITS AND PRODUCTS.

(a) From time to time during the Agreement Term, Aspect may introduce
improvements and modifications to the Kit. Aspect shall promptly deliver to NK
one reproducible copy of manufacturing drawings and engineering specifications
relating to such modification and improvement. NK may use, at its sole
discretion, each such modification or improvement under the terms and conditions
of this Agreement, without paying any additional amounts to Aspect. If NK
determines not to use such modification or improvement, Aspect shall continue to
supply NK with the Kit, but not as so modified or improved.

(b) Notwithstanding anything contained in this Agreement to the contrary,
Aspect reserves the right from time to time during the License Term to require
NK, after consulting with NK, to modify or improve the Product (including
without limitation the software programs used in connection with the Product) if
the modification or improvement reasonably relates to efficacy or patient
safety. NK shall implement those changes to the Products being manufactured or
to be manufactured and to modify and improve Products previously manufactured
and shipped to customers in

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<PAGE> 7

order to incorporate such changes. In that event, Aspect agrees to repair or
replace Kits previously provided to NK or collected by NK from its customers,
free of charge, whether or not such repair or replacement occurs during the
relevant Warranty Period.

(c) Aspect shall immediately provide NK with a written notice upon Aspect
becoming aware of the occurrence of any of the following events: (i) Aspect
recalls any Kit, or ceases or suspends the sale of any Kit due to any problem
which relates to such Kit's efficacy or patient safety in any country outside
Japan; (ii) any defect of any Kit or the Licensed Technology, which relates to
such Kit's efficacy or patient safety, is published, reported or made known to
the public by any third party, or found by Aspect; or (iii) any Kit or the
Licensed Technology contributed to or caused a death or serious injury, or any
Kit or the Licensed Technology malfunctioned and if that malfunction occurred
again, it would be likely to contribute or cause a death or serious injury.

2.9 INTELLECTUAL PROPERTY MAINTENANCE FEES. Aspect shall keep current all
Rights relevant to the Products, and shall pay all fees and expenses in
connection therewith promptly as such fees and expenses become due and payable.

2.10 NO KNOWLEDGE OF THIRD PARTY CLAIMS. Aspect represents and warrants to NK
that Aspect knows of no claim by any third party of infringement by Aspect on
such party's patent, trademark, copyright, trade secret or other intellectual
property rights.

2.11 DISCLAIMER OF LIABILITY. ASPECT MAKES NO EXPRESS OR IMPLIED WARRANTY,
STATUTORY OR OTHERWISE, CONCERNING THE LICENSED TECHNOLOGY OR ANY OTHER
INFORMATION COMMUNICATED TO NK, INCLUDING WITHOUT LIMITATION NO WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, OR NO WARRANTIES AS TO QUALITY OR THE
USEFULNESS OF THE LICENSED TECHNOLOGY FOR ITS INTENDED PURPOSE; PROVIDED,
HOWEVER, if Aspect or NK shall discover any errors in the Licensed Technology
during the License Term, Aspect shall use commercially reasonable efforts to
correct such errors in the Licensed Technology without cost to NK.

IN NO EVENT, HOWEVER, SHALL ASPECT BE LIABLE TO NK FOR ANY SPECIAL,
CONSEQUENTIAL, INCIDENTAL, EXEMPLARY OR INDIRECT LOSSES OR DAMAGES RESULTING
FROM SUCH ERRORS IN THE LICENSED TECHNOLOGY.

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<PAGE> 8

Confidential Materials omitted and filed separately with
the Securities and Exchange Commission. Asterisks denote omissions.

3. SALES BY ASPECT TO NK

3.1 OFFER AND ACCEPTANCE; PRICING.

(a) NK shall have the right to purchase from Aspect Kits at a transfer price
of US[**] per Kit. For each proposed purchase by NK from Aspect, NK shall
present a purchase order to Aspect (a "Purchase Order"). Each Purchase Order
shall be deemed an offer to purchase and, unless NK is notified in writing to
the contrary within five (5) Business Days after Aspect receives it, such
Purchase Order shall be deemed accepted by Aspect.

(b) Aspect's transfer prices shall be FCA (FREE CARRIER) Natick,
Massachusetts, U.S.A. Starting with the second (2nd) Contract Year, Aspect may
change those transfer prices; PROVIDED, HOWEVER, that: (i) such change may be
made only once a year effective as of the first day of April with the prior
written notice to be given by Aspect no later than the last day of December of
the preceding year, after consulting with NK; (ii) the annual increase shall be
no more than [**]; 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

(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.

(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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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 [**] multiplied by a fraction, the numerator of which [**] in which
this Agreement is [**] in the period in which this Agreement is effective after
the [**] and the denominator of which is [**]. In no event may this fraction be
less than [**]. 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.

-16-
<PAGE> 17
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 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.

-17-
<PAGE> 18
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

-18-
<PAGE> 19

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:

Digital Output: RS-232 Serial Output
(8 data, 1 stop, no parity 115 kBaud)

Parameters: BIS, Suppression Ratio,
EMG, Raw EEG

Electrical Safety: Conforms to UL 544, IEC-601-1

Power: 3.5 Watts Maximum
+5V (500 mA)
+12V (77 mA)

Artifact Rejection: Automatic

-19-
<PAGE> 20

Bispectral Index: 0-100 Scale

Digital Signal Converter (DSC-2)

Description: The DSC amplifies and digitizes the signal close to the patient to
minimize electrical interference.

Weight: 4.7 oz (0.13 kg)

Dimensions: 2.6 x 1.0 x 4.3 inches
(6.6 x 2.5 x 10.8 cm)

Cable Length: 23 ft (7.0 m) integral DSC cable, 1.5 ft (0.45) patient interface
cable.

BIS Engine PCB

Physical: 3x4 inch SMT PCB
Processing Power: 50 MFlops

Software Upgrades

The BIS engine software is stored in reprogrammable FLASH memory. Software
upgrades can be accomplished on-site or remotely via the serial interface.

Serial Identifier

Each BIS engine is given a unique serial identifier. This allows for electronic
identification of every BIS Engine.

-20-
<PAGE> 21

EXHIBIT B

PATENTS AND PATENT APPLICATIONS

- -------------- -------------------- -------------------------------------------- -------
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>

-21-
<PAGE> 22

EXHIBIT C

TRADEMARKS

Aspect(R)

ZIPPREP(TM)

Zipprep(TM)

A-1050(TM)

A-1000(TM)

A-2000(TM)

Bispectral Index(TM)

BIS(TM)

-22-

<PAGE> 23

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.

-23-
<PAGE> 24

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.

-24-
<PAGE> 25

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.

-25-

<PAGE> 1
Drager/Aspect Product Agreement
Drager-Aspect Vers1.doc
20.04.99

Exhibit 10.6

Aspect Medical Systems, Inc.
has requested that the marked portions of this agreement be granted confidential
treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.

Drager/Aspect Product Agreement

between

Aspect Medical Systems, Inc.
2 Vision Drive
Natick
MA 01760-2059
USA

- hereinafter called "Aspect" -

and

Drager Medizintechnik GmbH
Moislinger Allee 53 - 55
23558 Lubeck
Germany
- hereinafter called "Drager" -

- Aspect and Drager together hereinafter called "the Parties" -

<PAGE> 2
Drager/Aspect Product Agreement
20.04.99
- 2 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

Whereas Aspect has a long-standing tradition of designing, manufacturing and
distributing neuromonitors including the BIS (Bispectral Index) and Sensors for
neuromonitors.

Whereas Drager has a long-standing tradition of designing, manufacturing and
distributing medical equipment.

Whereas Drager is in the process of designing a new anesthesia workplace.

Whereas Drager wishes to integrate Aspect's BIS technology and to offer a
Drager-BIS-Module as an option into this and other workplace solutions for the
[**] and [**]

Whereas Aspect desires to sell and Drager desires to purchase, on the terms and
conditions set forth below in this Agreement, certain quantities of Aspect BIS
Module Kits and the required Sensors manufactured by Aspect.

Now, therefore,

in consideration of the mutual covenants, terms and conditions hereinafter
expressed, the Parties agree as follows:

1. DEFINITIONS

1.1 The term "Aspect BIS Module Kits" shall mean Aspect's BIS Module Kits
as further defined in the specifications in Exhibit A.

The Parties hereto may change Exhibit A, to the extent it may then be
necessary to reflect a subsequent modification made pursuant to Clause
7 of this Agreement.

1.2 The term "Drager-BIS-Module" shall mean an Aspect BIS Module Kit that
is integrated by Drager into a Drager Workplace.

<PAGE> 3
Drager/Aspect Product Agreement
20.04.99
- 3 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

1.3 The term "Aspect BIS Sensor" shall mean a single use disposable sensor
for the use with the Aspect BIS Module Kits or the Aspect stand-alone
BIS monitor.

1.4 The term [**] shall mean a [**] that has been [**] in accordance with
[**] to [**] with the [**] Drager shall own all right, title, and
interest in any modifications (the "[**]" made to the [**] to [**] the
[**] for use in the [**]. The [**] will [**] Aspect BIS Module Kits
sold by Aspect [**]. The [**] may [**] in [**] depending upon
negotiations between the Parties (See Exhibit A, Section 1.5).

1.5 The term "Products" shall mean the Aspect BIS Module Kits, the
Drager-BIS-Modules, the Aspect's BIS Sensors,[**].

1.6 The term "Drager Workplace" shall mean a combination of devices for
[**] and [**] with a [**] and [**] to all [**]. The definition Drager
Workplace includes a [**] and a [**] for [**].

2. DRAGER'S RIGHTS TO PURCHASE AND SELL AND ASPECT'S RESPONSIBILITIES

2.1 Drager shall have the non-exclusive right during the term of this
Agreement to purchase the Aspect BIS Module Kit for the sole purpose of
integrating the Aspect BIS Module Kit into a Drager Workplace and
reselling the finished Drager-BIS-Module worldwide.

Subject to Clause 2.2 Drager shall have the exclusive right during the
term of this Agreement to purchase the [**] for the [**] of [**] the
[**] except in the USA. Aspect shall not have the right to manufacture
or distribute the [**] to [**].

Drager shall have the non-exclusive right during the term of this
Agreement to purchase the Aspect BIS Sensor for the non-exclusive
resale worldwide except in the USA.

2.2 Drager will sell the Drager-BIS-Module, the [**] and the Aspect BIS
Sensor through its designated distribution network, and Aspect shall
not with respect to the Drager-BIS-Module and the [**] make any sales
promotion, shall not establish any branch, shall not have any supply
depot or supply the Drager-BIS-Module or [**] to any party other than
Drager.

<PAGE> 4
Drager/Aspect Product Agreement
20.04.99
- 4 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

It is understood, however, that in the event that Drager distributes
[**] and [**] customers using [**] of the number of [**] used by [**].
Drager shall then grant Aspect a non-exclusive royalty-free right and
license under its rights to the [**] to [**] Aspect BIS Sensors that
have been [**] for use with [**] to [**].

2.3 Aspect agrees to provide all reasonable help for Drager with respect to
the design and/or integration of the Aspect BIS Module Kit into a new
Drager Workplace.

2.4 Drager agrees [**] the [**] for an [**] equipment.

2.5 Aspect shall obtain any official approvals, permits, licenses and other
consent required to sell Aspect's BIS Module Kit and Aspect's BIS
Sensor worldwide, at such time and in such manner as determined by
Aspect or required by Drager to serve reasonable commercial purposes of
both companies. Drager shall receive copies of any such documents.

Drager shall obtain any official approvals, permits, licenses and other
consent required to sell Drager products worldwide, in such time and in
such manner as determined by Drager. If necessary, Aspect shall receive
copies of any such documents belonging to the Drager-BIS-Module and the
[**]. Aspect will provide any reasonable support required by Drager to
obtain the necessary approvals for the Drager-BIS-Module and the [**].

2.6 The parties intend to agree on a co-marketing concept for the Products.

3. PRICES

3.1 The prices for Aspect BIS Module Kits and BIS Sensors shall be as set
forth in Exhibit B hereto. The price per product is FOB, Boston as per
Incoterms 1990. All prices for Aspect BIS Module Kits and BIS Sensors
are exclusive of all taxes, levies and assessments imposed on such
products purchased hereunder, excluding taxes based on Aspect's
possession thereof prior to the originally scheduled delivery and taxes
on Aspect's net income from the transaction. Drager intends to
introduce the new Drager anesthesia workplace to the market [**].

<PAGE> 5
Drager/Aspect Product Agreement
20.04.99
- 5 -

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

3.2 Prices, billing and all payments due hereunder shall be in US$.

3.3 September of each year with effect on 1st January of the following
year, the prices for Aspect's BIS Module Kit set forth in Exhibit B may
be adjusted by mutual Agreement. The first adjustment of prices may be
made prior to October 1, 2002 with effect on January 1, 2003.

The prices for Aspect's BIS Sensor will be based on the Sensor Price
Schedule set forth in Exhibit B applied to the prevailing List Price of
the BIS Sensor in the U.S.

Any adjustments to BIS Sensor prices may only be made prior to October
1 of each year for effect on January 1 of the following year. [**] are
[**] by [**] will be based on the [**] set forth in Exhibit B for the
[**] to which will be [**] to [**] the [**] (See also Exhibit A,
Section 1.5).

4. PURCHASE

4.1 All Products shall be ordered in writing, specifying the product type,
number of units, desired delivery date and means of shipment. Purchase
orders may be sent by facsimile machine. Such orders shall be
considered to have been accepted by Aspect only upon Aspect's issuance
of written acknowledgment confirming its acceptance of the purchase
order. Aspect's acknowledgment may be sent by facsimile machine and
shall state delivery date.

4.2 Ownership of, title to, and risk of loss with respect to any product
sold to Drager hereunder shall pass to Drager upon delivery to carrier
in Boston packed and ready for shipment to Drager. Aspect shall ship
products in a manner consistent with Aspect's usual shipping practices.
Transportation and shipping charges from Boston, including costs
incurred by Aspect relating to packing, storage, documentation and
similar items which result from special shipping instructions of
Drager, and the cost of any insurance which Drager may request in
connection with the products, shall be added to the price stated on
invoices and shall be paid by Drager at the time that payment of the
purchase price for such products is due and payable.

<PAGE> 6
Drager/Aspect Product Agreement
20.04.99
- 6 -

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

4.3 Drager shall have the right to handle the purchase of Products via
another company belonging to the Drager Group. Drager will inform
Aspect in writing with respect to such decision. Drager will further
ensure that this company will adhere to the provisions of this
Agreement.

5. FORECAST, DELIVERY TIME

5.1 Drager shall provide a non-binding quarterly rolling forecast for a
minimum of the successive two quarters.

5.2 Aspect shall ship the Products in lots of [**] units.

5.3 Aspect shall ship Aspect BIS Module Kits within (eight) 8 weeks of its
receipt of purchase orders therefore, assuming the quantity ordered is
reasonably consistent with the forecast.

5.4 Aspect shall ship [**] within (four) 4 weeks of its receipt of purchase
orders therefore, assuming the quantity ordered is reasonably
consistent with the forecast.

5.5 In the event of cancellation of any purchase order, Drager will be
liable to Aspect for the payment of reasonable cancellation charges.

6. PAYMENT; INSPECTIONS; RETURNS

6.1 All purchases hereunder shall be paid within thirty (30) days from date
of invoice to Drager.

6.2 All Products received by Drager shall conform in all material respects
to the specifications set forth in Exhibit A.

Receiving inspection by Drager may be performed on a sampling basis
which shall be in accordance with the Testing Specifications as
established in Exhibit C. Exhibit C will be negotiated later.

<PAGE> 7
Drager/Aspect Product Agreement
20.04.99
- 7 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

Acceptance by Drager on a sampling basis shall not prejudice or
restrict the right of Drager to accumulate and return at Aspect's
expense for full credit or replacement (freight and insurance prepaid
to Drager) non-conforming Products discovered during Drager's
inspection process, which in no event shall extend beyond the warranty
period provided in Clause 8. Any such return must be made within 30
days of discovery of any such Products' nonconformance by Drager.

Aspect must be given the opportunity to inspect and/or correct Products
for which Drager shall request credit or replacement to enable Aspect
to determine for itself that said Products do not meet specifications,
and such credit or replacement shall be made by Aspect only if and when
it determines that Products do not meet specifications. No Product may
be returned without Aspect's approval, which, subject to the last
sentence of the preceding Paragraph under this Clause 6.2, shall not be
unreasonably withheld.

7. MODIFICATION OF PRODUCTS

7.1. Aspect shall inform Drager

(a) about planned modifications of Aspect's BIS Module Kit,
Aspect's BIS Sensors, [**] and modifications relating to BIS
of Aspect's stand alone Monitor,

(b) of any modification which will affect the approval of the
Products or the Drager Workplace and /or the proper function
within the Drager Workplace.

In case (b), Aspect shall not be allowed to modify Aspect's BIS Module
Kit, Aspect's BIS Sensor or [**] sold to Drager without Drager's prior
written consent. Additionally Drager shall have the right to decide if
Drager wishes to take over the modification. If Drager refuses to take
over the modification, Aspect shall be obliged to deliver the
unmodified Aspect BIS Module Kit, Aspect's BIS Sensors and [**] for a
period of eighteen (18) months beginning with the date Drager announces
its decision. After this eighteen-months period Aspect can cease to
deliver the unmodified Aspect BIS Module Kit, Aspect's BIS Sensors or
[**]. In the event that Aspect believes that a modification or
improvement relates to patient safety, Drager will accept these
modifications under the condition that Aspect will agree to repair or
replace Aspect's BIS Module Kits, Aspect's BIS Sensors or [**]
previously provided to Drager or Drager customers at no charge.

<PAGE> 8
Drager/Aspect Product Agreement
20.04.99
- 8 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

7.2. Drager shall promptly inform Aspect of any proposed modification which
will affect Aspect product approval.

7.3 Aspect agrees in principle to [**] of the [**] and [**] the [**] is
[**]. Aspect and Drager must agree on a mutually-acceptable time
schedule and on a mutually-acceptable price for the [**] Aspect shall
own all right title and interest in any [**] to the Aspect BIS Module
Kit pursuant to this Section 7.3.

8. WARRANTY

8.1 Subject to Exhibit E, Aspect hereby warrants to Drager that for a
period of twelve (12) months after each Product is sold by Drager, or
an authorized Drager Distributor and delivered to an end user, or
eighteen (18) months after such Products are received from Aspect by
Drager, whichever period shall be shorter, that such Products will
conform in all material respects to the specifications set forth in
Exhibit A and be free from any defects in workmanship and materials. In
the event of a breach of the warranty under this Section, Aspect's
responsibility and Drager's remedy shall first be repair or replacement
of the Product, at Aspect's option. In the event that, after Aspect has
attempted to repair or replace the product, the Product does not
conform to the warranty provided in this Section 8.1, Aspect will
refund the purchase price for such Product. This paragraph summarizes
Aspect's responsibility and Drager's sole remedy with respect to the
warranty set forth in this Section 8.1.

8.2 Notwithstanding the foregoing, Aspect's warranty as set forth above
does not cover:

(i) defects emanating from improper or unauthorized use or
maintenance of such products by Drager or any subsequent
purchaser thereof;

(ii) normal deterioration or normal wear and tear;

(iii) disposable items such as the [**] Aspect BIS Sensor after the
expiration date marked on the Sensor packaging

(iv) catastrophe, fault or negligence of Drager or anyone claiming
through or on behalf of Drager; or

(v) subject to Exhibit A, causes external to the Products
including without limitation power or air conditioning
failure.

<PAGE> 9
Drager/Aspect Product Agreement
20.04.99
- 9 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

8.3 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).

9. QUALITY ASSURANCE

Aspect shall adhere to a quality assurance system in accordance with
the Quality Assurance Agreement as established in Exhibit D.

10. SERVICE

10.1 Drager assumes full responsibility to render service with respect to
the maintenance, repair, or replacement of Products, accessory items,
or parts therefor sold by Drager.

10.2 Aspect agrees to supply Drager, at Drager's expense, with any and all
special tools and equipment reasonably required for Drager to service,
maintain or test the Products sold hereunder. Drager agrees to make
payment for such items to Aspect within thirty (30) days from the date
of invoice.

10.3 Aspect shall adhere to the Service Agreement as per Exhibit E. Exhibit
E will be negotiated later.

11. TRAINING AND DOCUMENTS

Aspect personnel shall be made available free of charge for a
reasonable number of training sessions reasonably required by Drager
with respect to the sales and application know-how, the maintenance,
repair or replacement of the Products, or parts therefore.

Aspect will supply Drager free of charge with a reasonable quantity of
technical, sales and application materials for internal purposes in
English and German (if available) such as manuals and other technical
materials relating to the Aspect BIS Module Kits and Aspect's BIS
Sensors. Aspect will supply Drager at cost price with a reasonable
quantity of catalogues and literature relating to the Aspect BIS Module
Kits and Aspect's BIS Sensors.

<PAGE> 10
Drager/Aspect Product Agreement
20.04.99
- 10 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

Drager agrees to provide, at its own expense, and subject to Aspect's
prior written approval, translation and printing of technical, sales,
operation and service materials in the language(s) commonly used in the
areas where Drager will sell the Products.

Drager Lubeck will coordinate training and flow of information for all
Drager participants. Training will be held in English language.

12. REPLACEMENT PARTS

Subject to Exhibit E, Aspect agrees to supply Drager with replacement
parts for the Aspect BIS Module Kits sold hereunder for a period of ten
(10) years after the date of the last sale of Aspect BIS Module Kits by
Aspect to Drager hereunder. Prices for the replacement parts will be
set by Aspect in accordance with Clause 3. Drager shall make payment of
the replacement parts supplied hereunder within thirty (30) days from
the date of invoice.

13. PATENT INDEMNITY

13.1 (a) Except as provided below, Aspect shall defend and indemnify Drager
from and against any damages, liabilities, costs and expenses
(including reasonable attorneys' fees) arising out of any claim that
the Aspect BIS Module, the Aspect BIS Sensor or the [**] infringe a
valid patent or copyright or misappropriates a trade secret of a third
party, provided that (i) Drager shall have promptly provided Aspect
written notice thereof and reasonable cooperation, information, and
assistance in connection therewith, and (ii) Aspect shall have sole
control and authority with respect to the defense, settlement, or
compromise thereof. Should any Product become or, in Aspect's opinion,
be likely to become the subject of an injunction preventing its use as
contemplated herein, Aspect may, at its option, (1) procure for Drager
the right to continue using such product, (2) replace or modify such
product so that it becomes non-infringing, or, if (1) and (2) are not
reasonably available to Aspect after consultation in good faith with
Drager, then (3) terminate Drager's rights to the allegedly infringing
product and refund to Drager the amount which Drager has paid to Aspect
for such products which are in the possession of Drager or its
subdistributors. Drager will immediately inform Aspect as soon as
Drager becomes aware of any threatened or actual liability claim by a
third party relating to the Aspect BIS Module, the [**] and the Aspect
BIS Sensor.

<PAGE> 11
Drager/Aspect Product Agreement
20.04.99
- 11 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

(b) Aspect shall have no liability or obligation to Drager hereunder
with respect to any patent, copyright or trade secret infringement or
claim thereof based upon (i) use of the Products by Drager in
combination with devices or products other than the Drager Workplace,
(ii) use of the Products in an application or environment for which
such Products were not designed or contemplated, (iii) modifications,
alterations or enhancements of the Products not created by or for
Aspect, or (iv) any claims of infringement of a patent, copyright or
trade secret in which Drager or any affiliate of Drager has an
interest. Drager shall indemnify and hold Aspect harmless from all
costs, damages and expenses (including reasonable attorneys' fees)
arising from any claim enumerated in clauses (i) through (iv) above,
provided that (i) Aspect shall have promptly provided Drager written
notice thereof and reasonable cooperation, information, and assistance
in connection therewith, and (ii) Drager shall have sole-control and
authority with respect to the defense, settlement or compromise
thereof. Aspect will immediately inform Drager as soon as Aspect
becomes aware of any threatened or actual liability claim by a third
party relating to Clause (iv) above.

(c) the foregoing states the entire liability of the Parties with
respect to infringement of patents, copyrights and trade secrets by the
Products or any part thereof or by their operation.

13.2 The obligation of the Parties hereto as set forth in this Clause 13
shall continue notwithstanding the termination of this Agreement.

14. TRADEMARK

Any Drager-BIS-Module or [**] sold by Drager under this Agreement shall
bear the trademark of Drager.

Drager is required to mark the Drager-BIS-Module and [**] additionally
to the Drager trademark with the Aspect BIS(TM) trademark as approved
by Aspect and in accordance with the following provisions:

(a) Ownership. Drager acknowledges and agrees that Aspect is the sole and
exclusive owner of all right, title and interest in and to the
following trademarks (the "Aspect Trademarks"): "Aspect", "BIS", "BIS
Sensor".

Drager recognizes the value of the Aspect Trademarks and the good will
associated with the Aspect Trademarks. Drager agrees that its use of
the

<PAGE> 12
Drager/Aspect Product Agreement
20.04.99
- 12 -

Aspect Trademarks and any good will arising therefrom shall inure to
the benefit of Aspect. Nothing contained herein shall create, nor shall
be construed as an assignment of, any right, title or interest in or to
the Aspect Trademarks to Drager, other than the grant of a license in
Section 14(c) below; it being acknowledged and agreed that all other
right, title and interest in and to the Aspect Trademarks is expressly
reserved by Aspect. Drager shall keep the Aspect Trademarks free from
all liens, mortgages or other encumbrances. Drager agrees that it will
not attack or otherwise challenge the title, validity or any other
rights of Aspect in or to the Aspect Trademarks.

(b) Notice. All Products that use the Aspect Trademarks shall be
accompanied, where reasonable and appropriate, by a proprietary notice
with respect to Aspect consisting of the following elements:

1. The statement "[insert trademark(s)] is a proprietary trademark(s)
of Aspect."

2. Drager will include the "(TM)" or "(R)" symbol, as instructed by
Aspect, a reasonable time before the first prominent use of the Aspect
Trademark in the Products.

3. Drager shall reproduce copyright and trademark notices of Aspect in
the relating documents.

(c) License. Aspect hereby grants to Drager a nonexclusive, worldwide,
royalty-free license (without the right to sublicense) to use the
Aspect Trademarks to designate and promote Products. Drager shall have
no other right to use, display or utilize the Aspect Trademarks for any
other purpose or in any other manner.

(d) Quality Standards. Upon reasonable notice and request, Aspect may
inspect copies of the Products, advertising and promotional materials
on which the Aspect Trademarks are used so that Aspect may monitor
compliance with this Agreement. Quality standards are further described
in Exhibit D to this Agreement.

(e) Protection and Infringement. Drager agrees to cooperate with and assist
Aspect in obtaining, maintaining, protecting, enforcing and defending
Aspect proprietary rights in and to the Aspect Trademarks. In the event
that Drager learns of any infringement, threatened infringement or
passing-off of the Aspect Trademarks, or that any third party claims or
alleges that the Aspect Trademarks infringe the rights of the third
party or are otherwise liable to

<PAGE> 13
Drager/Aspect Product Agreement
20.04.99
- 13 -

cause deception or confusion to the public, Drager shall be required to
notify Aspect giving the particulars thereof, and Drager shall provide
necessary information and assistance to Aspect in the event that Aspect
decides that proceedings should be commenced.

(f) Termination. In addition to the termination rights set forth in Section
21 hereof, in the event that Drager is in material breach of any
provision of this Section 14, Aspect may, upon 30 days written notice,
terminate the license granted in Section 14(c) if Drager does not cure
such breach or default within such 30-day period. The parties recognize
that curing such breach or default may require development of a new
version of the Product. If this is the case, then Drager will be deemed
to have cured such breach or default if, within the 30-day cure period,
Drager presents to Aspect a plan for revision of the Product that will
cure such breach or default, such plan is reasonably acceptable to
Aspect, and such revision is released and distributed within three
months following written notice of such breach or default.

In addition to the provisions of Section 21 hereof, upon termination of
the license granted in Section 14(c), or upon termination of this
Agreement, for whatever cause except Sections 21.5, 21.6 and 21.7:

1. Drager shall immediately cease and desist from any further use
of the Aspect Trademarks and any trademarks confusingly
similar thereto, either directly or indirectly;

2. All rights in the Aspect Trademarks granted to Drager
hereunder shall immediately revert to Aspect;

3. In the event that this Agreement is terminated for any reason
other than a material breach or material default by Drager,
Drager shall have a period of 30 days thereafter to dispose of
all of the unsold Products bearing the Aspect Trademarks and
advertising and promotional materials relating thereto which
had been completed by it prior to such termination, provided
such Products and materials were in the process of manufacture
more than 30 days before such termination.

<PAGE> 14
Drager/Aspect Product Agreement
20.04.99
- 14 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

15. PRODUCT RECALL PROGRAM

In the event of any recall of the Product by Aspect or required by
Drager for safety or efficacy reasons resulting from Aspect's failure
to supply any BIS Module Kits, Aspect BIS Sensors, or [**] that (1)
conform in all material respects to the specifications set forth in
Exhibit A or (2) are free from defects in workmanship and materials,
Aspect agrees to repair or replace all recalled Products previously
supplied to Drager at no expense to Drager. Aspect also agrees to
consult with Drager to establish a reasonable process for managing the
recall. Drager will maintain all necessary sales records to facilitate
the recall.

16. PRODUCT LIABILITY

16.1 Aspect will indemnify, protect, and save Drager harmless from all
claims, demands, suit, or actions for damages to property or person
which may be sustained by any third party, and which are caused by any
defect or deficiency in the design or manufacture of any of the
Products sold to Drager under this Agreement.

The foregoing indemnity shall survive the expiration or termination of
this Agreement, but Aspect shall not be responsible for any loss or
damage caused by acts or omissions of Drager. Aspect shall have no
liability or responsibility of any kind to Drager under this Clause 16
for any claims, demands, suits, or actions unless Aspect shall have
been notified within 30 days time following notification to Drager of
any such claims, demands, suits, or actions and shall have an adequate
opportunity to defend. Aspect shall have the sole control and authority
with respect to the defense, settlement or compromise thereof.

Should Drager desire to have its own counsel participate in any such
action or suit, the cost of such counsel shall be borne exclusively by
Drager. The obligation of the Parties set forth in this Clause 16 shall
continue notwithstanding the termination of this Agreement.

<PAGE> 15
Drager/Aspect Product Agreement
20.04.99
- 15 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

16.2 Drager will indemnify, protect, and save Aspect harmless from all
claims, demands, suit, or actions for damages to property or person
which may be sustained by any third party and which are caused by any
defect or deficiency in the design or manufacture of the Drager
Workplace or of that portion of the Drager-BIS-Module developed or
manufactured by Drager, or which relate to the failure of Drager to
incorporate the Aspect BIS Module Kit within the Drager-BIS-Module in
accordance with the technical information provided by Aspect, or
Drager's activities in connection with use or sale of the Products.

The foregoing indemnity shall survive the expiration or termination of
this Agreement, but Drager shall not be responsible for any loss or
damage caused by acts or omissions of Aspect. Drager shall have no
liability or responsibility of any kind to Aspect under this Clause 16
for any claims, demands, suits, or actions unless Drager shall have
been notified within [**] time following notification to Aspect of any
such claims, demands, suits, or actions and shall have an adequate
opportunity to defend. Drager shall have sole control and authority
with respect to the defense, settlement or compromise thereof.

Should Aspect desire to have its own counsel participate in any such
action or suit, the cost of such counsel shall be borne exclusively by
Aspect. The obligation of the Parties set forth in this Clause 16 shall
continue notwithstanding the termination of this Agreement.

17. [**] PROJECT

17.1 It is Drager's intention that the Product will become the [**] for
monitoring the level of hypnosis in Drager anesthesia Workplaces and it
is [**] of the [**]. However, Drager shall be free to provide
alternative technology in the event that

(i) necessary regulatory approvals for the Products are withdrawn
and will not be granted during a [**] period after withdrawn,

(ii) approvals have not been granted within a period of [**]
following the completion of the Drager-BIS-Module and
submission of the necessary requests for approvals to the
appropriate regulatory agencies

(iii) Aspect is unable to supply Aspect BIS Module Kits in
accordance with the specifications and is unable to
reinstitute supply within [**] days of written notification

<PAGE> 16
Drager/Aspect Product Agreement
20.04.99
- 16 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

(iv) Aspect's market share worldwide for monitoring the effect of
anesthesia on the brain with BIS [**].

(v) Aspect stops or reduces marketing and product improvement
activities materially below the level currently performed.

17.2 Drager may offer in Drager anesthesia workplaces and in other Drager
products complementary parameters [**] to Aspect's Bispectral Index.
Any parameter claimed to be a measure of the hypnotic effect of
anesthetics based on processing of the continuous EEG, is considered to
be [**] will only be [**] to the BIS.

Notwithstanding the foregoing, Drager is free to offer EEG parameters
based on the continuous EEG such as median frequency, spectral edge
frequency, compressed spectral array (CSA) and/or density spectral
array (DSA), and may also offer evoked potentials, in addition to the
BIS.

17.3 In the event that the Aspect's BIS Module Kit sold to Drager contains
applications unique to Drager Aspect shall for the term of this
Agreement and for [**] after its termination refrain from selling
similar products to any third party.

18. FORCE MAJEURE

Neither Aspect nor Drager shall be liable for any delay in, or failure
of, performance hereunder due to any contingency reasonably beyond its
control, rendering performance commercially unreasonable including, but
not limited to, an act of God, war (declared or undeclared),
mobilization, riot, strike, labor dispute, fire, flood, shortages, or
failure or delays of energy, materials, supplies or equipment,
unavailability of transportation, goods or services, transportation
embargoes or delays, or breakdowns in machinery or equipment,
governmental restrictions or actions but shall not include any royalty
or other payment imposed or agreed to by Aspect or Drager resulting
from a third party claim of intellectual property right infringement or
violation as further described in Clause 13; provided, however, that
the Party affected shall exert its reasonable best efforts to eliminate
or cure or overcome any of such causes and to resume performance of its
covenants.

<PAGE> 17
Drager/Aspect Product Agreement
20.04.99
- 17 -

19. SECRECY

19.1 If marked as "Confidential Information", Drager and Aspect are each
obliged to preserve in strict confidence any trade secrets,
confidential information and technical information of the other Party
and to refrain from disclosing, during the period of this Agreement and
any time after expiration of this Agreement, any such information to
third parties. Notwithstanding the foregoing, information which is
orally or visually disclosed to the recipient by the disclosing party,
or is disclosed in writing without an appropriate letter, proprietary
stamp or legend, shall constitute Confidential Information if the
disclosing party, within thirty (30) days after such disclosure,
delivers to the recipient a written document or documents describing
such Confidential Information and referencing the place and date of
such oral, visual or written disclosure and the names of the employees
or officers of the recipient to whom such disclosure was made.

Both Parties represent and warrant that they have exercised, and will
continue to exercise the same standard of due care in hiring,
supervising and selecting those employees to whom they disclose such
confidential information, so that the confidentiality of all such
information is protected. No such confidential information disclosed by
either party to the other in connection with this Agreement shall be
disclosed to any person or entity other than the recipient's employees
and contractors directly involved with the recipient's use of such
information who are bound by written agreement to protect the
confidentiality of such information, and such information shall be
otherwise protected by the recipient from disclosure to others with the
same degree of care accorded to its own proprietary information.

19.2 The Parties' obligation of non-disclosure shall not apply with respect
to such information, which

(1) is already known to the receiving Party before disclosure by
the divulging Party, providing that the receiving Party has
written records to substantiate its knowledge; or

(2) is in the public domain at the time of disclosure to the
receiving Party or, after such disclosure, enters into the
public domain through no fault of the receiving Party;

(3) is independently developed by the receiving Party without
reference to or reliance on the Confidential Information; or

<PAGE> 18
Drager/Aspect Product Agreement
20.04.99
- 18 -

(4) is lawfully disclosed to the receiving Party by a third party
under circumstances permitting its unrestricted disclosure by
the receiving party.

Upon termination of this Agreement, each party shall promptly deliver
to the other all confidential information of the other party in the
possession or control of such party and all copies thereof. The
obligations under this Section 19 shall continue for both parties for a
period of 3 years after delivery by Aspect to Drager of the last
Product under this Agreement.

20. RELATIONSHIP BETWEEN THE PARTIES

During the term hereof, the relationship of the Parties is that of
seller (Aspect) and buyer (Drager).

Nothing herein contained shall be deemed to authorize or empower either
Party, its affiliates, its agents or employees, to act as agent for the
other Party or conduct business in the name, or for the account of the
other Party or any of its affiliates or otherwise bind it or them in
any manner.

21. TERM AND TERMINATION

21.1 This Agreement shall come into force when it has been duly signed by
both Parties and shall remain in force until December 31, 2005, unless
earlier terminated in accordance with the provisions hereof.

It shall be automatically renewed thereafter for additional periods of
one (1) calendar year each unless one Party gives at least twelve (12)
calendar months prior to the end of the original term hereof and each
one (1) year period thereafter a written notice to the other Party of
its intention to terminate. First notice of termination may not be
given until [**].

<PAGE> 19
Drager/Aspect Product Agreement
20.04.99
- 19 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

21.2 Aspect shall have the right to terminate this Agreement, effective upon
the delivery of written notice to Drager, in the event Drager fails to
make any payment when due to Aspect pursuant to this Agreement or any
invoice for Products. Aspect will [**] to Drager after Drager's receipt
of Aspect's written demand for payment, provided Aspect has submitted
proof of delivery in order to rectify any payment problem or
discrepancy and has stated that the Agreement will be terminated if
Drager fails to make the due payment within the [**].

21.3 Furthermore, either Party may terminate this Agreement if the other
Party commits any material breach of its obligations hereunder (other
than payment defaults addressed in Clauses 21.2 hereof) and such breach
is not resolved within [**] after written notice thereof is given to
the Party in breach of this Agreement.

21.4 Should Drager or Aspect at any time during the period of this Agreement
be adjudged bankrupt or insolvent, or have a Receiver appointed in
respect of its assets or shall make any arrangement or composition with
its creditors or shall be wound up, whether voluntarily or
compulsorily, or make a general assignment for the benefit of
creditors, then in such event the other Party may, at its option,
terminate this Agreement effective upon giving notice thereof in
writing to the other. In the event either Drager or Aspect exercises
this option, said Party shall incur no liability or obligation with
respect to said termination.

21.5 In the event of the merger, consolidation or sale of substantially all
assets of Aspect to a competitor of Drager, Drager may, at its option,
terminate Section 17 of this Agreement effective upon giving notice
thereof in writing to Aspect. In the event Drager wishes to exercise
this option, Drager shall do so within 30 days following written notice
from Aspect of the merger, consolidation or sale of substantially all
assets of Aspect, and neither Aspect (or its successors) or Drager
shall incur liability or obligation with respect to said termination.

In the event of the merger, consolidation or sale of substantially all
assets of Drager to a company outside of the Drager-Group, Aspect may,
at its option, terminate this Agreement effective upon giving notice
thereof in writing to Drager. In the event Aspect exercises this
option, Aspect shall do so within 30 days following written notice from
Drager of the merger, consolidation or sale of substantially all assets
of Drager, and neither Drager (or its successors) or Aspect shall incur
liability or obligation with respect to said termination.

<PAGE> 20
Drager/Aspect Product Agreement
20.04.99
- 20 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

21.6 Subject to the second paragraph of this Section 21.6, in the event of
termination the Parties agree that Drager shall have the right to
purchase the Aspect BIS Module Kit and the [**] for [**] following
termination of the Agreement or Aspect BIS Sensors for [**] following
termination of the Agreement.

In the event of termination of the Agreement as a result of a material
breach of the Agreement by Drager in accordance with Sections 21.2 or
Section 21.3, Drager shall not be permitted to continue to purchase
[**] Aspect BIS Sensors beyond [**] termination of the Agreement. If
Aspect intends to [**] of the [**] the Parties shall [**] in good
faith.

21.7 In the event of termination, the Parties further agree to finalize
current sales projects. A complete list of these sales projects has to
be exchanged by the Parties no later than fourteen (14) days after the
termination.

21.8 Due to the fact that some Exhibits of this Agreement will be negotiated
later each Party shall have the right to terminate this Agreement if
the parties cannot reasonably agree on the content of one of these
Exhibits.

22. MISCELLANEOUS

22.1 This Agreement shall not be assignable either in whole or in part
without the prior written consent of the other Party except, subject to
Section 21.5, to a party that acquires all or substantially all of
either Parties' business by merger, sale of assets, or otherwise.

22.2 Subject to Clause 21.1 hereof, this Agreement shall inure to the
benefit of and be binding upon the Parties hereto.

22.3 The headings used herein are for ease of reference only and are not to
be used in interpretation or construction of this Agreement.

22.4 The provisions of this Agreement and its Exhibits shall not be
extended, varied, changed, modified or supplemented other than by
agreement in writing signed by the Parties hereto.

22.5 In the event of any inconsistency or conflict between the provisions of
this Agreement and any Purchase Order or other document, the provisions
of this Agreement shall prevail.

<PAGE> 21
Drager/Aspect Product Agreement
20.04.99
- 21 -

22.6 All notices or other communications which shall or may be given
pursuant to this Agreement shall be in writing in the English language
and shall be delivered by personal delivery, certified mail, or telefax
at the address set forth below, or at such other address as such party
may hereafter designate in writing as the appropriate address for the
receipt of such notice.

To Aspect at:

Aspect Medical Systems, Inc.
2 Vision Drive
Natick
MA 01760-2059
USA
Tel.: 508-647-2072
Fax: 508-647-2059
Attention: J.Breckenridge Eagle

To Drager at:

Drager Medizintechnik GmbH
Moislinger Allee 53 - 55
D-23558 Lubeck
Federal Republic of Germany
Tel.: 451-882-2295
Fax: 451-882-2793
Attention: Business Unit Anaesthesia, Swen Grunitz-Post

All notices shall be deemed served on the day on which personally
served, or of by certified mail, or telefax on the date of actual
receipt.

21.7 The waiver by either Party hereto of any default hereunder or of any
breach of any covenant, agreement or condition contained herein shall
not be construed to constitute a waiver of any other default or breach
hereof whether similar or otherwise.

22.8 If any provision of this Agreement should be held unenforceable, or
illegal with respect to any jurisdiction, it (i) shall be deemed
severable from the other provisions which shall remain valid and
enforceable; and (ii) shall remain in effect in other jurisdiction
where such provision is otherwise enforceable and legal.

<PAGE> 22
Drager/Aspect Product Agreement
20.04.99
- 22 -

This Agreement may be executed simultaneously in multiple counterparts,
each of which shall be deemed an original and all of which together
shall constitute one and the same agreement.

22.10 Neither party shall have the right to sublicense any of the rights or
licenses granted under this agreement outside the company group without
the other's prior written consent.

21.11 Compliance with Laws. Drager shall comply with all laws, legislation,
rules, regulations, governmental requirements and industry standards
with respect to the Products, and the performance by Drager of its
obligations hereunder, existing in any jurisdiction into which Drager
directly or indirectly distributes the Products. Aspect shall inform
Drager if export of Aspect's BIS Module Kit or Aspect's Sensors are
restricted to any country or require certain permission in any country.

21.12 IN THE EVENT THAT U.S. LAW IS APPLIED TO THIS AGREEMENT, ASPECT OR
DRAGER SHALL NOT BE LIABLE FOR ANY LOSS OF DATA, LOSS OF PROFITS OR
LOSS OF USE OF THE PRODUCTS OR FOR ANY INDIRECT DAMAGES OF ANY KIND
(WHETHER SPECIAL, INCIDENTAL, CONSEQUENTIAL OR OTHER INDIRECT DAMAGES)
IN CONNECTION WITH THE USE OR PERFORMANCE OF THE PRODUCTS.

23. APPLICABLE LAW

This Agreement shall be governed, construed and interpreted in
accordance with the laws of Switzerland, without regard to its conflict
of laws principles.

The United Nations Convention on contracts for the International Sale
of Goods shall not apply.

24. DISPUTE SETTLEMENT, PLACE OF JURISDICTION

24.1 The Parties shall try to settle any dispute arising in connection with
this present Agreement amicably. In case of a local sales conflict a
task force of Drager and Aspect consisting of the persons named under
Clause 22.6 will take care of such dispute settlement.

24.2 In the event disputes cannot be settled amicably according to Clause
24.1, in connection with this present Agreement shall be exclusively
and finally settled by the courts of Zurich.

Natick, ......April 29, 1999..... Lubeck, .......May 5, 1999..............

J. Breckenridge Eagle [Illegible]
................................. ........................................
Aspect Medical Systems, Inc. Drager Medizintechnik GmbH

<PAGE> 23
Drager/Aspect Product Agreement
20.04.99
- 23 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

EXHIBIT A

of the Drager/Aspect Product Agreement
between Aspect Medical Systems, Inc.
and Drager Medizintechnik GmbH

Products

1.1 The Drager-BIS-Module will incorporate Aspect's BIS Module Kit.

Aspect's BIS 'Module Kit' is designed specifically for OEM applications
and allows the integration of Aspect's BIS monitoring technology into
OEM equipment. 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 Kit 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 12
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), power, and DSC connections.

<PAGE> 24

Drager/Aspect Product Agreement
20.04.99

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

- 24 -

Detailed Technical Specifications:

Digital Output: [**]

Main Parameters: [**]

Electrical Safety: [**]

Power: [**]

Artifact Rejection: [**]

Bispectral Index: [**]

Digital Signal Converter (DSC-2)

Description: [**] to the [**]

Weight: [**]

Dimensions: [**]

Cable Length: [**]

BIS Engine PCB

Physical: [**]

Processing Power: [**]

Software Upgrades
[**] software is stored in [**]. Software upgrades can be accomplished
[**] via the [**].

Serial Identifier
Each [**] serial identifier. This allows for [**].

<PAGE> 25
Drager/Aspect Product Agreement
20.04.99
- 25 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

[Graphic of Aspect BIS Module Kit and Sensor]

1.2 In addition to the main parameters indicated in Exhibit A, Section 1.1,
the Aspect BIS Module Kit shall also provide the [**].

When the Drager-BIS-Module is in use in a Drager Workplace System,
there will be a possibility to display each of the following [**] as
well as the [**] in the [**] when used for [**] and in [**].

1.3 Aspect shall ensure that all BIS enhancements that Aspect develops for
Aspect's stand alone BIS monitor will be available in the BIS Module
Kit sold to Drager as appropriate and as soon as reasonably possible.

Drager will agree to distribute a modified BIS Sensor in the event
Aspect determines that an enhancement to the BIS Module Kit requires
the use of a modified Sensor. All conditions, prices and so on won't be
changed for the new sensors. If this occurs, and if [**] in accordance
with Section 1.5 of Exhibit A, [**] to provide a [**] of the [**] for
the [**] use of [**]. Possible additional costs will be incorporated in
the transfer price for the [**] and reasonable volumes will be
required.

In the event that Aspect develops a different product involving a
different type of index, patient sensor, or application, Aspect and
Drager will develop a mutually-satisfactory new, or amended, agreement.

1.4 For integration into a Drager Workplace, Drager will design an Drager
Workplace specific Drager-BIS-Module. Aspect will grant all reasonable
help to Drager designing the Drager-BIS-Module.

1.5 On the [**]. The possibility to use [**] the original Aspect BIS
monitor will be negotiated later. Possible additional costs [**] will
be incorporated in the transfer price and [**] will be required.

1.6 Both Parties agree to work out a common technical requirement
specification for the Products. The latest version of this technical
requirement specification signed by both Parties will be the
specification of the Product to be manufactured by Aspect for Drager.

Natick, .....4/29/99............. Lubeck, .........May 5, 1999 ...........

J. Breckenridge Eagle [illegible]
................................. ........................................
Aspect Medical Systems, Inc. Drager Medizintechnik GmbH

<PAGE> 26
Drager/Aspect Product Agreement
20.04.99
- 26 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

EXHIBIT B

of the Drager/Aspect Product Agreement
between Aspect Medical Systems, Inc.
and Drager Medizintechnik GmbH

PRICES AND DISCOUNTS

The price for one Aspect BIS Module Kit is US$[**].

The components consists of a [**] and [**] and a [**] and [**].

Drager shall have the right to manufacture on a royalty free basis the
circuit board based on design specifications provided by Aspect. In
this case the price for the remaining components is US$[**] for one
Aspect BIS Module Kit. The Parties will agree in the future on the
terms of a manufacturing license.

The price of the Aspect BIS Module Kit always includes 5 Sensors.
Drager agrees to supply these Sensors together with each
Drager-BIS-Module to its customers.

The Parties agree that Aspect will grant to Drager an additional
discount on the price of the Aspect BIS Module Kit depending on a
certain yearly quantity : Aspect will grant an additional discount of
[**] for a yearly quantity of more than [**] Aspect BIS Module Kits.

Aspect [**] the [**] subsequent to the date of this agreement, for
products sold by Aspect [**] to other customers of Aspect [**]. Aspect
will provide Drager with a [**] to [**] that [**] by other Aspect
customers.

The price to Drager for the Aspect-BIS-Sensor will be as follows:

The transfer price to Drager for the Aspect BIS Sensor will vary
between[**] of the List Price of the Aspect BIS Sensor in the United
States. This is equivalent to a discount off of Aspect's List price in
the United States for the BIS Sensor between [**].

<PAGE> 27
Drager/Aspect Product Agreement
20.04.99
- 27 -

Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

As of January 1, 1999, the List Price for Aspect's BIS Sensor is
US$15.00 The actual amount of the discount off the U.S. List Price will
depend upon the volume of Aspect BIS Sensors shipped by Drager for use
with Drager-BIS-Modules. Prior to the shipment by Drager of the first
[**]Drager-BIS-Modules, the discount available to Drager for purchase
of the Aspect BIS Sensors will be set at [**] of Aspect's List Price
for the BIS Sensor in the United States. Following the shipment of the
first [**] Drager-BIS-Modules, the discount available to Drager will
depend upon the volume of Aspect BIS Sensors shipped each quarter
divided by the number of documented Drager-BIS-Modules installed minus
the first [**] Drager-BIS-Modules installed. Using this formula, the
Aspect BIS Sensor price schedule is as follows:

Sensor Shipments per module per quarter-Note 1 Discount off US List price
- ---------------------------------------------- --------------------------

up [**] [**]
[**] [**]
[**] [**]
[**] [**]
[**] [**]
[**] [**]
or more [**] [**]

Note 1: Sensor consumption rate calculated based on total Aspect BIS Sensors
shipped during the quarter divided by the average Drager-BIS Module installed
base during the quarter minus [**].

In the event that Drager requests that Aspect develop the Drager-BIS-Sensor,
Aspect will sell Drager-BIS-Sensors to Drager in accordance with the same
discount schedule as above, with possible additional costs as noted in Section
1.5 of Exhibit A.

According to Clause 2.1 of the Agreement Drager shall not distribute Sensors in
the USA. Therefore, Aspect will pay a commission to Drager of [**] of the
amounts paid by the customer for each Sensor shipped for use with a
Drager-BIS-Module in the USA.

Natick, .......4/29/99 ............ Lubeck, ......May 5, 1999 ......

J. Breckenridge Eagle [illegible]
................................... .................................
Aspect Medical Systems, Inc. Drager Medizintechnik GmbH

<PAGE> 28
Drager/Aspect Product Agreement
20.04.99
- 28 -

EXHIBIT C

of the Drager/Aspect Product Agreement
between Aspect Medical Systems, Inc.
and Drager Medizintechnik GmbH

TESTING SPECIFICATIONS FOR THE PRODUCTS

(to be negotiated later)

Natick, .......4/29/99 ................ Lubeck, ......May 5, 1999 .......

J. Breckenridge Eagle [illegible]
....................................... ..................................
Aspect Medical Systems, Inc. Drager Medizintechnik GmbH

<PAGE> 29
Drager/Aspect Product Agreement
20.04.99
- 29 -

EXHIBIT D

of the Drager/Aspect Product Agreement
between Aspect Medical Systems, Inc.
and Drager Medizintechnik GmbH

QUALITY ASSURANCE AGREEMENT

(to be negotiated later)

Natick, .......4/29/99 ................. Lubeck, ......May 5, 1999 ....

J. Breckenridge Eagle [illegible]
........................................ ...............................
Aspect Medical Systems, Inc. Drager Medizintechnik GmbH

<PAGE> 30
Drager/Aspect Product Agreement
20.04.99
- 30 -

EXHIBIT E

of the Drager/Aspect Product Agreement
between Aspect Medical Systems, Inc.
and Drager Medizintechnik GmbH

SERVICE AGREEMENT

(to be negotiated later)

Natick, .......4/29/99 ................. Lubeck, ......May 5, 1999 ....

J. Breckenridge Eagle [illegible]
........................................ ...............................
Aspect Medical Systems, Inc. Drager Medizintechnik GmbH

<PAGE> 1
Aspect Medical Systems, Inc.
has requested that the marked portions of this agreement be granted confidential
treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.

Exhibit 10.7

ASPECT MEDICAL SYSTEMS, INC.

OEM DEVELOPMENT AND PURCHASE AGREEMENT

Agreement dated this Sixth day of August, 1999 , by and between Aspect
Medical Systems, Inc, a Delaware corporation with its principal offices located
at Two Vision Drive, Natick, Massachusetts ("Aspect") and Hewlett-Packard GmbH
("HP"), a German corporation with its principal offices located in Germany at
71034 Boblingen, Herrenberger Str. 110-140, for the purchase and/or license by
HP of products under the terms and conditions contained in this Agreement.

1. BACKGROUND.

(a) Aspect is a developer, manufacturer and distributor of medical
devices, equipment, accessories and related hardware, software
and related products and accessories.

(b) HP is a manufacturer of medical equipment, in particular of
multiparameter patient monitors.

(c) Aspect and HP intend to make available to HP customers a solution
to integrate Aspect's BIS technology with HP's patient monitors.
In a first phase of the cooperation Aspect and HP will develop
appropriate components in a joint project (the "BIS Project").
In the second phase of the cooperation, HP intends to purchase
and/or license specified products for integration with its own
systems and products. Aspect agrees to sell and/or license to HP
the products described below, subject to the terms and conditions
contained in this Agreement.

(d) It is the intention of both Parties to negotiate a separate,
independent distribution agreement (the "Distribution Agreement")
under which HP will also sell the Aspect 2000 BIS Monitor and
Aspect BIS Sensors in certain geographies.

2. DEFINITIONS.

"Aspect's Bispectral Index" or "BIS" is Aspect's proprietary processed
EEG parameter that measures the hypnotic effects of anesthetic and
sedative agents on the brain during surgery.

"HP Patient Monitors" means a family of multi-parameter modular
patient monitoring systems manufactured by or for HP. When the HP BIS
System is complete, HP Patient Monitors will display BIS data
(waveforms, numerics, status info), and provide setup and operation
information (user interface), alarming, and network connectivity.

"HP BIS System" is the sum of all components involved in integrating
the BIS with HP Patient Monitors.

<PAGE> 2
"HP BIS Module" is a standard size parameter module for HP Patient
Monitors to convert the data as delivered by the HP BIS Engine from
the BIS Protocol to the HP Patient Monitor's internal format.

"Module Cable" is a cable used to connect the HP BIS Engine to the HP
BIS Module.

"DSC Cable" is a cable used to connect the Digital Signal Converter to
the HP BIS Engine.

"HP BIS Engine" is the processing unit for deriving the BIS data from
the raw EEG signal and consists of Aspect's "BIS Engine" board
modified for HP and built into a housing with appropriate connectors
to connect to the DSC Cable and the Module Cable.

"Digital Signal Converter" (or "DSC") is used to amplify the analog
EEG signals as acquired by the BIS sensors and convert it from analog
to digital signals.

"Aspect BIS Module Kit" means the bundle of all components of the HP
BIS System that are developed and manufactured by Aspect and
licensed/sold to HP under this Agreement: DSC, DSC Cable, HP BIS
Engine, and Module Cable.

"Aspect BIS Sensor" means a single use disposable sensor manufactured
by Aspect for use with the Aspect A2000 BIS monitor or with the Aspect
BIS Module Kit and that is required to generate Aspect's Bispectral
Index.

"Sensor Startup Kit" is a set of Aspect BIS Sensors that may be part
of each HP BIS System sale by HP in selected geographies outside North
America.

"A2000" means Aspect's stand-alone BIS monitor for use with the Aspect
BIS Sensor and that generates Aspect's Bispectral Index.

"Aspect Products" means Aspect BIS Module Kits and any other product
that can be ordered by HP as listed in Exhibit A (Aspect Products and
Purchase Prices).

"Software" means Aspect software programs in binary code form which
are designed for use with the Aspect BIS Module Kit.

"BIS Protocol" is Aspect's proprietary communication protocol provided
for purposes of communication between the HP BIS Engine, the HP BIS
Module and HP Patient Monitors

"Documentation" means the BIS Engine Serial Interface Specification.

"Territory" shall mean all countries in which HP is permitted under
this Agreement to distribute Aspect Products.

"Party" or "Parties" shall mean Aspect and HP each individually or
jointly.

<PAGE> 3

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

3. BIS MODULE DEVELOPMENT PROJECT.

3.1. PROJECT SCOPE

(a) Aspect and HP will be performing activities to develop a HP BIS
System. Aspect will modify Aspect's standard BIS Engine product
described in Exhibit B to create a HP BIS Engine. HP will develop
a HP BIS Module to interface with Aspect's modified BIS Engine.

(b) The following specifications/documents will be created and agreed
upon by both parties prior to completion of Phase 1 of the Module
Development Project:

- Functional Technical Specification (FTS): This is a
specification that defines the interface between the HP BIS
Engine and the HP BIS Module. This document is an HP
specification that is derived principally from
specifications and materials from Aspect.

- System Hazard Analysis: To be performed in Phase 1 of the
project.

- External Specification: Specification describing the HP BIS
Module and the Aspect BIS Module Kit as a system from the
customer's viewpoint.

- Project Plan: The project plan will include a detailed
project schedule, detailed project description, and other
information not included in the FTS.

3.2. PROJECT TIMING

The overall project duration is expected to be approximately [**]. The product
introduction is planned for [**]. The expected major project milestones are
described below:

[**] [**]

3.3. PROJECT PHASE DESCRIPTIONS

The following phases of the project closely correlate with the standard internal
project phases of the HP development process.

<PAGE> 4

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

PHASE 1: PROJECT DEFINITION

Phase 1 defines the project at a high level.

The principal technical issues to resolve are the [**] requirements and the [**]
requirements for the [**].

At the end of Phase 1 the following documents are created: External
Specification (preliminary), Functional Technical Specification (preliminary),
an initial Hazard Analysis, and a detailed Project Schedule., In addition, HP
shall create internal Functional Plans, including a development plan,
verification and validation plan, manufacturing plan, marketing plan,and
regulatory plan.

PHASE 2A: SPECIFICATION

In Phase 2A the detailed design specifications are created: External
Specification (Final), Technical Specification (Final), Hazard Analysis (Final)
and definition of Aspect's Qualification Test Procedure (verification and
validation plan for all items identified under the Functional Technical
Specification).

PHASE 2B: DESIGN (IMPLEMENTATION)

The actual electrical, circuit schematics, and mechanical design and
implementation is performed in Phase 2B. The output of Phase 2B is a functional
prototype. This functional prototype is intended to be a faithful representation
of the product, including actual molded materials, electronics and software.
During this phase, the Outgoing Inspection Procedure from Aspect is also
defined.

PHASE 3: VERIFICATION

Design verification testing of software, electronics and mechanical components
is performed in Phase 3. Additionally EMI testing of the system is performed in
this phase of the project. Aspect will perform an [**] of the [**] as a [**]
with the BIS Module.

Clinical field trials are started in Phase 3. It is anticipated that field
trials of the BIS Module System will be conducted in [**] hospitals in Europe
and [**] hospitals in the US. The completion of field trials occurs by the end
of Phase 4.

During this phase, results of the Qualification Tests and Outgoing Inspection
will also be reviewed for all prototypes.

PHASE 4: VALIDATION

The following tasks are accomplished during Phase 4: Software Validation: Formal
validation testing of the BIS Module System.

<PAGE> 5

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Manufacturing Pilot Build: It is expected that [**] systems will be built, of
which [**] units will be required at the beginning of Phase 3 for clinical field
trials. The systems will be used for clinical trials, engineering test, and for
sales demos. Final Test Procedure: Used to 100% test the Aspect BIS Module Kit
and HP BIS Module as a final test in manufacturing.

3.4 PROJECT MANAGEMENT.

(a) Each party shall appoint a "Project Manager" who oversees and
manages the joint project on a day-to-day basis.

(b) The Project Managers shall meet regularly based on the project
needs to assess the project status and discuss and resolve any
issues or problems. These meetings may be held face-to-face or as
telephone or video conferences.

(d) Each Party shall bear its own communication and travel costs.

(e) All communication in conjunction with this Agreement shall be
directed to the appropriate person and address as listed in
Exhibit C (Contact Persons/Addresses).

3.5. JOINT RESPONSIBILITIES.

(a) Both Parties will actively work together in performing a joint
Hazard Analysis for the HP BIS System at the beginning of the BIS
Project.

(b) Both Parties will generate a joint External Specification of the
HP BIS System.

(c) The parties will jointly develop and agree on a Verification and
Validation Plan for testing the performance and safety of the
entire BIS System prior to its release to shipment.

(d) The verification and validation of the HP BIS System will be
performed under HP's overall responsibility at HP's Boeblingen
premises. Aspect agrees to support this effort as defined in the
Verification and Validation Plan and as may be required in case
of problems. Verification and validation of Aspect's BIS Module
Kit will be performed by Aspect in Aspect's Natick facility.
After successful validation by HP of the HP BIS System, Aspect
will also validate the HP BIS System output and confirm in a
written certificate that the BIS value as displayed on the HP
Patient Monitor is equivalent to Aspect's BIS implementation.

(e) Both parties will inform each other of any planned change in its
products that may affect compatibility of the HP BIS System
components or the available regulatory approvals. The Change
Notification Agreement Form (attached as Exhibit D) will be used
for this purpose.

<PAGE> 6

(f) Both parties will provide each other reasonable engineering
consultation free of charge.

(g) Aspect and HP will provide each other free of charge with certain
number of prototypes and product samples for development,
verification and validation, and getting regulatory approvals.

3.6. HP RESPONSIBILITIES.

(a) HP shall develop the HP BIS Module according to the mutually
agreed Functional Technical Specification and External
Specification at HP's own cost.

(b) HP will take responsibility for the development, design and
performance of the HP BIS Module and for the combination of the
Aspect components (BIS Module Kit) with the HP components (HP BIS
Module, HP Patient Monitor) of the HP BIS System.

3.7. ASPECT RESPONSIBILITIES.

(a) Aspect shall develop the HP BIS Engine, the DSC Cable and the
Module Cable according to the mutually agreed specifications at
Aspect's own cost.

(b) Aspect will take responsibility for the development, design and
performance of the Aspect BIS Module Kit.

(c) Aspect shall make available the BIS Protocol specification to HP
for implementation into the HP BIS Module or otherwise into HP
Patient Monitors.

(d) Aspect will undertake reasonable efforts to maintain backward
compatibility for future versions of the BIS Protocol, however no
guarantee is given.

(e) Aspect will inform HP of future changes to the BIS Protocol as
early as possible and make available such changed BIS Protocol
specification to HP. The Change Notification Agreement Form
(attached as Exhibit D) will be used for this purpose.
Notwithstanding anything to the contrary in the Change
Notification Agreement Form, HP shall not withhold its approval
of any future changes to the BIS Protocol as provided in Section
3.7 (d).

4. PURCHASE AND SALE OBLIGATIONS; LICENSES.

(a) General. Subject to the terms and conditions of this Agreement,
Aspect agrees to sell to HP the Aspect Products listed on Exhibit
A (Aspect Products and Purchase Prices). For these products,
Aspect grants to HP or HP's subdistributors a non-exclusive,
worldwide distribution right for the term of this Agreement. HP
represents and warrants that the components of the Aspect BIS
Module Kits purchased from Aspect under this Agreement shall be
used as components in, incorporated into, or integrated with,
systems and products which HP sells or leases to third-party
users in the regular course of business. HP further certifies
that the components of the Aspect BIS Module Kits will only be
resold, leased, rented, licensed or otherwise transferred to
third parties for use as a part of an HP BIS System or as
replacement parts used in HP BIS Systems.

<PAGE> 7

(b) BIS Sensors. Apart from section 4.a., Aspect hereby grants HP the
right to distribute Aspect BIS Sensors solely to HP's customers
outside North America and solely for use with HP BIS Systems.

(c) Sensor Startup Kit. Aspect hereby grants HP the right to sell the
Sensor Startup Kit for use with the HP BIS System in geographies
outside North America.

(d) Software License. Aspect hereby grants to HP a non-exclusive and
non-transferable worldwide license, without the right to
sublicense (except to purchasers of HP BIS Systems and to HP's
subdistributors), during the term of the Agreement to use the
Software and related Documentation provided by Aspect solely in
connection with operation of the components of Aspect BIS Module
Kit in the HP BIS System. Thereafter, Aspect grants to HP a right
to use the Software and related Documentation used in conjunction
with the HP BIS Systems being sold by HP on the date of
termination with respect to service and support of installed HP
BIS Systems for a period of 10 years, after termination of the
Agreement. All rights granted to HP customers to use the HP BIS
System shall be irrevocable as long as such customers are in
compliance with the terms of use for such HP BIS Systems and does
not cure such non-compliant use within 90 days of being notified.
HP shall not disclose, furnish, transfer, distribute or otherwise
make available the Software, the Documentation or any portion
thereof in any form to any third party (other than to purchasers
of HP BIS Systems and to HP's subdistributors) and shall not
duplicate the Software, the Documentation or any part thereof
(other than for HP's internal use). Title to and ownership of and
all proprietary rights in or related to 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 Software,
the Documentation, any copies thereof or any part thereof. All
references in this Agreement to sale, resale or purchase of the
BIS Module Kits or the components thereof, or references or like
effect, shall, with respect to the Software and the Documentation
mean licenses or sublicenses of the Software and the
Documentation pursuant to this Section 4. HP shall not
disassemble, decompile or otherwise reverse engineer the Software
or any part thereof, except if Aspect is required under
applicable law to permit HP to reverse engineer any Software. In
such event, HP may reverse engineer the Software but only to the
extent Aspect is required to permit such reverse engineering. HP
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 it receives such
Software or such Documentation.

(e) BIS Protocol License. Aspect hereby grants to HP a non-exclusive,
worldwide, irrevocable, royalty-free license to implement
Aspect's proprietary BIS Protocol and sell it to HP's end
customers as part of its products for use solely with the Aspect
BIS Module Kit.

<PAGE> 8

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

5. ROYALTIES.

(a) For each BIS Module Kit that HP is purchasing from Aspect HP
shall pay a purchase price for the BIS Module Kit and a royalty
fee as specified in Exhibit A (Aspect Products and Purchase
Prices).

(b) Within 30 days after the Effective Date, HP shall pay Aspect an
amount of [**] US$ as prepaid royalties, which will be credited
against the actual royalty component of the purchase price that
is due for the sale of the first [**] Aspect BIS Module Kits. It
is understood that [**] of this amount to [**] in connection with
the [**].

(c) In the event that the Agreement is terminated by HP because
Aspect is unable to deliver a HP BIS Engine before October
31st,[**](in accordance with Section 23.2, paragraph b), or in
the event Aspect fails to deliver the first [**] Aspect BIS
Module Kits for whatever reason, excluding breach by HP or
failure to order then Aspect shall refund HP according to the
following rules:

(i) Aspect shall refund to HP that part of the prepayment that
is not yet consumed by unit royalties, however not more than
[**] US$.

(ii) Aspect shall [**] of the [**] that is [**] for the [**]. For
purposes of [**] it is [**].

(d) Aspect agrees to [**] a [**] in accordance with the terms
outlined in [**] in accordance with Section 5 (c) in the event
that [**] as determined on a [**] and [**] following the [**] of
[**]. HP agrees to [**] for [**] in connection with [**]. At such
time as Aspect completes an initial public offering of its common
stock, the requirement to [**] will terminate.

6. SCOPE OF DELIVERY

(a) Purchase Orders. Purchase orders (via Fax, e-mail, other
electronic transmission or paper) for Aspect Products to be
purchased under this Agreement (the "Orders") must be received by
Aspect during the term of this Agreement and must specify a
delivery date in accordance with the lead-time schedule outlined
below under Section 6, paragraph e) All HP Purchase Orders will
make reference to the appropriate engineering drawing or
manufacturing reference numbers.

(b) Order Acknowledgements. HP purchase orders will be acknowledged
by Aspect within 5 days after receipt of the order, provided that
the order is technically correct and that the requested delivery
time is within the agreed lead time and that the latest forecast
provided by HP is not exceeded by more than [**] and the quantity
ordered does not exceed by more than [**] the quantity ordered in
the preceding month. If the requested delivery time is lower than
the agreed lead time, or if HP's latest forecast is exceeded by
more than [**], Aspect shall use reasonable efforts to complete
the order requirements and to acknowledge the order within 10
days of its receipt. Order acknowledgements shall not be
unreasonably withheld.

(c) Forecasts. HP shall furnish to Aspect a non-binding monthly
forecast during the term of this Agreement with the number and
type of Aspect Products for which HP expects to submit orders for
the following twelve months. Existing open purchase orders are
not usually reflected in these forecast numbers.

<PAGE> 9

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

(d) Cancellation Charges. In the event of the cancellation of any
Order by HP, HP shall be liable for the payment of cancellation
charges based on the number of days prior to scheduled delivery
that written notice of cancellation is received by Aspect, as
outlined below:
<TABLE>
<CAPTION>
<S> <C>
> 10 weeks prior to acknowledged delivery [**]
6 - 10 weeks prior to acknowledged delivery [**] of order value
4 - 6 weeks prior to acknowledged delivery [**] of order value
2 - 4 weeks prior to acknowledged delivery [**] of order value
< 2 weeks prior to acknowledged delivery [**] of order value
</TABLE>

(e) Lead Times. Lead times for the Aspect BIS Module Kit are expected
to be 12 weeks.

7. PRICES.

(a) Purchase Prices. The prices of Aspect Products purchased by HP
hereunder (the "Purchase Prices") which are ordered during the
term of the Agreement shall be as set forth in Exhibit A (Aspect
Products and Purchase Prices).

(b) Purchase Price Changes. In consideration of the market situation
and after consultation with HP, the Purchase Prices set forth in
Exhibit A (Aspect Products and Purchase Prices) will be reviewed
12 months after first delivery of production units and annually
thereafter. Any price increase will become effective only after
mutual agreement between both Parties, subject to the following:

(i) In the event the materials cost for the Aspect BIS Module
Kit increases by more than [**]. Aspect shall have the right
no more than once per year during the term of this Agreement
to increase the Purchase Price of the Aspect BIS Module Kit
by an equivalent amount by giving HP written notice of such
increase not less than [**] days prior to the date upon
which the increased Purchase Price is to become effective.
No Purchase Price increase shall apply to Orders for Aspect
Products accepted by Aspect prior to or during such [**] -
day period which are to be delivered within [**] days of the
date of such notice.

(c) Aspect may reduce the Purchase Price of any Aspect Product at any
time. Such reduction shall be applicable to all Aspect Products
not shipped at the time of the reduction.

(d) [**] the Purchases Prices [**] the [**] for [**] and based on
similar terms and conditions [**] that has entered into a [**]
the date of this agreement.

(e) Taxes. All prices for Aspect Products are exclusive of all
federal, state and local taxes, levies and assessments, and HP
shall be responsible for the payment of all such taxes, levies
and/or assessments imposed on Aspect Products purchased and/or
licensed by HP hereunder, excluding taxes based on Aspect's net
income

<PAGE> 10

from the transaction. HP shall be responsible for providing in a
timely manner all documentation, in the nature of exemption
certificates or otherwise, necessary to allow Aspect to refrain
from collections, such as sales tax, which it would otherwise be
obligated to make

8. TERMS OF PAYMENT.

(a) Invoices. HP shall pay to Aspect the Purchase Price of all Aspect
Products shipped hereunder within 30 days after the receipt of
Aspect's invoice. Nothing herein shall affect Aspect's right to
withhold shipment or otherwise exercise its rights under Section
24 (Termination) hereof in the event of HP's failure to make
payment when due for Aspect Products delivered to HP. Aspect's
invoices to HP for Aspect Products purchased under this Agreement
shall be addressed to:

Hewlett-Packard GmbH
Department ASC-AP
Postfach 1430
D-71004 Boeblingen
Germany

Late Payment Charge. Subject to applicable law, service and/or
interest charges not exceeding the lesser of 1-1/2% per month
or the highest amount permitted by law may, at the election of
Aspect, be assessed on amounts past due more than 30 days.

9. SHIPMENT AND DELIVERY.

(a) Delivery Location. Each shipment must indicate the exact address
of the recipient on the outside of the packaging as follows:

Hewlett-Packard GmbH
HSG-E Healthcare Solution Group Europe
c/o Js. Mueller Spedition GmbH
Eugen Zeyer Str. 1
D-75382 Althengstett
Germany

(b) All shipments hereunder shall be freight collect, F.C.A. point of
origin (Incoterms 1990). All Aspect Products shall be deemed
delivered and subject to HP's dominion and control when placed in
the possession of the carrier, packed and ready for shipment to
HP.. Aspect shall cooperate with HP in the documentation and
proof of loss claims promptly presented by HP to the appropriate
carrier and/or insurer.

(c) Delivery and Packaging Instructions Delivery and Packaging
requirements will need to conform to the standards outlined in
the HP Delivery and Packaging Standard (attached as Exhibit E)

<PAGE> 11

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

(d) Delivery Date and Date of Dispatch. The requested delivery date
will be specified on the HP Purchase Order. Aspect will utilize
reasonable efforts to ensure that the order is delivered in
accordance with Aspect's order acknowledgement and that the the
date of dispatch is 10 days prior to the delivery date.

10. ACCEPTANCE.

Any Aspect Product shipped hereunder may be subjected to inspection and
performance testing by HP, in accordance with applicable product specifications
in effect at the time of delivery of such Aspect Products to HP. HP shall
provide written notice to Aspect of the rejection of any such Aspect Product
within [**] days of the date of receipt of any Aspect Product; if more than
[**]% of Aspect Products received in any single shipment do not pass HP's
inspection or performance testing HP may reject the entire shipment lot. Aspect
shall have [**] days from receipt of a notice from HP rejecting an Aspect
Product either, at its option, to make any necessary repairs to the defective
Aspect Product or to replace it. If Aspect replaces an Aspect Product, HP shall
dispose of the replaced Aspect Product in accordance with Aspect's instructions
and at Aspect's expense. HP's sole remedy for rejected Aspect Products shall be
limited to repair or replacement of such Aspect Products.

11. WARRANTY.

(a) General. Aspect warrants solely to HP that Aspect Products
(including Software) delivered hereunder shall perform
substantially in accordance with the specifications in Exhibit B
(Aspect's Standard Module Kit) or other applicable product
specifications as published by Aspect in effect at the time of
delivery of such Aspect Product (including Software), and shall
be free from defects in materials and workmanship, when given
normal, proper and intended usage, for twelve months from the
date of installation of the HP BIS System at HP's end customer
site, or eighteen months from the date of shipment by Aspect to
HP, whichever is less . Aspect agrees, during the applicable
warranty period, to repair or replace (at Aspect's option) all
defective Aspect Products within 30 days after date of return to
Aspect and without cost to HP. This warranty shall not apply to
expendable components and supply items, such as, but not limited
to, cables (except for failures occurring within 180 days of
receipt of shipment), fuses and bulbs (or disposable items such
as an Aspect BIS Sensor after the expiration date marked on the
Sensor packaging); nor shall Aspect have any obligation under
this Agreement to make repairs or replacements which are required
by normal wear and tear, or which result, in whole or in part,
from catastrophe, fault or negligence of HP, or anyone claiming
through or on behalf of HP, or from improper or unauthorized use
of Aspect Products, or use of Aspect Products in a manner for
which they were not designed, or by causes external to Aspect
Products such as, but not limited to, power or air conditioning
failure.

<PAGE> 12

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

(b) Warranty Procedures. HP shall notify Aspect of any Aspect
Products which it believes to be defective during the applicable
warranty period and which are covered by the warranties set forth
in paragraph (a). At Aspect's option, such Aspect Products shall
be returned by HP to Aspect's designated facility for examination
and testing, or may be repaired on site by Aspect. Aspect shall
either repair or replace, within 30 days of receipt by Aspect,
any such Aspect Product found to be so defective and promptly
return such Aspect Products to HP. Transportation and insurance
costs, and/or risk of loss or damage during shipments, shall be
borne by Aspect. Should Aspect's examination and testing not
disclose any defect covered by the foregoing warranty, Aspect
shall so advise HP and dispose of or return the Aspect Product in
accordance with HP's instructions and at HP's sole expense.

(c) Repair Warranty. Aspect warrants its repair work and/or
replacement parts for the duration of the original warranty
period as set forth in paragraph (a) or at least 6 months
whichever is longer.

(d) LIMITATION. 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). THE FOREGOING WARRANTIES EXTEND TO HP ONLY
AND SHALL NOT BE APPLICABLE TO ANY OTHER PERSON OR ENTITY
INCLUDING, WITHOUT LIMITATION, CUSTOMERS OF HP.

12. SERVICE AND SUPPORT.

(a) Service and Support. HP shall be responsible for providing
installation, customer training, service and support (including
repair) to its end customers for the Aspect Products sold
hereunder and HP shall bear all related costs incurred for labor,
parts, or travel to perform such service.

(b) Central Repair Service. For the term of this Agreement, Aspect
agrees to provide central repair service to HP for Aspect
Products sold hereunder at a charge and as further detailed in
Exhibit F (Service/Repair).

(c) Excessive Failure Rate. If the Annual Failure Rate of Aspect's
BIS Module Kit excluding out-of-box failures and cables exceeds
the value as specified in Exhibit B (Aspect's Standard Module
Kit) by more than [**] then Aspect shall reimburse HP for any
additional cost (including material and labor, ) incurred by HP
for repairing the units in excess of the above limit.

(d) Service Period. For a period of [**] following the last delivery
to HP of the applicable Aspect Product ordered by HP hereunder,
Aspect shall make available repair service (or at Aspect's sole
discretion, exchange units for the Aspect Products) for purchase
by HP and third party users of the Aspect products at

<PAGE> 13

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Aspect's then-current prices for such repair services and
exchange units. After expiry of this [**] period, Aspect may, in
its sole discretion, continue to supply repair services (and/or
exchange units for the Aspect Products) subject to the mutual
written agreement of the Parties.

(e) Service Reporting. Aspect shall maintain a complete record of all
repair activities performed on any Aspect products received for
repair, and will provide HP with a monthly report on all service
actions including failure and repair statistics at a sub-
assembly levelas laid down in Exhibit F (Service/Repair). Service
Reports for each product shall be sent electronically by email to
responsible procurement and technical marketing engineer (Contact
Persons shown in Exhibit C, Contact Persons / Addresses).
Rootcause analysis is to be performed and reported by Aspect in
case of abnormal failures, incidents and malfunctions.

13. QUALITY ASSURANCE.

(a) Both parties agree to maintain ISO900x, EN460x, European
directive 93/42/EEC Annex II ("MDD AX-II") certification status
and compliance with the U.S. Food and Drug Administration's
("FDA") Quality System Regulation ("QSR"), the European Medical
Device Directive ("MDD"), and other appropriate regulations
pertinent to the development, manufacturing and marketing of this
kind of medical product.

(b) All Products developed under this Agreement shall fully comply
with the above quality requirements and guidelines (MDD AX-II,
FDA QSR, etc.)

(c) If the actual Annual Failure Rate ("AFR") of the BIS Module Kit
or subcomponents thereof exceeds the expected value specified in
Exhibit B (Aspect's Standard Module Kit) by more than [**] then
Aspect agrees to investigate the root cause of the problem and
take the appropriate corrective actions to bring the AFR back
into the specified range.

14. REGULATORY MATTERS.

(a) Aspect shall assume full regulatory responsibility for the Aspect
Products, including obtaining and maintaining all applicable
governmental authorizations and regulatory approvals required to
distribute the BIS Module Kit. Both Parties will work together to
develop a regulatory plan during phase 1 of the Project which
defines precisely what these regulatory and localization
requirements are for all countries where the HP BIS System is
intended to be sold. In particular, Aspect shall be responsible
for generating its own Device Master Record for the BIS Module
Kit and obtaining the CE-mark. It is understood that the BIS
Module Kit will be a component of the HP BIS System for which HP
assumes full regulatory responsibility as provided in Section 14
(c).

<PAGE> 14

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

(b) HP shall assume full regulatory responsibility for the HP
Products, including obtaining and maintaining all applicable
governmental authorizations and regulatory approvals required to
distribute the HP Patient Monitors and the HP BIS Module in all
countries in the Territory.

(c) HP shall assume the regulatory responsibility for the combination
of the Aspect and HP components in the HP BIS System. Aspect
shall fully support HP as required in the process of obtaining
regulatory approvals by making available to HP any required
information, data, certificates, or technical files in the
requested formats.

(d) For bringing the Aspect Products into the market in countries
affected by the European Medical Device Directive ("MDD"), Aspect
is the legally responsible manufacturer under the MDD as named in
detail in Exhibit C (Contact Persons/Addresses). The Aspect
Products shall be marked accordingly.

(e) HP and Aspect shall inform each other in writing immediately
about any event that may require incident reporting in any
country of the Territory.

(f) In the event of any recall of an Aspect Product required by a
governmental agency for safety or efficacy reasons, or requested
by Aspect at its sole discretion, which is the result of Aspect's
failure to supply Aspect Products that (1) conform in all
material respects to the applicable published specifications
(including the specifications set forth in Exhibit B (Aspect's
Standard Module Kit)) or (2) are free from defects in material
and workmanship (when given normal, proper and intended usage),
Aspect agrees to repair or replace at its own costs all Aspect
Products subject to the recall and previously delivered to HP.
Aspect also agrees to consult with HP to establish a reasonable
process for managing the recall and Aspect shall be [**]
(including, but not limited to [**] that are consistent with the
recall process agreed to by the Parties. In the event the recall
is not required by a governmental agency for safety or efficacy
reasons, but is instead requested by Aspect at its sole
discretion, Aspect will be responsible for determining the scope
of the recall, including the number of units, timeframe for the
recall, and criteria for completion. HP agrees to maintain all
necessary sales records to facilitate the recall.

(g) HP may at its sole discretion delegate some of the obligations
under this Section 14 to its subdistributors.

(h) For the purpose of facilitating product traceability, all
Products purchased from Aspect by HP will require identification
of an internal order number and tracking code.

15. PRODUCT CHANGES; DISCONTINUED PRODUCTS; FUTURE PRODUCTS; CONTINUED SUPPLY.

(a) Product Changes. Aspect shall have the right, at any time and
from time to time, to make substitutions and modifications to
Aspect Products, provided that such substitutions or
modifications will not materially affect form, fit or function of
Aspect

<PAGE> 15

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Products. In the event that any proposed substitution or modification
affects, in Aspect's reasonable judgment, the form, fit or function of
a Aspect Product, Aspect shall give HP written notice of such proposed
substitution or modification at least [**] days prior to its taking
effect and HP shall have the right, during such [**] -day period and
for [**] days thereafter, to order Aspect Products without such
substitution or modification for delivery within [**] days after such
substitution or modification takes effect. Aspect shall give written
notice of any proposed change to the Aspect Products using the
Supplier Change Notification Agreement Form (attached as Exhibit D)
and provide the appropriate verification and validation information
evaluating the affect on the HP BIS System. Notwithstanding anything
to the contrary in the Change Notification Agreement Form, HP shall
not unreasonably withhold its approval of any such changes.

(b) Discontinued Products. Aspect agrees to notify HP in writing not less
than [**] in advance of the discontinuance of any Aspect Product. HP
shall be able to place orders for at least [**] after receipt of the
written notice in any case. In addition, HP shall be entitled to
determine its lifetime-buy quantities and place a corresponding last
purchase order.

(c) Future Products. The Aspect Products are designed for use in measuring
the effects of anesthetic and sedative agents on the brain during
surgery. In the event that Aspect develops a product involving a
different type of index, patient sensor, or application, Aspect and HP
agree to discuss a new agreement for the purchase of such new product
or products by HP.

(d) Continued Supply. In the event that (a) Aspect makes an assignment for
the benefit of creditors, or a receiver, trustee in bankruptcy or
similar officer is appointed to take charge of any or all of Aspect's
property, or Aspect files a voluntary petition under federal
bankruptcy laws or similar state statutes or such a petition is filed
against Aspect and is not dismissed within sixty (60) days, and (b)
Aspect fails to deliver Aspect Products ordered by HP under this
Agreement within [**] of the delivery date specified on a purchase
order complying with Section 4 and accepted by Aspect in accordance
with Section 4, upon request of HP, Aspect shall grant to HP, a
nonexclusive license to use the Manufacturing Materials to make and
have made the Aspect Products for use in the HP BIS System, until [**]
after Aspect is ready and able to deliver Aspect Products to HP under
the terms of this Agreement and has notified HP thereof. This includes
a non-exclusive license to use any tools, design documentation, or any
other manufacturing materials which may be necessary. The
manufacturing materials supplied by Aspect shall include a list of the
Aspect suppliers of parts for Aspect Products. Upon exercise by HP of
the manufacturing license set forth above, HP shall pay Aspect a
"Manufacturing License Fee" equal to the royalty specified on Exhibit
A (Aspect's Products and Purchase Prices).

<PAGE> 16

16. OWNERSHIP AND PROTECTION OF RESULTS.

(a) It is expressly agreed that neither Aspect nor HP will transfer to any
Party any patent rights, copyrights or intellectual property of any
kind that either Party owns at the effective date of this agreement.

(b) Aspect shall retain the title to and possession of any models,
patterns, dies, molds, jigs, fixtures, and other tools made for or
obtained in connection with this Agreement and solely related to the
Aspect Products, even if made for, obtained by or paid for by HP.

(c) If there are developments (including patentable inventions) conceived,
created or reduced to practice as part of the joint development
project then the rights to such developments shall be retained (a) by
Aspect if conceived, created or reduced to practice solely by Aspect,
or (b) by HP, if solely conceived, created or reduced to practice by
HP, or (c) jointly by HP and Aspect (without any duty to account to
the other) if jointly developed by HP and Aspect provided that:

HP shall assign to Aspect all rights to any development relating to
Aspect's BIS Module Kit

and Aspect shall assign to HP all rights to any development relating
to the HP Patient Monitor or HP BIS Module subject to Aspect's
retained rights to the BIS Protocol.

17. DOCUMENTATION AND TRAINING.

Aspect agrees to provide HP with such product literature, operations
and maintenance manuals, other information and training (including training to
avoid possible misrepresentation of Aspect's Bispectral Index) as is mutually
agreed, to enable HP properly to sell and maintain Aspect Products, provided
that in no event shall the source code or source listings of Aspect Software be
required to be disclosed or provided by Aspect to HP pursuant to this Section 17
or otherwise. Such training needs to begin at least three months prior to
introduction of the HP BIS System and will be defined as part of the Project's
marketing plan.

18. CONFIDENTIALITY.

No confidential information disclosed by either party to the other in
connection with this Agreement shall be disclosed to any person or entity other
than the recipient party's employees and contractors directly involved with the
recipient party's use of such information who are bound by written agreement to
protect the confidentiality of such information, and such information shall
otherwise be protected by the recipient party from disclosure to others with the
same degree of care accorded to its own confidential information of like
importance. In addition, each party and its representatives shall use the
confidential information only for the purposes specified under this Agreement
and such information shall not be used for any other purpose without the prior
written consent of the disclosing party. To be subject to this provision,
information must be delivered in writing and designated as proprietary or, if
initially delivered orally, must be confirmed

<PAGE> 17

in writing as confidential within 30 days after the oral disclosure. Information
will not be subject to this provision if it is or becomes a matter of public
knowledge without the fault of the recipient party, if it was a matter of
written record in the recipient party's files prior to disclosure to it by the
other party, or if it was or is received by the recipient party from a third
person under circumstances permitting its unrestricted disclosure by the
recipient party. Upon termination of this Agreement, each party shall promptly
deliver to the other all confidential information of the other party in the
possession or control of such party and all copies thereof, provided that each
party may retain a copy thereof for archival purposes. The obligations under
this Section 18 shall continue for both parties for a period of 10 years after
delivery by Aspect to HP of the last Aspect Product under this Agreement. HP is
entitled to transmit confidential information of Aspect to Hewlett-Packard
Company and to its subsidiaries and affiliated companies. In this case these
companies may only use such information to the same extent as HP is entitled to
under this Agreement. HP will be responsible that these companies comply with
the confidentiality provisions of this Agreement.

19. INDEMNITIES.

19.1. INDEMNITIES BY ASPECT.

(a) Except as provided below, Aspect shall defend and indemnify HP
from and against any damages, liabilities, costs and expenses
(including reasonable attorneys' fees and court costs) arising
out of any claim that Aspect Products purchased and/or licensed
hereunder infringe any patent or copyright or misappropriate a
trade secret of a third party, provided that (i) HP shall have
promptly provided Aspect written notice thereof and reasonable
cooperation, information, and assistance in connection therewith,
and (ii) Aspect shall have sole control and authority with
respect to the defense, settlement, or compromise thereof. Should
any Aspect Products delivered hereunder become or, in Aspect's
opinion, be likely to become the subject of such a claim, Aspect
may, at its option, either (x) procure for HP the right to
continue purchasing and using such Aspect Products, or (y)
replace or modify such Aspect Products so that they become
non-infringing or if (x) and (y) are not reasonably available to
Aspect, then (z) terminate HP's rights under this Agreement to
purchase the allegedly infringing Product and refund to HP the
amount which HP has paid to Aspect for such Products which are in
the possession of HP, upon return of such Products in their
unopened packages to Aspect at its principal facility in the
United States (freight and insurance at Aspect's expense). In
such event, Aspect may withhold further shipments of infringing
or potentially infringing Aspect Products.

Aspect shall have no liability or obligation to HP hereunder with
respect to any patent, copyright infringement or trade secret
misappropriation or claim thereof based upon

(i) compliance with designs, plans or specifications of HP,

(ii) use of Aspect Products by HP in combination with devices or
products not purchased and/or licensed hereunder where the
Aspect Products would not themselves be infringing,

<PAGE> 18

(iii)use of the Aspect Products by HP in an application or
environment for which such Aspect Products were not designed
or contemplated, or

(iv) modifications of the Aspect Products by HP

(b) Aspect's liability hereunder shall not exceed the purchase and/or
license price paid by HP for the Aspect Products found to be
infringing. The foregoing states the entire liability of Aspect
with respect to infringement or misappropriation of patents,
copyrights and trade secrets by the Products or any part thereof
or by their operation.

(c) In the event that any claim is brought against HP as a result of
personal injuries and/or property damages resulting from that
portion of the HP BIS System developed and manufactured by
Aspect, and provided further that such claims do not arise as a
result of the misuse of the HP BIS System , or the use of the HP
BIS System in an application for which it was not designed by
Aspect, where such claim would not have occurred but for such
misuse or use, Aspect agrees that it shall indemnify and hold HP
harmless from and against any damages, liabilities, costs and
expenses arising out of such claim, provided that HP shall
promptly provide Aspect written notice thereof and reasonable
cooperation, information and assistance in connection therewith
and Aspect shall have sole control and authority with respect to
the defense, settlement or compromise.

19.2. INDEMNITIES BY HP.

(a) Except as provided below, HP shall defend and indemnify Aspect
from and against any damages, liabilities, costs and expenses
(including reasonable attorneys' fees and court costs) incurred by
Aspect as a result of or arising from HP's activities under this
Agreement, including, without limitation, product liability,
customer warranty and service claims, provided that

(i) Aspect shall have promptly provided HP written notice
thereof and reasonable cooperation, information and
assistance in connection therewith, and

(ii) HP shall have sole control and authority with respect to the
defense, settlement or compromise thereof, and provided
further that

(iii) HP shall not be liable to Aspect under this Section 19.2 to
the extent that such damages, liabilities, costs and
expenses arise from Aspect's negligence or a breach of any
representation or warranty by Aspect hereunder.

20. TRADEMARKS.

20.1. ASPECT TRADEMARKS.

(a) Ownership. HP acknowledges and agrees that Aspect is the sole and
exclusive owner of all right, title and interest in and to the
trademarks (the "Aspect Trademarks") identified on Exhibit H
(Aspect Trademarks). HP recognizes the value of the Aspect
Trademarks and the good will associated with the Aspect
Trademarks. HP agrees that its use of the Aspect Trademarks and
any good will

<PAGE> 19

arising therefrom shall inure to the benefit of Aspect. Nothing
contained herein shall create, nor shall be construed as an assignment
of, any right, title or interest in or to the Aspect Trademarks to HP,
other than the grant of a license in Section 20.1 (c) below; it being
acknowledged and agreed that all other right, title and interest in
and to the Aspect Trademarks is expressly reserved by Aspect. HP shall
keep the Aspect Trademarks free from all liens, mortgages or other
encumbrances. HP agrees that it will not attack or otherwise challenge
the title, validity or any other rights of Aspect in or to the Aspect
Trademarks.

(b) Notice. All HP BIS Systems that use the Aspect Trademarks shall
be accompanied, where reasonable and appropriate, by a
proprietary notice consisting of the following elements:

(i) The statement "[insert trademark(s)] is a trademark(s) of
Aspect Medical Systems, Inc."

(ii) HP will include the "(TM)" or "(R)" symbol, as instructed by
Aspect, after the first prominent use of the Aspect
Trademark in the HP Patient Monitor and related materials.
HP shall have a period of 30 days in which to begin to use
the "(R)" symbol in replacement of the "(TM)" symbol upon
receiving instruction to do so by Aspect. HP may continue to
deliver stocked literature before the change becomes
effective.

(iii) HP shall reproduce copyright and trademark notices of Aspect
on the "splash screen" or in the same location where HP
reproduces its own copyright notices .

(c) License. Aspect hereby grants to HP a nonexclusive, worldwide,
royalty-free license (without the right to sublicense) to use the
Aspect Trademarks to designate and promote Aspect Products in HP
BIS Systems. HP shall have no other right to use, display or
utilize the Aspect Trademarks for any other purpose or in any
other manner.

(d) Quality Standards.

(i) Upon reasonable notice and request, and at a mutually
acceptable date and location, Aspect may inspect the
advertising and promotional materials on which the Aspect
Trademarks are used so that Aspect may monitor compliance
with this Agreement.

(ii) Compliance. Aspect acknowledges the high standards of
quality and excellence established by HP with respect to
products bearing HP's trademarks. HP acknowledges the high
standards of quality and excellence established by Aspect
with respect to products bearing the Aspect Trademarks. HP
agrees that HP Patient Monitors with which the Aspect
Trademarks are used shall be of such quality so as to
maintain such high standards and to reflect well upon
Aspect. HP agrees to adhere to HP's own or the following
quality standards (whichever may be more rigorous) for use
of the Aspect Trademarks by HP:

- In order to ensure that Aspect Products and HP Patient
Monitors distributed under the Aspect Trademarks comply
with the consistent quality standards of Aspect, all
Aspect Products and HP Patient Monitors distributed by
or for HP

<PAGE> 20

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

which bear an Aspect Trademark shall conform to those
standards which Aspect provides to HP in writing. HP
shall cause each major new release of such HP Patient
Monitors to comply with such standards or remove the
Aspect Trademark(s) from any such new release, which
does not comply with such standards. HP shall have a
period of 30 days in which to bring newly shipped HP
Patient Monitors into compliance with any standard
provided to it by Aspect following the date of this
Agreement.

- HP acknowledges that if Aspect Products or HP Patient
Monitor products bearing the Aspect Trademarks fail to
satisfy the quality standards set forth above, the
substantial good will which Aspect have built and now
possess in the Aspect Products and in the Aspect
Trademarks will be impaired.

(e) Protection and Infringement. HP agrees to cooperate with and
assist Aspect in obtaining, maintaining, protecting, enforcing
and defending Aspect' proprietary rights in and to the Aspect
Trademarks. In the event that HP learns of any infringement,
threatened infringement or passing-off of the Aspect Trademarks,
or that any third party claims or alleges that the Aspect
Trademarks infringe the rights of the third party or are
otherwise liable to cause deception or confusion to the public,
HP shall notify Aspect giving the particulars thereof, and HP
shall provide necessary information and assistance to Aspect in
the event that Aspect decides that proceedings should be
commenced.

(f) Termination. In addition to the termination rights set forth in
Section 23 hereof, in the event that HP is in material breach of
any provision of this Section 20, Aspect may, upon [**] written
notice, terminate the license granted in Section 20.1 (c) if HP
does not cure such breach or default within such [**] period. The
parties recognize that curing such breach or default may require
development of a new version of HP BIS System. If this is the
case, then HP will be deemed to have cured such breach or default
if, within the [**] cure period, HP presents to Aspect a plan for
revision of HP Product that will cure such breach or default,
such plan is reasonably acceptable to Aspect, and such revision
is released and distributed within three months following written
notice of such breach or default.

In addition to the provisions of Section 23 hereof, upon
termination of the license granted in Section 20.1 (c), or upon
termination of this Agreement, for whatever cause:

(i) HP shall immediately cease and desist from any further use
of the Aspect Trademarks and any trademarks confusingly
similar thereto, either directly or indirectly;

(ii) All rights in the Aspect Trademarks granted to HP hereunder
shall immediately revert to Aspect;

(iii) In the event that this Agreement is terminated for any
reason other than a material breach or material default by
HP, HP shall have a period of 30 days thereafter to dispose
of all of the unsold HP BIS Systems bearing the

<PAGE> 21

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Trademarks and advertising and promotional materials
relating thereto which had been completed by it prior to
such termination, provided such HP BIS Systems and materials
were in the process of manufacture more than [**] before
such termination.

(g) Promotional Claims. The general form of any promotional claims by
HP regarding Aspect's Bispectral Index technology and/or the
integration of this technology in HP Patient Monitors, and the
specific form of the use of Aspect's trade names and trademarks,
and of intended use claims regarding Aspect's Bispectral Index
technology, in promotional material, advertisement, and/or in
written technical literature shall be subject to review and
approval by Aspect prior to its publication or display.

20.2. HP TRADEMARKS.

(a) The general form of any potential claim by Aspect that HP uses
Aspect's Bispectral Index technology as part of the HP Patient
Monitors, and the specific form of the use of HP's trade names
and trademarks in promotional material, advertisement, and/or in
written technical literature shall be subject to review and
approval by HP prior to its publication or display.

(b) Upon termination of this Agreement any reference to HP and it's
trademarks must be immediately removed from any literature or
other display and must no longer be distributed.

21. EXPORT.

HP shall not export, directly or indirectly, HP BIS Systems or other
products, information or materials provided by Aspect hereunder, to any
country for which the United States requires any export license or other
governmental approval at the time of export without first obtaining such
license or approval. It shall be HP's responsibility to comply with the
latest United States export regulations, and HP shall defend and indemnify
Aspect from and against any damages, fines, penalties, assessments,
liabilities, costs and expenses (including reasonable attorneys' fees and
court costs) arising out of any claim that HP BIS Systems or other
products, information or materials provided by Aspect hereunder were
exported or otherwise shipped or transported in violation of applicable
laws and regulations.

22. CO-MARKETING PROGRAM.

(a) HP and Aspect may agree to undertake co-marketing programs in certain
geographies.

(b) HP and Aspect have agreed on a co-marketing program in North America
as described in Exhibit G (Co-Marketing Program) to this Agreement.

<PAGE> 22

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

23. TERM; DEFAULT AND TERMINATION.

23.1. TERM AND RENEWAL.

The initial term of this Agreement shall commence on the date first
specified above (the "Effective Date") and shall continue for a period
of 6 years. The term of this Agreement shall be automatically renewed
for successive 12 month periods unless either party provides written
notice of termination to the other party at least 60 days prior to
expiration of the Agreement.

23.2. TERMINATION FOR GOOD CAUSE.

(a) The Agreement may be terminated by Aspect giving 30 days written
notice to HP in the event HP has not commercially introduced an
HP BIS System by October 31st 2001.

(b) The Agreement may be terminated by HP giving 30 days written
notice to Aspect if Aspect has failed to provide a BIS Module Kit
with the necessary regulatory approvals to HP by [**].

(i) if either Party assigns this Agreement or any of its rights
or obligations hereunder except in connection with the sale
of such Party's business to which this Agreement relates
(the word "assign" to include, without limiting the
generality thereof, a transfer of a majority interest in the
Party) without the prior written consent of the respective
other Party. Notwithstanding the foregoing, it is understood
that this Agreement shall be assigned to Agilent
Technologies GmbH, at Herrenberger Strasse 110 - 130,
D-71034 Boeblingen, Germany and that Aspect consents to such
assignment.; or

(ii) if either Party shall neglect or fail to perform or observe
any of its obligations to the other Party hereunder,
including, without limiting the generality thereof, the
timely payment of any sums dueor Aspect's inability to
deliver Aspect Products, and such failure is not cured
within [**] in the event of a default in the payment of
amounts owed the other Party) after written notice thereof
from the other Party; or

<PAGE> 23

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission. Asterisks
denote omissions.

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 (z) the commencement against either Party of
any proceeding 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, which proceeding is not
dismissed within thirty (30) days.

(d) Remedies. Upon any event of default, and in addition to any other
remedies either Party may have at law or in equity, the
non-defaulting Party may cancel any outstanding Order, refuse to
make or take further Orders or deliveries, cancel any discount
given, and declare all obligations immediately due and payable.
The non-defaulting Party shall have all the remedies of a secured
party under the Uniform Commercial Code and any other applicable
law. The defaulting Party shall be liable for the other Party's
expense of retaking, holding, preparing for sale, selling and the
like, including reasonable attorneys' fees and legal expenses in
the event of default. Cancellation fees shall not be due and
payable.

23.3. INSURANCE.

Upon request, Aspect shall provide evidence of product liability,
general liability and property damage insurance against an insurable
claim or claims which might or could arise regarding Aspect products
purchased from Aspect. Such insurance will contain a minimum limit of
liability for bodily injury and property damage of not less than
2,000,000 (two million) US$.

24. GENERAL PROVISIONS.

(a) 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, fire, casualty, flood, war, strike,
lock out, failure of public utilities, injunction or any act,
exercise, assertion or requirement of governmental authority,
epidemic, destruction of production facilities, insurrection,
inability to procure materials, labor, equipment, transportation or
energy sufficient to meet manufacturing needs, or any other cause
beyond the reasonable control of the Party invoking this provision,
and if such Party shall have used its best efforts to avoid such
occurrence and minimize its duration and has given prompt 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.

(b) Publicity. Neither Party shall originate any publicity, news release
or other public announcement relating to this Agreement or the
existence of an arrangement between the Parties without the prior
written approval of the other Party, except as otherwise required by
law.

<PAGE> 24

(c) Waiver. The waiver by either Party of a breach or a default of any
provision of this Agreement by the other Party shall not be construed
as a waiver of any succeeding breach of the same or any other
provision, nor shall any delay or omission on the part of either Party
to exercise or avail itself of any right, power or privilege that it
has, or may have hereunder, operate as a waiver of any right, power or
privilege by such Party.

(d) No Agency. Nothing contained in this Agreement shall be deemed to
constitute either Party as the agent or representative of the other
Party, or both Parties as joint ventures or partners for any purpose.
Neither Party shall be responsible for the acts or omissions of the
other Party, and neither Party will have authority to speak for,
represent or obligate the other Party in any way without prior written
authority from the other Party.

(e) Survival of Obligations. All obligations of either Party which, by
their nature, require performance after the expiration or termination
of this Agreement, namely the sections on Royalties (5.(c)), Warranty
(11), Service and Support (12), Regulatory Matters (14), Ownership and
Protection of Results (16), Confidentiality (18), Indemnities (19),
Trademarks (20) shall survive the expiration or termination of this
Agreement and continue to be enforceable.

(f) LIMITATION ON LIABILITY. EXCEPT AS PROVIDED IN SECTION 19.1, ASPECT'S
LIABILITY ARISING OUT OF THE MANUFACTURE, SALE OR SUPPLYING OF ASPECT
PRODUCTS OR THEIR USE OR DISPOSITION, WHETHER BASED UPON WARRANTY,
CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE AMOUNT OF
2,000,000.00 (TWO MILLION) US$. IN NO EVENT SHALL ASPECT BE LIABLE TO
HP OR ANY OTHER PERSON OR ENTITY FOR SPECIAL, INCIDENTAL,
CONSEQUENTIAL, OR OTHER INDIRECT DAMAGES (INCLUDING, BUT NOT LIMITED
TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING OUT
OF THE MANUFACTURE, SALE OR SUPPLYING OF ASPECT PRODUCTS.

(g) 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.

(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.

(i) Notices. Any notice or communication with regard to the termination of
or changes to this Agreement from one Party to the other shall be in
writing and either personally delivered or sent via certified mail,
postage prepaid and return receipt requested addressed, to such other
Party at the address of such Party specified in this Agreement or such
other address as either Party may from time to

<PAGE> 25

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

time designate by notice hereunder.

(j) Entire Agreement. This Agreement constitutes the entire agreement
between the Parties. No waiver, consent, modification or change of
terms of this Agreement shall bind either Party unless in writing
signed by both Parties, and then such waiver, consent, modification or
change shall be effective only in the specific instance and for the
specific purpose given. There are no understandings, agreements,
representations or warranties, expressed or implied, not specified
herein regarding this Agreement or the Aspect Products purchased
and/or licensed hereunder. Only the terms and conditions contained in
this Agreement shall govern the transactions contemplated hereunder,
notwithstanding any additional, different or conflicting terms which
may be contained in any Order or other document provided by one Party
to the other. Failure of Aspect to object to provisions contained in
any Order or other document provided by HP shall not be construed as a
waiver of the terms and conditions of this Agreement nor an acceptance
of any such provision. Retention by HP of Aspect Products delivered
hereunder shall be conclusively deemed to be a confirmation of the
terms and conditions hereof.

(k) Headings. Captions and headings contained in this Agreement have been
included for ease of reference and convenience and shall not be
considered in interpreting or construing this Agreement.

(l) Exhibits: The following Exhibits shall be part of this Agreement:

Exhibit A: Aspect Products and Purchase Prices

Exhibit B: Aspect's Standard Module Kit

Exhibit C: Contact Persons/Addresses Prices

Exhibit D: Change Notification Agreement

Exhibit E: Delivery and Packaging Standard

Exhibit F: Service/Repair

Exhibit G: Co-Marketing Program

Exhibit H: Aspect Trademarks

Exhibit I: [**]

IN WITNESS WHEREOF, this Agreement has been duly executed as a sealed
instrument as of the date specified above.

Aspect Medical Systems, Inc. Hewlett-Packard GmbH

By: /s/ J. Breckenridge Eagle By: /s/ Anthony [illegible]
-------------------------- ------------------------------
Title: Chairman Title: General Manager
----------------------- ---------------------------
Patient Monitoring Division

<PAGE> 26

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

EXHIBIT (A):ASPECT'S PRODUCTS AND PURCHASE PRICES
<TABLE>
<CAPTION>

ORDERABLE ASPECT HP UNITS (EA) Aspect HP ROYALTIES
PARTS / PRODUCTS PART NO. ID Number CASES (PK) List Price Base Price (US$)
(US$) (US$) - Note A
- ---------------------------------- -------- --------- ---------- ---------- --------------- ---------
<S> <S> <C> <C> <C> <C> <C>
BIS MODULE KIT (new unit, includes tbd tbd 1 ea [**] [**] [**]
DSC, DSC Cable, HP BIS Engine,
Module Cable, User Manual)

Sensor Startup Kit 5 ea [**] [**]

DSC (replacement) [**] [**]

DSC Cable (replacement) [**] [**]

HP BIS Engine (replacement) [**] [**]

Module Cable (replacement) [**] [**]

User Manual [**] [**]
Service Manual [**] [**]

BIS Application Note (english) [**] [**]

BIS Application Note (french) [**] [**]

... [**]
BIS Brochure [**] [**]
[**]

</TABLE>

Note A:

The HP Purchase Price is the sum of the [**] (based on [**] and the [**] (based
on [**]. In addition to the [**] specified above, HP shall pay to Aspect for
each BIS Module Kit purchased an additional sum to allow Aspect to recover the
incremental costs for Aspect to provide the [**] (including the [**] in lieu of
[**]. It is currently estimated that these incremental costs will be [**] per
module kit.

<PAGE> 27

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

EXHIBIT (B): ASPECT'S STANDARD MODULE KIT

ASPECT'S STANDARD BIS MODULE KIT.

Aspect's BIS 'Module Kit' is designed specifically for [**] and allows the [**]
and to the [**] and the necessary power connections.

The BIS Module Kit consists of a [**] that is placed in [**] that provides the
[**] the high performance analog to [**] of the [**] from the [**] that is [**]
at the [**].

The BIS Engine [**] on the [**] to the [**] via the [**] is constructed [**] to
the [**] are a [**]

Detailed Technical Specifications:
----------------------------------

Digital Output: [**]
[**]

Main Parameters: [**]
[**]

Electrical Safety: [**]

Power: [**]
[**]
[**]

Artifact Rejection: [**]

Bispectral Index: [**]

Digital Signal Converter (DSC-2)
--------------------------------
Description: [**]

<PAGE> 28

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Weight: [**]

Dimensions: [**]
[**]

Cable Length: [**]

BIS Engine PCB

Physical: [**]

Processing Power: [**]

Software Upgrades

[**] software is stored in [**]. Software upgrades can be [**] via the
[**].

Serial Identifier

[**] is given a [**]. This allows for [**] of every [**].

Annual Failure Rate

The current [**] rate for the [**] and the [**] of the Project, this
information will need to be [**]

<PAGE> 29

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Exhibit (C): Contact Persons/Addresses

Contact Persons and responsibilities at HP:
------------------------------------------

-------------- ------------- ---------------------- --------------------
Person Title Responsibility E-mail
Phone Number/
Fax Number
-------------- ------------- ---------------------- --------------------
[**] [**] [**] [**]
-------------- ------------- ---------------------- --------------------

MAILING ADDRESS: Hewlett-Packard GmbH
[**]

PHONE: [**]

INVOICE ADDRESS: Hewlett-Packard GmbH

29
<PAGE> 30

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

Exhibit (C): Contact Persons/Addresses

Contact Persons and responsibilities at Aspect:
-----------------------------------------------

MAILING ADDRESS: Aspect Medical Systems, Inc.
2 Vision Drive
Natick, MA 01760-2059
USA

30
<PAGE> 31

EXHIBIT (D): CHANGE NOTIFICATION AGREEMENT FORM

<PAGE> 32

- --------------------------------------------------------------------------------
Hewlett-Packard Medical Products Group
- --------------------------------------------------------------------------------

MPG SUPPLIER CHANGE NOTIFICATION AGREEMENT FORM

-------------------------------------------------------------------

NOTICE UNCONTROLLED IN PRINTED FORM UNLESS STAMPED IN RED

-------------------------------------------------------------------

DOCUMENT The document owner is listed below:
OWNERSHIP

--------------------------------- ---------------------------------
FUNCTION TITLE
--------------------------------- ---------------------------------
MPG Quality Department Quality System Engineer
--------------------------------- ---------------------------------

---------- ------------------ -------------------------
REVISION HISTORY
---------- ------------------ -------------------------
REV. # CHANGE ORDER # CHANGE SUMMARY
---------- ------------------ -------------------------
A 2920-1998-01-00009
---------- ------------------ -------------------------
B 2920-1998-01-00019 Revise footer to read
"HP Proprietary".
Separate "Contact for
Questions" and Return
To".
---------- ------------------ -------------------------

Rev. B Document Number: A-Q2920-00142 GRS#MF502 Page 1 of 2
Title: MPG Supplier Change Notification Agreement Form For HP Internal Use Only

<PAGE> 33

MPG SUPPLIER CHANGE NOTIFICATION AGREEMENT FORM, continued

- --------------------------------------------------------------------------------
TO: FROM:
- -------------------------------------- ----------------------------------------
SUPPLIER NAME: DATE:
- -------------------------------------- ----------------------------------------
SUPPLIER FAX # OR ADDRESS:
----------------------------------------------------

----------------------------------------------------

- --------------------------------------------------------------------------------
DEAR SUPPLIER, CONTRACTOR, OR CONSULTANT:
Hewlett Packards's Medical Products Group (MPG) manufactures in a regulated
environment, and is required to maintain procedures to ensure that all purchased
products and services conform to specified requirements. MPG has determined that
the product or service you supply to MPG impacts, directly or indirectly, the
quality of our finished devices. We ask that you agree to notify MPG of any
changes in the product or service, so that we can determine whether the change
may affect the quality of our finished devices. Although HP's standard purchase
order terms and conditions include this provision, the intent of this document
is to ensure direct supplier recognition and acceptance of this requirement.
TO ENSURE THAT MPG HAS YOUR AGREEMENT ON THIS REQUIREMENT, WE ASK THAT YOU
REVIEW AND SIGN THE AGREEMENT BELOW. IT IS REQUESTED THAT THE SIGNATORY BE THE
QUALITY MANAGER AND THE GENERAL MANAGER (OR DESIGNEE) DIRECTLY INVOLVED WITH THE
MANUFACTURER OF OUR PRODUCT.

- --------------------------------------------------------------------------------
CHANGE NOTIFICATION AGREEMENT
-----------------------------

Changes to product, components or services supplied to Hewlett Packard Medical
Products Group (MPG) will not be made without prior written notification to, and
written approval from, MPG. This includes, but is not limited to, the following
types of changes:
* Product or service design changes
* Production process changes that affect design and/or production specifications
* Change of manufacturing or service facility location
* Changes that have a significant impact upon your quality system
* Other
-----------------------------------------------------------------------
Notification must be made to each MPG purchasing location affected by this
change.
- --------------------------------------------------------------------------------
SUPPLIER COMMENTS:
------------------------------------------------------------

------------------------------------------------------------

- --------------------------------------------------------------------------------
QUALITY MGR: GENERAL MGR (OR DESIGNEE):
- -------------------------------------- ----------------------------------------
SIGNATURE: SIGNATURE:
DATE: DATE:
TITLE:
- -------------------------------------- ----------------------------------------
CONTACT FOR QUESTIONS: TELE:
- -------------------------------------- ----------------------------------------
RETURN TO:
- --------------------------------------------------------------------------------
STREET: CITY/STATE/ZIP:
TELE: FAX:
- --------------------------------------------------------------------------------

33
<PAGE> 34

EXHIBIT (E): DELIVERY AND PACKAGING STANDARD

34
<PAGE> 35

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

ORIGINATOR: HP/CPDE-ENGINEERING, G-BOBLINGEN

TABLE OF CONTENTS PAGE
----------------- ----

1. GENERAL
1.1. Applicability 2
1.2. Place of delivery 2

2. DEFINITIONS 2

3. IDENTIFICATION REQUIREMENTS 3
3.1. Delivery Note 3
3.2. Load Unit Label 4
3.3. Product Identification Label 5
3.4. Customs Declaration 5
3.5. Transport Declaration (Dangerous Goods) 5

4. PACKAGING REQUIREMENTS 6
4.1. Delivery Mode 6
4.2. Packages (Boxes) 6
4.3. Load Carriers (Pallets) 6
4.4. Dimensions 7
4.5. Load Unit Protection 7
4.6. Environmental Requirements 7
4.7. Transport Regulations (Dangerous Goods) 7
4.8. Treatment of Inconsistencies 8

5. REVISION CONTROL 8

35
<PAGE> 36

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

1. GENERAL
- ----------------

1.1. APPLICABILITY
This specification is applicable to all goods delivered to the premises
of Hewlett-Packard Businesses in Boblingen and Waldbronn with according
production plants and distribution centers in Europe.

Practices other than those stipulated herein must be ratified on a
case-by-case basis by the purchasing department concerned.
Hewlett-Packard reserves the right to reject deliveries that do not
comply with this specification.

1.2. PLACE OF DELIVERY
Since HP has several receiving locations in Europe it is essential that
goods be delivered to the address specified on the purchase order or in
the purchasing agreement.

2. DEFINITIONS
- --------------------

[Graphic depiction of track, load units, product labels, load
carrier/pallet, package/box and mother/box]

36
<PAGE> 37

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

3. IDENTIFICATION REQUIREMENTS
- ------------------------------------

3.1. DELIVERY NOTE:
no deliveries without a delivery note
delivery note has to be fixed on the outside of the load or handed out
by the freight forwarder

- --------------------------------------------------------------------------------
DELIVERY NOTE / LIEFERSCHEIN

Supplier:
Fa Meler u Sohne
Kaakonbachatr 34
8000 Monehen
Tel: (089) 2804-1999

- --------------------------------------------------------------------------------
SUPPLIER CODE 0055885
- --------------------------------------------------------------------------------

- -------------------------------------- ----------------------------------------
DELIVERY NOTE NO.: 349812 DATE: 16.01.1999
- -------------------------------------- ----------------------------------------
SHIP TO:
Hewlett-Packard GmbH
c/o Logistic Group International
Waldbronn Gebaude 5
Herronbarger Str. 124
71034 Boblingen
- --------------------------------------------------------------------------------
RECEIVING ENTITY/NAME: CPOE / Hohenstein
- --------------------------------------------------------------------------------
DESTINATION CODE BB14-4500
- --------------------------------------------------------------------------------
LOAD UNIT: 12 boxes on 3 pallets
- --------------------------------------------------------------------------------
BOX NO'S: 6016-XX001 - 6016-XXX12
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
POS. HP ORDER NO. SECTION ITEM HP PART NO. QUALITY UNIT MEASURED
(9 digits) (3 digits) (4 digits) (shipped) (shipped)
- ---- ------------ ---------- ---------- ------------- ----------- --------------
[Graphic depiction of bar codes]
- ---- ---------------------------------------------------------------------------
01 N81853921 010. 0100 8120-6809 1000 EA
- ---- ------------ ---------- ---------- ------------- ----------- --------------
DESCRIPTION: Powercord: UK version
- --------------------------------------------------------------------------------
[Graphic depiction of bar codes]
- ---- ---------------------------------------------------------------------------
02 N81853821 0100 010 5964-6108 1200 EA
- ---- ------------ ---------- ---------- ------------- ----------- --------------
DESCRIPTION: Software & Accessories Broschore
- --------------------------------------------------------------------------------
COUNTRY OF ORIGIN Germany [Graphic depiction of bar codes]
- --------------------------------------------------------------------------------

OPTIONAL DATA PER BUSINESS
-----------
Legend: MUST DATA
-----------

37
<PAGE> 38

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

32. LOAD UNIT LABELS
(unique products only)
An adhesive label shall be affixed to each load unit. If a delivery is
consisting of multiple, separate load units, the individual load unit shall be
numbered consecutively (e.g., 1 of 7, 2 of 7, etc.)
- --------------------------------------------------------------------------------
LOAD UNIT LABEL/LADEENIHEITENAUSZEICHUNG
(UNIQUE PRODUCTS ONLY NUR SORTENREINE WARE)

Supplier:
Fa Meler u Sohne
Kaakonbachatr 34
8000 Monehen
Tel: (089) 2804-1999
- --------------------------------------------------------------------------------
SUPPLIER CODE 0055865
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
DELIVERY NOTE NO.: 349912 DATE: 15.01.1999
- -------------------------------------- ----------------------------------------
SHIP TO:
Hewlett-Packard GmbH
c/o Logistic Group International
Waldbronn Gebaude 5
Herronbarger Str. 124
71034 Boblingen
- --------------------------------------------------------------------------------
RECEIVING ENTITY/NAME: CPOE / Josef Hohenstein
- --------------------------------------------------------------------------------
DESTINATION CODE B614-4500
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
(p) HP PRODUCT TOTAL WEIGHT (kg)
NO.
- ----------------- ----------------- ----------------- ------------------
[Graphic depiction of bar codes]
- --------------------------------------------------------------------------------
C2530-84430 283
- ----------------- ----------------- ----------------- ------------------

- ----------------- ----------------- ----------------- ------------------
(q) QUANTITY: LOAD UNIT NO: SUPPLIER LOT NO.
- --------------------------------------------------------------------------------
[Graphic depiction of bar codes
- --------------------------------------------------------------------------------
Q6000 T12345878 987654
- ----------------- ----------------- ----------------- ------------------

- ----------------- ----------------- ----------------- ------------------
HP ORDER NO: SECTION: ITEM: COUNTRY OF ORIGIN:
(9-digits) (3-digits) (4-digits)
- --------------------------------------------------------------------------------
[Graphic depiction of bar codes]
- --------------------------------------------------------------------------------
N820-86975 010 0100 USA
- ----------------- ----------------- ----------------- ------------------
Box 1 of 3
- --------------------------------------------------------------------------------
OPTIONAL DATA PER BUSINESS

-----------
Legend: MUST DATA
-----------

38
<PAGE> 39

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

3.3. PRODUCT IDENTIFICATION LABELS
Each smallest package unit (picking unit) of an article must be labeled
on the outside and shall contain only parts having the same part number
belonging to the same order.

- --------------------------------------------------------------------------------
(p) HP PART NO:
- ---------------------------------- ------------------ --------------------------
[Graphic depiction of bar codes]
- --------------------------------------------------------------------------------
P9Z80-1250
- ---------------------------------- ------------------ --------------------------
DESCRIPTION: Monitor EX300 VGA
- ---------------------------------- ------------------ --------------------------
(q) QUANTITY: UNIT MEASURE: VOLUME (cdm)
- ---------------------------------- ------------------ --------------------------
[Graphic depiction of bar codes]
- --------------------------------------------------------------------------------
Q1 EACH 180
- ---------------------------------- ------------------ --------------------------
COUNTRY OF ORIGIN: SUPPLIER LOT NO: (s) SERIAL NO: (Range)
- ---------------------------------- ------------------ --------------------------
[Graphic depiction of bar codes]
- ---------------------------------- ------------------ --------------------------
GERMANY T12345678 2323444
- --------------------------------------------------------------------------------

OPTIONAL DATA PER BUSINESS
-----------
Legend: MUST DATA
-----------

3.4. CUSTOMS DECLARATION
For deliveries from Non-EU countries and customs relevant deliveries
from EU countries an Invoice must be attached with all infos for
customs declaration (Part number, Oder number, Quantity, Box quantity
and Box weight, Box number, Currency, Item-value and invoice-value,
Terms of Delivery, CoO, Terms of payment etc.).
Customs relevant deliveries must be notified on Boxes and Documents.

3.5. TRANSPORT DECLARATIONS (DANGEROUS GOODS)
Dangerous Goods must be notified on Boxes and Documents

39
<PAGE> 40

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

4. PACKAGING REQUIREMENTS
- -------------------------------

4.1. DELIVERY MODE
Goods shall be delivered on pallets, if

-- the volume exceeds 1 m(3)(35 cubic feet)
-- the weight exceeds 25 kg (66 lbs)
-- or the consignment consists of more than 5 package units

maximum weight per consignment unit: 1000 kg
(2200 lbs) incl. load carrier

4.2. PACKAGES (BOXES)
Individual packages shall not have a handling weight exceeding 15 kg
(33 lbs)

4.3. LOAD CARRIERS (PALLETS)
All goods shall be delivered on reusable four-way-entry flat pallets
made of untreated solid wood. Openings for the handling with pallet
jacks have to be kept open on the small sides (base runners lengthwise
only).

Pallets have to be accessible from four sides by regular material
handling devices. Dimensions must be (unless otherwise specified):
-- 1200 x 100 mm (industry pallets);
-- 1200 x 800 mm Euro pallet
In exceptional cases 40 x 48 inches.

[Graphic depiction of a load carrier (pallet)]

40
<PAGE> 41

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

4.4 DIMENSIONS
The goods shall be stacked on the pallet without overhang. A load unit
shall not exceed an overall height of 1930 mm (76 inches) - including
pallet. Additional restrictions on height may apply depending on the
destination, and the purchasing department in question must be
consulted regarding these restrictions.

4.5. LOAD UNIT PROTECTION
Shipment units shall be secured in such a way the good cannot slip or
the unit loose its integrity. This shall be ensured by the use of
shrink or stretch wrapping, banding, additional layer sheets,
interlocked stacking, etc., but shall not hinder the accessibility with
material handling devices (fork lifts or pallet jack). The products
shall not be damaged by the LoaD Unit Protection.

4.6. ENVIRONMENTAL REQUIREMENTS FOR PACKAGING
GENERAL POINTS
Packaging should be kept to the minimum amount required to preserve the
security and hygiene of the packaged products.
Additionally, any applicable legal norms (see appendix) as well as HP
specific regulations concerning environment, workplace safety and
workplace security are to be adhered to. (Refer also to HP's GENERAL
SPECIFICATION FOR ENVIRONMENT A-5951-1745-1).

REQUIREMENTS
-- Low material variety per packaging
-- Easy separability of the various materials
-- Avoidance of composite materials
-- Use of standard and reusable packaging
-- Material labeling (especially with plastics)
-- Handling labeling

-- Recommended packaging materials:
Paper, cardboard, corrugated cardboard, untreated wood, iron,
aluminum, glass, PE, PP, PS, PET, drying agents: silica gel,
active clay

-- Packaging materials and packaging aids to be avoided:
PVC (vinyl), wood chips, compressed fiberboard, wood shavings,
straw, loose fill materials, "bio" packaging materials based
on plant starch, "popcorn"

APPENDIX: EXCERPTS OF THE RELEVANT LEGAL NORMS FOR PACKAGING AND
PACKAGING WASTE
-- European Waste Guidelines (Europaische Abfallrahmenrichtlinie)
75/442/EWG
-- European Packaging Guidelines (Europaische
Verpackungsrichtlnie) 94/62/EG
-- European Decision 97/129/EG regarding the labeling of
packaging material
-- Industrial Recycling law (Kreislaufwirtschaftsgesetz) and
accompanying Waste Law
-- Transport of Hazardous Waste Law (Gefahrgutbeforderungsgesetz)
and accompanying Hazardous Waste Law (Gefahrgutrecht/e.g GGVS)
-- Packaging Act
-- Chemical Law (Chemikaliengesetz) and Hazardous Materials Act
(Gefahrstoffverordnung) "BGB"
-- CFC-Halon Prohibition Act (FCKW-Halon-Verbots-Verordnung)

4.7. TRANSPORT REGULATIONS (DANGEROUS GOODS)

41
<PAGE> 42

- -------------------------------------- ----------------------------------------

HEWLETT-PACKARD GMBH DELIVERY-AND PACKAGING STANDARD
HEWLETT-PACKARD EUROPE BV

- -------------------------------------- ----------------------------------------

4.8. TREATMENT OF INCONSISTENCIES
In many instances, the packaging is covered by the stipulations of the
HP product specification. In the event of inconsistencies arising with
the packaging regulations in the product specification or in existing
agreements, the supplier shall consult the purchasing department
concerned.

5. REVISION CONTROL
- -------------------------

- --------------------------------------------------------------------------------
Revision Changes Approved Date
- -------------- ---------------------------------- ------------------ -----------
D Completely revised; Peter Klement 28.04.1999
English Edition A-5961-3658-1
German Edition A-5961-3658-2
- -------------- ---------------------------------- ------------------ -----------

- --------------------------------------------------------------------------------

42
<PAGE> 43
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

EXHIBIT (F): SERVICE/REPAIR

1. REPAIR STRATEGY:

FULL UNIT REPAIR:

- - Defective units will be shipped from HP GSL (Global Support Logistics) to
Aspect for repair.
- - Aspect repairs and ships the units within [**] to HP GSL after receipt.
Each repair unit will be labeled with an internal HP order number and
tracking number by Aspect. Tracking number and maybe other data must be
labeled as barcode on the shipment carton by Aspect.

2. Repair Price

Repair consists of [**]

To define for each product:
[**]

Goal for full unit exchange: [**]
Right for Aspect to [**]

To define: [**]

A table detailing the [**] will be defined preliminarily during [**].

3. Handling of Repair Costs:

[**] will pay the then current [**] for any defective unit that is returned to
Aspect. On a regular basis HP will determine the number of units under warranty
that have been replaced/repaired and [**].
Repaired units with "No trouble found" classification Aspect [**] for the
difference between [**] and the following amounts only [**].

43
<PAGE> 44
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

EXHIBIT (G): CO-MARKETING PROGRAM

ASPECT/HP JOINT MARKETING PROGRAM - NORTH AMERICA

Both Parties have agreed on the following outline for a joint marketing
program, designed to [**] customers in North America [**] to implementation
of an integrated BIS measurement module on HP Viridia patient monitors.

PROGRAM DETAILS:

Aspect's and HP's sales force in North America will offer the [**] and will
agree [**] for the [**] of the [**] of the [**] at a price of [**] the current
list price for the [**], unless the Parties agree that [**] that the [**] under
this program should be [**]. The current list price for the [**], as outlined
below.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Qty 1 Qty 2-5 Qty 6-12 Qty 13-19 Qty >20
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
List Price $ [**] [**] [**] [**] [**]
- --------------------------------------------------------------------------------
[**] $ [**] [**] [**] [**] [**]
- --------------------------------------------------------------------------------
</TABLE>

1. [**] by this program will be purchased at a [**].

2. Customers taking advantage of this program will be [**] for the [**] (to be
defined) [**] in North America [**], although customer expectations need to
be set [**]. There will be [**] to the customer for this [**], although
the customer may need to [**] some of his [**] (see below).

3. Aspect and HP will jointly [**] will provide information on the expected
cost to the customer of having to [**] in order to be [**] with the [**].

4. [**] this program and who also purchase [**] under the program, these new
[**] will be [**] to the appropriate [**] (if necessary) [**].

5. Both parties will [**] this program for customers who have recently
purchased the [**].

6. Aspect will [**] and invoice the customer.

44
<PAGE> 45
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

7. Aspect will [**] as a result of this program (account details to be
defined).

8. Aspect will provide [**] of this program on a [**].

9. HP will [**] from customers taking advantage of this program. The
methodology for the calculation and payment of these [**] will be defined
in the Distribution Agreement between the Parties.

10. [**] will be responsible for [**] at those sites under the program. Aspect
will be [**] of the [**].

11. The timing for implementation of this program will be determined by [**],
based on their [**] schedule. The current expectation is that this could be
done once the project has [**], at which point [**] has been defined and
all risks are understood.

12. In the event that the [**], for whatever reason, [**] under this program
[**] the customer for any [**] for the [**] the list prices defined above.

13. If development of the [**] such that [**] North American [**], both Parties
[**] by both Parties in good faith, [**] determined by reasons for
the [**].

14. In the event that the customer [**] the customer for any [**] made for the
[**] the list prices defined above.

45
<PAGE> 46

EXHIBIT (H): ASPECT TRADEMARKS

46
<PAGE> 47

EXHIBIT (H): ASPECT TRADEMARKS

TRADEMARK REFERENCE
- --------- ---------

Aspect(R) None *
A-2000(TM) A-2000 is a trademark of Aspect Medical Systems, Inc.
Bispectral Index(R) Bispectral is a registered trademark of Aspect
Medical Systems, Inc.
BIS(R) BIS is a registered trademark of Aspect Medical
Systems, Inc. BIS logo is a registered trademark of
Aspect Medical Systems, Inc.

[graphic depiction of Aspect's BIS logo]

* This trademark is registered as a trademark to another company, and is used
under license by Aspect Medical Systems.

47
<PAGE> 48
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.

EXHIBIT (I): [**]

[**]

WHEREAS

We, [**], herewith confirm that we have knowledge that Hewlett-Packard GmbH,
Herrenberger Str. 110-140, 71034 Boblingen, Germany ("HP") has granted Aspect
Medical Systems, Inc., 2 Vision Drive, Natick, MA 01760-2059, USA ("Aspect")
[**] under an "OEM Development and Purchase Agreement" (hereinafter referred to
as the "Agreement"), dated August 6th, 1999 and Aspect has certain contingent
obligations to refund portions of such prepayment in accordance with Section 5
(c) of this Agreement.

THEREFORE

We undertake, [**] under the Agreement. We undertake with [**] in accordance
with the Agreement, we shall [**].

[**] of the Agreement [**]. It is understood that the [**] of the Agreement.

<PAGE> 1
Exhibit 10.8

Aspect Medical Systems, Inc.
has requested that the market portions of this agreement be granted confidential
treatment pursuant to Rule 406 under the Securities Act of 1933, as amended.

HEWLETT-PACKARD GMBH
Medical Products Group
Herrenberger Strasse 110 - 140
D-71034 Boeblingen
Germany

August 27, 1999

Mr J. Breckenridge Eagle
Chairman
Aspect Medical Systems, Inc.
2 Vision Drive
Natick, MA 01760-2059
USA

Dear Breck,

As we discussed on Friday, the following is confirmation of our willingness to
allow Aspect to set the expectation that customers purchasing the stand-alone
A2000 monitor in North America will be able to purchase an exchange to the HP
BIS module solution, once it becomes available, at an incremental price of [**].
This interim program is designed to bridge-the-gap until such time that Aspect
and HP are able to announce and implement the joint co-marketing program, as
defined under our overall agreement. The following conditions need to apply:

1. Orders for this exchange will only be taken once the module is released in
North America;

2. Customers need to be made aware that there may be some additional costs for
upgrading their existing Viridia CMS and Viridia 24/26 monitors in order to
be compatible with the BIS module;

3. Customers ordering this exchange will do so directly from Aspect and Aspect
will be responsible for delivering and installing the modules at the
customer's site (some basic "knobology" training will need to be provided
to the Aspect salesforce by HP's North American operation);

4. Aspect will supply HP with a complete list of all customers (name, address
and date of installation) who take advantage of this exchange;

5. These exchange modules can only be offered to customers who purchased an
A2000 monitor between the effective date of our agreement and the
introduction of the joint co-marketing agreement in North America (a copy
of the customer's original purchase order will be required at the time of
ordering the modules);

6. HP will supply Aspect with up to a maximum of [**] BIS module systems for
this purpose, at a price of [**] each (assumes that all customer ordering,
delivery and installation is performed by Aspect, as outlined above).
Warranty and after-sales servicing responsibility will remain with HP;

7. Aspect will offer HP the special transfer price of [**] for the HP BIS
module kits required to cover module systems sold as part of this program.

I think you'll agree that this compromise solution will help to allay any risk
of a customer postponing his decision to purchase BIS technology.

With best regards

/s/ Steve Bebb
- --------------------------
Steve Bebb
Market Development Manager

<PAGE> 1
Exhibit 10.9

ASPECT MEDICAL SYSTEMS, INC.
has requested that the marked portions of this agreement be granted
confidential treatment pursuant to Rule 406 under the Securities Act of 1933,
as amended."

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.

- 1 -
<PAGE> 6
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.

- 2 -
<PAGE> 7
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 [**] of this Agreement, provided,
however, that SMI's exclusive rights to distribute the Monitor in the
International Territory may be extended for [**] 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

- 3 -
<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.

- 4 -
<PAGE> 9
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.

- 5 -
<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

- 6 -
<PAGE> 11
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 [**]
for the [**]; the price of the [**] and any [**] shall be [**] of Aspect's
material costs for the [**] or such [**] 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

- 7 -
<PAGE> 12
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
[**] 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 [**]
on an [**] at a [**] then current list [**].

- 8 -
<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, of its exclusive rights to
distribute the Monitors in the International Territory if SMI's purchase of
Monitors for distribution in the International Territory are equal to or greater
than [**] in the U.S. This extension shall be granted automatically for the [**]
if SMI's Monitor purchases for International Territory in the [**] for the [**]
and shall continue for the [**] continue to [**] for the [**] if SMI's Monitor
purchases for the International Territory during the [**] continue to [**] in
the [**]. 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 the sum of (i) the [**] for the [**] plus
(ii) the [**] by which the [**] for the [**] by SMI during the preceding year.

2.14 Forecasts. At least [**] to the [**] of each [**], upon Aspect's
request, SMI shall provide Aspect with an estimated forecast of its requirements
of Monitor Products for such [**] 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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<PAGE> 15
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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<PAGE> 16
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 (a) a nonexclusive distributor of the Sensor for
the International Territory, (b) a nonexclusive distributor of the Sensor for
Japan, and (c) a nonexclusive distributor of the ZipPrep Electrode Product in
the United States Territory, the International Territory and Japan. SMI shall
not distribute the Sensor in the United States Territory; provided, however,
that Aspect agrees to sell to SMI (at the same price that Sensors are sold to
[**] in the International Territory) a limited number of Sensors that SMI may
distribute in the [**]. 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 in the [**]. By way of example, if
SMI has an installed base of [**] Modules in the [**] at the end of 1996, and
sells [**] new Modules in the [**] 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 the [**] 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
[**] for the [**] 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 [**] over the prior [**]. 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
[**] of the [**] in the [**] sold to accounts at which [**], provided that if
[**], the payment to SMI shall be [**] and/or [**] to such [**]. By way of
illustration, if (i) [**] to Account X in a year, (ii) [**] to Account X, and
(iii) [**] has previously [**] 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.

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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<PAGE> 27
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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<PAGE> 28
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, [**] that the [**] will contain the following [**] which the [**]
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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<PAGE> 29
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 [**], or a prepaid
royalty of [**], which shall authorize [**]; 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 [**] to any [**], in its product in
a [**] to that [**] any 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 [**] of the [**] for such [**] from time to time
in effect, or (b) [**]. 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.);

(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

- 32 -
<PAGE> 37
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).

[**] The design of this [**] has been provided to [**] in the form of [**].
This will be the [**] as shown below:

[**] [**]
[**] [**] [**]
[**] [**] [**] [**]

[**] [**]
[**] [**]
[**] [**]
[**]

[**]

[**]. This field [**] contains much of the [**] to the [**] and other [**].
[**] for the [**] in the [**].

[**]. This is the [**] which executes the [**].

[**]. This is an [**] which contains both the [**] and the code for the
[**].

[**]. [**] is required.

[**]. between the [**] and the [**] in the [**] which provides [**] to the
[**] per second.

[**]. These are the same [**] in the [**] also provides the [**], including
software [**].

[**]. provides a working [**] for support of [**] on the [**] and can be
[**] using the [**] provides a [**] to the [**] which would be required to [**]
in the [**] in the event that the [**].

[**]. shall be done in accordance to a [**] in consultation with Aspect.

[**]. for the [**] will be [**], subject to [**] of such [**].

DELIVERABLE ITEMS. Aspect wiLl deliver the following items to SMI on the
dates indicated:

[**]

[**] on a [**].

[**] report from [**] after receipt [**]

- Procedures and specifications for required equipment and fixtures for
production line testing of [**]

- Procedures for [**] in the event of a [**]

- Updates to procedures and specifications for the above as reasonably
required for the development effort; PROVIDED, HOWEVER, that if the
provision of such updates would require Aspect to expend a material
amount of additional labor (a "Significant Update") and the Significant
Update is not the result of a defect in the deliverables provided by
Aspect, then Aspect and SMI must agree on reasonable additional fees to
be paid by SMI for the Significant Update before Aspect will be required
to provide it.

- Other documents as may be needed for implementation of the above items;
PROVIDED, HOWEVER, that if the provision of such documents would require
Aspect to expend a material amount of additional labor (a "Significant
Document"), and the need for the Significant Document [**] provided by
Aspect, then Aspect and SMI must agree on reasonable additional fees to
be paid by SMI for the Significant Document before Aspect will be
required to provide it.

[**]

SCOPE. Aspect will provide up to [**] for the design of the [**] during the
first year of the Agreement. [**] of such [**] shall have the right to [**]
regarding [**] shall have the burden of [**].

TASKS.

- [**] to serve as a [**].

- Consulting on the [**].

- [**] of the [**] of the [**].

[**] will be [**], subject to [**] of such [**].

[**]. The following will be provided to [**] on the dates indicated:

- [**] for the [**]

- [**] including a list of [**]

- [**] current [**]

[**]

Aspect warrants that the engineering support services to be provided by it
under this Attachment B shall be performed in a willing and workmanlike manner,
and that the deliverables it provides hereunder will be free from defects in
design, material and workmanship. Aspect shall, at its costs and expense, repair
or replace any services or deliverables which breach the foregoing warranty. It
is understood that the foregoing warranties do not apply to the BIS Software
(which is subject to the warranty set forth in Section 2.20, [**] Source Code
[**] Low Level Interface [**]. EXCEPT AS SET FORTH HEREIN, ASPECT DISCLAIMS ALL
OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES AND DELIVERABLES, WHETHER EXPRESS
OR IMPLIED, ORAL OR WRITTEN, INCLUDING, WITHOUT LIMITATION, ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

- 39 -

<PAGE> 1
EXHIBIT 10.24

ASPECT MEDICAL SYSTEMS, INC.
has requested that the marked portions of this agreements be granted
confidential treatment pursuant to Rule 406 under the Securities
Act of 1933

FOR PURCHASES DIRECT FROM SUPPLIER
NOT SUBJECT TO COMPETITIVE BID PROCESS

SUPPLIER AGREEMENT

BETWEEN

NOVATION, LLC

AND

ASPECT MEDICAL
--------------
("SUPPLIER")

MS90690
--------
(CONTRACT NUMBER GOES HERE)
---------------------------

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
1. INTRODUCTION............................................................................................1
a. Purchasing Opportunities for Members....................................................................1
b. Supplier................................................................................................1
c. Contract Prices; Non-Price Specifications; Committed Programs...........................................1

2. BASIC TERMS.............................................................................................1
a. Purchase of Products....................................................................................1
b. Optional Purchasing Arrangement.........................................................................1
c. Market Competitive Terms................................................................................2
d. Changes in Contract Prices..............................................................................2
e. Notification of Changes in Pricing Terms................................................................2
f. Underutilized Businesses................................................................................2

3. TERM AND TERMINATION....................................................................................2
a. Term....................................................................................................2
b. Termination by Novation.................................................................................3
c. Termination by Supplier.................................................................................3

4. PRODUCT SUPPLY..........................................................................................3
a. Delivery and Invoicing..................................................................................3
b. Product Fill Rates; Confirmation and Delivery Times.....................................................3
c. Bundled Terms...........................................................................................3
d. Discontinuation of Products; Changes in Packaging.......................................................4
e. Replacement or New Products.............................................................................4
f. Member Services.........................................................................................4
g. Product Deletion........................................................................................4
h. Return of Products......................................................................................5
i. Failure to Supply.......................................................................................5

5. PRODUCT QUALITY.........................................................................................5
a. Free From Defects.......................................................................................5
b. Product Compliance......................................................................................5
c. Patent Infringement.....................................................................................6
d. Product Condition.......................................................................................6
e. Recall of Products......................................................................................6
f. Shelf Life..............................................................................................6

6. CENTURY COMPLIANCE......................................................................................6
a. Definitions.............................................................................................6
b. Representations.........................................................................................7
c. Remedies................................................................................................7
d. Noncompliance Notice....................................................................................7
e. Survival................................................................................................8
</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
<S> <C>
7. REPORTS AND OTHER INFORMATION REQUIREMENTS...............................................................8
a. Report Content..........................................................................................8
b. Report Format and Delivery..............................................................................8
c. Other Information Requirements..........................................................................9

8. OBLIGATIONS OF NOVATION..................................................................................9
a. Information to Members..................................................................................9
b. Marketing Services......................................................................................9

9. MARKETING FEES...........................................................................................9
a. Calculation.............................................................................................9
b. Payment.................................................................................................9

10. ADMINISTRATIVE DAMAGES..................................................................................10

11 NONPAYMENT OR INSOLVENCY OF A MEMBER....................................................................11

12. INSURANCE...............................................................................................11
a. Policy Requirements....................................................................................11
b. Self-Insurance.........................................................................................11
c. Amendments, Notices and Endorsements...................................................................11

13. COMPLIANCE WITH LAW AND GOVERNMENT PROGRAM PARTICIPATION................................................11
a. Compliance With Law....................................................................................11
b. Government Program Participation.......................................................................12

14. RELEASE AND INDEMNITY...................................................................................12

15. BOOKS AND RECORDS; FACILITIES INSPECTIONS...............................................................12

16 USE OF NAMES, ETC.......................................................................................13

17. CONFIDENTIAL INFORMATION................................................................................13
a. Nondisclosure..........................................................................................13
b. Definition.............................................................................................13

18 MISCELLANEOUS...........................................................................................13
a. Choice of Law..........................................................................................13
b. Not Responsible........................................................................................14
c. Third Party Beneficiaries..............................................................................14
d. Notices................................................................................................14
e. No Assignment..........................................................................................14
f. Severability...........................................................................................14
g. Entire Agreement.......................................................................................15
</TABLE>

<PAGE> 4

INDEX OF DEFINED TERMS

<TABLE>
<CAPTION>
PAGE
----

<S> <C>
Agreed Percentage......................................................................................10
Calendar-Related........................................................................................7
Century Noncompliance...................................................................................7
Clients.................................................................................................1
Confidential Information...............................................................................14
Contract Prices.........................................................................................1
Effective Date..........................................................................................2
FDA....................................................................................................12
Federal health care program............................................................................12
Gregorian calendar......................................................................................7
Guidebook...............................................................................................9
Indemnitees............................................................................................12
Legal Requirements.....................................................................................12
Marketing Fees..........................................................................................9
Members.................................................................................................1
Non-Price Specifications................................................................................1
Novation................................................................................................1
Novation Database.......................................................................................1
Products................................................................................................1
Reporting Month.........................................................................................8
Special Conditions......................................................................................1
Supplier................................................................................................i
Systems.................................................................................................7
Term....................................................................................................3
timely..................................................................................................8
</TABLE>

<PAGE> 5

NOVATION, LLC

SUPPLIER AGREEMENT

1. INTRODUCTION.

a. PURCHASING OPPORTUNITIES FOR MEMBERS. Novation, LLC ("Novation") is
engaged in providing purchasing opportunities with respect to high quality
products and services to participating health care providers ("Members").
Members are entitled to participate in Novation's programs through their
membership or other participatory status in any of the following client
organizations: VHA Inc., University HealthSystem Consortium, and HealthCare
Purchasing Partners International, LLC (collectively, "Clients"). Novation is
acting as the exclusive agent for each of the Clients and certain of each
Client's subsidiaries and affiliates, respectively (and not collectively), with
respect to this Agreement. A current listing of Members is maintained by
Novation in the electronic database described in the Guidebook referred to in
Subsection 7.c below ("Novation Database"). A provider will become a "Member"
for purposes of this Agreement at the time Novation adds the provider to the
Novation Database and will cease to be a "Member" for such purposes at the time
Novation deletes the provider from the Novation Database.

b. SUPPLIER. Supplier is the manufacturer of products listed on Exhibit
A, the provider of installation, training and maintenance services for such
products, and the provider of any other services listed on Exhibit A (such
products and/or services are collectively referred to herein as "Products").

c. CONTRACT PRICES; NON-PRICE SPECIFICATIONS; COMMITTED PROGRAMS. A
description of the Products and pricing therefor ("Contract Prices") is attached
hereto as Exhibit A, the other specifications are attached hereto as Exhibit B
("Non-Price Specifications"), and the Special Conditions are attached hereto as
Exhibit C ("Special Conditions").

2. BASIC TERMS.

a. PURCHASE OF PRODUCTS. Novation and Supplier hereby agree that Supplier
will make the Products available for purchase by the Authorized Distributors at
the Contract Prices for resale to the Members in accordance with the terms of
this Agreement; provided, however, that this Agreement will not constitute a
commitment by any person to purchase any of the Products.

b. OPTIONAL PURCHASING ARRANGEMENT. Novation and Supplier agree that each
Member will have the option of purchasing the Products under the terms of this
Agreement or under the terms of any other purchasing or pricing arrangement that
may exist between such Member and Supplier at any time during the Term;
provided, however, that, regardless of the arrangement, Supplier will comply
with Sections 7 and 9 below. If any Member uses any other purchasing or pricing
arrangement with Supplier when ordering products covered by any contract between
Supplier and Novation, Supplier will notify such Member of the pricing and other
significant terms of the applicable Novation contract.

<PAGE> 6

c. MARKET COMPETITIVE TERMS. Supplier agrees that the prices, quality,
value and technology of all Products purchased under this Agreement will remain
market competitive at all times during the Term. Supplier agrees to provide
prompt written notice to Novation of all offers for the sale of the Products
made by Supplier during the Term on terms that are more favorable to the offeree
than the terms of this Agreement. Supplier will lower the Contract Prices or
increase any discount applicable to the purchase of the Products as necessary to
assure market competitiveness. If at any time during the Term Novation receives
information from any source suggesting that Supplier's prices, quality, value or
technology are not market competitive, Novation may provide written notice of
such information to Supplier, and Supplier will, within five (5) business days
for Novation's private label Products and within ten (10) business days for all
other Products, advise Novation in writing of and fully implement all
adjustments necessary to assure market competitiveness.

d. CHANGES IN CONTRACT PRICES. Unless otherwise expressly agreed in any
exhibit to this Agreement, the Contract Prices will not be increased and any
discount will not be eliminated or reduced during the Term. In addition to any
changes made to assure market competitiveness, Supplier may lower the Contract
Prices or increase any discount applicable to the purchase of the Products at
any time.

e. NOTIFICATION OF CHANGES IN PRICING TERMS. Supplier will provide not
less than sixty (60) days' prior written notice to Novation and not less than
forty-five (45) days' prior written notice to all Members of any change in
pricing terms permitted or required by this Agreement. For purposes of the
foregoing notification requirements, a change in pricing terms will mean any
change that affects the delivered price to the Member, including, without
limitation, changes in list prices, discounts or pricing tiers or schedules.
Such prior written notice will be provided in such format and in such detail as
may be required by Novation from time to time, and will include, at a minimum,
sufficient information to determine line item pricing of the Products for all
affected Members.

f. UNDERUTILIZED BUSINESSES. Certain Members may be required by law,
regulation and/or internal policy to do business with underutilized businesses
such as Minority Business Enterprises (MBE), Disadvantaged Business Enterprises
(DBE), Small Business Enterprises (SBE), Historically Underutilized Businesses
(HUB) and/or Women-owned Business Enterprises (WBE). To assist Novation in
helping Members meet these requirements, Supplier will comply with all Novation
policies and programs with respect to such businesses and will provide, on
request, Novation or any Member with statistical or other information with
respect to Supplier's utilization of such businesses as a vendor, distributor,
contractor or subcontractor.

3. TERM AND TERMINATION.

a. TERM. This Agreement will be effective as of the effective date set
forth in Exhibit D attached hereto ("Effective Date"), and, unless sooner
terminated, will continue in full force and effect for the initial term set
forth in the Non-Price Specifications and for any renewal terms set forth in the
Non-Price Specifications by Novation's delivery of written notice of renewal to
Supplier not less than ten (10) days prior to the end of the initial term or any
renewal term, as

<PAGE> 7

Confidential Materials omitted and filed separately with the
Securities and Exchange commission. Asterisks denote omissions.

applicable. The initial term, together with the renewal terms, if any, are
collectively referred to herein as the "Term."

b. TERMINATION BY NOVATION. Novation may terminate this Agreement at any
time for any reason whatsoever by delivering not less than [**] prior written
notice thereof to Supplier. In addition, Novation may terminate this Agreement
immediately by delivering written notice thereof to Supplier upon the occurrence
of either of the following events:

(1) Supplier breaches this Agreement; or

(2) Supplier becomes bankrupt or insolvent or makes an unauthorized assignment
or goes into liquidation or proceedings are initiated for the purpose of having
a receiving order or winding up order made against Supplier, or Supplier applies
to the courts for protection from its creditors.

Novation's right to terminate this Agreement due to Supplier's breach in
accordance with this Subsection is in addition to any other rights and remedies
Novation, the Clients or the Members may have resulting from such breach,
including, but not limited to, Novation's and the Clients' right to recover all
loss of Marketing Fees resulting from such breach through the date of
termination and for [**] thereafter.

c. TERMINATION BY SUPPLIER. Supplier may terminate this Agreement at any
time for any reason whatsoever by delivering not less than [**] prior written
notice thereof to Novation.

4. PRODUCT SUPPLY.

a. DELIVERY AND INVOICING. On and after the Effective Date, Supplier
agrees to deliver Products ordered by the Members to the Members, FOB
destination, and will direct its invoices to the Members in accordance with this
Agreement. Supplier agrees to prepay and absorb charges, if any, for
transporting Products to the Members. Payment terms are [**]. Supplier will make
whatever arrangements are reasonably necessary with the Members to implement the
terms of this Agreement; provided, however, Supplier will not impose any
purchasing commitment on any Member as a condition to the Member's purchase of
any Products pursuant to this Agreement.

b. PRODUCT FILL RATES; CONFIRMATION AND DELIVERY TIMES. Supplier agrees
to provide product fill rates to the Members of greater than [**], calculated as
line item orders. Supplier will provide confirmation of orders from Members via
the electronic data interchange described in the Guidebook referred to in
Subsection 7.c below within two (2) business days after placement of the order
and will deliver the Products to the Members within ten (10) business days after
placement of the order.

<PAGE> 8

Confidential Materials omitted and filed separately with the
Securities and Exchange commission. Asterisks denote omissions.

c. BUNDLED TERMS. Supplier agrees to give Novation prior written notice
of any offer Supplier makes to any Member to sell products that are not covered
by this Agreement in conjunction with Products covered by this Agreement under
circumstances where the Member has no real economic choice other than to accept
such bundled terms.

d. DISCONTINUATION OF PRODUCTS; CHANGES IN PACKAGING. Supplier will have
no unilateral right to discontinue any of the Products or to make any changes in
packaging which render any of the Products substantially different in use,
function or distribution. Supplier may request Novation in writing to agree to a
proposed discontinuation of any Products or a proposed change in packaging for
any Products at least [**] prior to the proposed implementation of the
discontinuation or change. Under no circumstances will any Product
discontinuation or packaging changes be permitted under this Agreement without
Novation's agreement to the discontinuation or change. In the event Supplier
implements such proposed discontinuation or change without Novation's agreement
thereto in writing, in addition to any other rights and remedies Novation or the
Members may have by reason of such discontinuation or change, (i) Novation will
have the right to terminate any or all of the Product(s) subject to such
discontinuation or change or to terminate this Agreement in its entirety
immediately upon becoming aware of the discontinuation or change or any time
thereafter by delivering written notice thereof to Supplier; (ii) the Members
may purchase products equivalent to the discontinued or changed Products from
other sources and Supplier will be liable to the Members for all reasonable
costs in excess of the Contract Prices plus any other damages which they may
incur; and (iii) Supplier will be liable to Novation and the Clients for any
loss of Marketing Fees resulting from such unacceptable discontinuation or
change plus any other damages which they may incur.

e. REPLACEMENT OR NEW PRODUCTS. Supplier will have no unilateral right to
replace any of the Products listed in Exhibit A with other products or to add
new products to this Agreement. Supplier may request Novation in writing to
agree to a replacement of any of the Products or the addition of a new product
that is closely related by function or use to an existing Product at least [**]
prior to the proposed implementation of the replacement or to the new product
introduction. Under no circumstances will any Product replacement or new product
addition to this Agreement be permitted without Novation's agreement to the
replacement or new product.

f. MEMBER SERVICES. Supplier will consult with each Member to identify
the Member's policies relating to access to facilities and personnel. Supplier
will comply with such policies and will establish a specific timetable for sales
calls by sales representatives to satisfy the needs of the Member. Supplier will
promptly respond to Members' reasonable requests for verification of purchase
history. If requested by Novation or any Members, Supplier will provide, at
Supplier's cost, on-site inservice training to Members' personnel for pertinent
Products.

g. PRODUCT DELETION. Notwithstanding anything to the contrary contained
in this Agreement, Novation may delete any one or more of the Products from this
Agreement at any time, at will and without cause, upon not less than [**] prior
written notice to Supplier.

<PAGE> 9

Confidential Materials omitted and filed separately with the
Securities and Exchange commission. Asterisks denote omissions.

h. RETURN OF PRODUCTS. Any Member, in addition to and not in limitation
of any other rights and remedies, will have the right to return Products to
Supplier under any of the following circumstances: (1) the Product is ordered or
shipped in error; (2) the Product is no longer needed by the Member due to
deletion from its standard supply list or changes in usage patterns, provided
the Product is returned at least [**] prior to its expiration date and is in a
re-salable condition; (3) the Product is received outdated or is otherwise
unusable; (4) the Product is received damaged, or is defective or nonconforming;
(5) the Product is one which a product manufacturer or supplier specifically
authorizes for return; and (6) the Product is recalled. Supplier agrees to
accept the return of Products under these circumstances without charge and for
full credit.

i. FAILURE TO SUPPLY. In the event of Supplier's failure to perform its
supply obligations in accordance with the terms of this Section 4, the Member
may purchase products equivalent to the Products from other sources and Supplier
will be liable to the Member for all reasonable costs in excess of the Contract
Prices plus any other damages which they may incur. In such event, Supplier will
also be liable to Novation and the Clients for any loss of Marketing Fees
resulting from such failure plus any other damages which they may incur. The
remedies set forth in this Subsection are in addition to any other rights and
remedies Novation, the Clients or the Members may have resulting from such
failure.

5. PRODUCT QUALITY.

a. FREE FROM DEFECTS. Supplier warrants the Products against defects in
material, workmanship, design and manufacturing. Supplier will make all
necessary arrangements to assign such warranty to the Members. Supplier further
represents and warrants that the Products will conform to the specifications,
drawings, and samples furnished by Supplier or contained in the Non-Price
Specifications and will be safe for their intended use. If any Products are
defective and a claim is made by a Member on account of such defect, Supplier
will, at the option of the Member, either replace the defective Products or
credit the Member. Supplier will bear all costs of returning and replacing the
defective Products, as well as all risk of loss or damage to the defective
Products from and after the time they leave the physical possession of the
Member. The warranties contained in this Subsection will survive any inspection,
delivery, acceptance or payment by a Member. In addition, if there is at any
time wide-spread failure of the Products, the Member may return all said
Products for credit or replacement, at its option. This Subsection and the
obligations contained herein will survive the expiration or earlier termination
of this Agreement. The remedies set forth in this Subsection are in addition to
and not a limitation on any other rights or remedies that may be available
against Supplier.

b. PRODUCT COMPLIANCE. Supplier represents and warrants to Novation, the
Clients and the Members that the Products are, if required, registered, and will
not be distributed, sold or priced by Supplier in violation of any federal,
state or local law. Supplier represents and warrants that as of the date of
delivery to the Members all Products will not be adulterated or misbranded
within the meaning of the Federal Food, Drug and Cosmetic Act and will not
violate or cause

<PAGE> 10

a violation of any applicable law, ordinance, rule, regulation or order.
Supplier agrees it will comply with all applicable Good Manufacturing Practices
and Standards contained in 21 C.F.R. Parts 210, 211, 225, 226, 600, 606, 610,
640, 660, 680 and 820. Supplier represents and warrants that it will provide
adequate warnings and instructions to inform users of the Products of the risks,
if any, associated with the use of the Products. Supplier's representations;
warranties and agreements in this Subsection will survive the expiration or
earlier termination of this Agreement.

c. PATENT INFRINGEMENT. Supplier represents and warrants that sale or use
of the Products will not infringe any United States patent. Supplier will, at
its own expense, defend every suit which will be brought against Novation or a
Member for any alleged infringement of any patent by reason of the sale or use
of the Products and will pay all costs, damages and profits recoverable in any
such suit. This Subsection and the obligations contained herein will survive the
expiration or earlier termination of this Agreement. The remedies set forth in
this Subsection are in addition to and not a limitation on any other rights or
remedies that may be available against Supplier.

d. PRODUCT CONDITION. Unless otherwise stated in the Non-Price
Specifications or unless agreed upon by a Member in connection with Products it
may order, all Products will be new. Products which are demonstrators, used,
obsolete, seconds, or which have been discontinued are unacceptable unless
otherwise specified in the Non-Price Specifications or the Member accepts
delivery after receiving notice of the condition of the Products.

e. RECALL OF PRODUCTS. Supplier will reimburse Members for any cost
associated with any Product corrective action, withdrawal or recall requested by
Supplier or required by any governmental entity. In the event a product recall
or a court action impacting supply occurs, Supplier will notify Novation in
writing within twenty-four (24) hours of any such recall or action. Supplier's
obligations in this Subsection will survive the expiration or earlier
termination of this Agreement.

f. SHELF LIFE. Sterile Products and other Products with a limited shelf
life sold under this Agreement will have the longest possible shelf life and the
latest possible expiration dates. Unless required by stability considerations,
there will not be less than an eighteen (18) month interval between a Product's
date of delivery by Supplier to the Member and its expiration date.

6. CENTURY COMPLIANCE.

a. DEFINITIONS. For purposes of this Section, the following terms have
the respective meanings given below:

(1) "Systems" means any of the Products, systems of distribution for
Products and Product manufacturing systems that consist of or include any
computer software, computer firmware, computer hardware (whether general or
special purpose), documentation, data, and other similar or related items of the
automated, computerized, and/or software systems that are provided by or through
Supplier or utilized to manufacture or distribute the Products provided by or
through Supplier pursuant to this Agreement, or any component part thereof, and
any services provided by or through Supplier in connection therewith.

<PAGE> 11

(2) "Calendar-Related" refers to date values based on the "Gregorian
calendar" (as defined in the Encyclopedia Britannica, 15th edition, 1982, page
602) and to all uses in any manner of those date values, including without
limitation manipulations, calculations, conversions, comparisons, and
presentations.

(3) "Century Noncompliance" means any aspects of the Systems that fail to
satisfy the requirements set forth in Subsection 6.b below.

b. REPRESENTATIONS. Supplier warrants, represents and agrees that the
Systems satisfy the following requirements:

(1) In connection with the use and processing of Calendar-Related data,
the Systems will not malfunction, will not cease to function, will not generate
incorrect data, and will not produce incorrect results.

(2) In connection with providing Calendar-Related data to and accepting
Calendar-Related data from other automated, computerized, and/or software
systems and users via user interfaces, electronic interfaces, and data storage,
the Systems represent dates without ambiguity as to century.

(3) The year component of Calendar-Related data that is provided by the
Systems to or that is accepted by the Systems from other automated,
computerized, and/or software systems and user interfaces, electronic
interfaces, and data storage is represented in a four-digit CCYY format, where
CC represents the two digits expressing the century and YY represents the two
digits expressing the year within that century (e.g., 1996 or 2003).

(4) Supplier has verified through testing that the Systems satisfy the
requirements of this Subsection including, without limitation, testing of each
of the following specific dates and the transition to and from each such date:
September 9, 1999; September 10, 1999; December 31, 1999; January 1, 2000;
February 28, 2000; February 29, 2000; March 1, 2000; December 31, 2000; January
1, 2001; December 31, 2004; and January 1, 2005.

c. REMEDIES. In the event of any Century Noncompliance in the Systems in
any respect, in addition to any other remedies that may be available to Novation
or the Members, Supplier will, at no cost to the Members, promptly under the
circumstances (but, in all cases, within thirty (30) days after receipt of a
written request from any Member, unless otherwise agreed by the Member in
writing) eliminate the Century Noncompliance from the Systems.

d. NONCOMPLIANCE NOTICE. In the event Supplier becomes aware of (i) any
possible or actual Century Noncompliance in the Systems or (ii) any
international, governmental, industrial, or other standard (proposed or adopted)
regarding Calendar-Related data and/or processing, or Supplier begins any
significant effort to conform the Systems to any such standard, Supplier will
promptly provide the Members with all relevant information in writing and will
timely provide the Members with updates to such information. Supplier will
respond promptly and fully to inquiries by the Members, and timely provide
updates to any responses provided to the Members,

<PAGE> 12

Confidential Materials omitted and filed separately with the
Securities and Exchange commission. Asterisks denote omissions.

with respect to (i) any possible or actual Century Noncompliance in the Systems
or (ii) any international, governmental, industrial, or other standards. In the
foregoing, the use of "timely" means promptly after the relevant information
becomes known to or is developed by or for Supplier.

e. SURVIVAL. Supplier's representations, warranties and agreements in
this Section will continue in effect throughout the Term and will survive the
expiration or earlier termination of this Agreement.

7. REPORTS AND OTHER INFORMATION REQUIREMENTS.

a. REPORT CONTENT. Within [**] after the end of each full and partial
month during the Term ("Reporting Month"), Supplier will submit to Novation a
report in the form of a diskette containing the following information in form
and content reasonably satisfactory to Novation:

(1) the name of Supplier, the Reporting Month and year and the Agreement
number (as provided to Supplier by Novation);

(2) with respect to each Member (described by LIC number (as provided to
Supplier by Novation), health industry number (if applicable), full name, street
address, city, state, zip code and, if applicable, tier and committed status),
the number of units sold and the amount of net sales for each Product on a line
item basis, and the sum of net sales and the associated Marketing Fees for all
Products purchased by such Member directly or indirectly from Supplier during
the Reporting Month, whether under the pricing and other terms of this Agreement
or under the terms of any other purchasing or pricing arrangements that may
exist between the Member and Supplier;

(3) the sum of the net sales and the associated Marketing Fees for all
Products sold to all Members during the Reporting Month; and

b. REPORT FORMAT AND DELIVERY. The reports required by this Section will
be submitted electronically in Excel Version 7 or Access Version 7 and in
accordance with other specifications established by Novation from time to time
and will be delivered to:

Novation
Attn: SRIS Operations
220 East Las Colinas Boulevard
Irving, TX 75039

c. OTHER INFORMATION REQUIREMENTS. In addition to the reporting
requirements set forth in Subsections 7.a and 7.b above, the parties agree to
facilitate the administration of this Agreement by transmitting and receiving
information electronically and by complying with the information requirements
set forth in Exhibit E attached hereto. Supplier further agrees that,

<PAGE> 13

except to the extent of any inconsistency with the provisions of this Agreement,
it will comply with all information requirements set forth in the Novation
Information Requirements Guidebook ("Guidebook"). On or about the Effective
Date, Novation will provide Supplier with a current copy of the Guidebook and
will thereafter provide Supplier with updates and/or revisions to the Guidebook
from time to time.

8. OBLIGATIONS OF NOVATION.

a. INFORMATION TO MEMBERS. After the execution of this Agreement,
Novation, in conjunction with the Clients, will deliver a summary of the
purchasing arrangements covered by this Agreement to each Member and will, from
time to time, at the request of Supplier, deliver to each Member reasonable and
appropriate amounts and types of materials supplied by Supplier to Novation
which relate to the purchase of the Products.

b. MARKETING SERVICES. Novation, in conjunction with the Clients, will
market the purchasing arrangements covered by this Agreement to the Members.
Such promotional services may include, as appropriate, the use of direct mail,
contact by Novation's field service delivery team, member support services, and
regional and national meetings and conferences. As appropriate, Novation, in
conjunction with the Clients, will involve Supplier in these promotional
activities by inviting Supplier to participate in meetings and other reasonable
networking activities with Members.

9. MARKETING FEES.

a. CALCULATION. Supplier will pay to Novation, as the authorized
collection agent for each of the Clients and certain of each Client's
subsidiaries and affiliates, respectively (and not collectively), marketing fees
("Marketing Fees") belonging to any of the Clients or certain of their
subsidiaries or affiliates equal to the Agreed Percentage of the aggregate gross
charges of all net sales of the Products to the Members directly or indirectly
from Supplier, whether under the pricing and other terms of this Agreement or
under the terms of any other purchasing or pricing arrangements that may exist
between the Members and Supplier. Such gross charges will be determined without
any deduction for uncollected accounts or for costs incurred in the manufacture,
provision, sale or distribution of the Products, and will include, but not be
limited to, charges for the sale of products, the provision of installation,
training and maintenance services, and the provision of any other services
listed on Exhibit A. The "Agreed Percentage" will be defined in the Non-Price
Specifications.

b. PAYMENT. On or about the Effective Date, Novation will advise Supplier
in writing of the amount determined by Novation to be Supplier's monthly
estimated Marketing Fees. Thereafter, Supplier's monthly estimated Marketing
Fees may be adjusted from time to time upon written notice from Novation based
on actual purchase data. No later than the tenth (10th) day of each month,
Supplier will remit the monthly estimated Marketing Fees for such month to
Novation. Such payment will be adjusted to reflect the reconciliation between
the actual Marketing Fees payable for the second month prior to such month with
the estimated Marketing Fees actually paid during such prior month. Supplier
will pay all estimated and adjusted Marketing Fees by check made payable to
"Novation, LLC." All checks should reference the

<PAGE> 14

Confidential Materials omitted and filed separately with the
Securities and Exchange commission. Asterisks denote omissions.

Agreement number. Supplier will include with its check the reconciliation
calculation used by Supplier to determine the payment adjustment, with separate
amounts shown for each Client's component thereof. Checks sent by first class
mail will be mailed to the following address:

Novation
75 Remittance Dr., Suite 1420
Chicago, IL 60675-1420

Checks sent by courier (Federal Express, United Parcel Service or messenger)
will be addressed as follows:

The Northern Trust Company
801 S. Canal St.
4th Floor Receipt & Dispatch
Chicago, IL 60607
Attn: Novation, Suite 1420
Telephone: (312) 630-8100, #9

10. ADMINISTRATIVE DAMAGES. Novation and Supplier agree that Novation would
incur additional administrative costs if Supplier fails to provide notice of
change in pricing terms as required in Subsection 2.e above, fails to provide
reports as required in Section 7 above, or fails to pay Marketing Fees as
required in Section 9 above, in each case within the time and manner required by
this Agreement. Novation and Supplier further agree that the additional
administrative costs incurred by Novation by reason of any such failure to
Supplier is uncertain, and they therefore agree that the following schedule of
administrative damages constitutes a reasonable estimation of such costs and
were determined according to the principles of just compensation:

1st failure................................................................[**]
2nd failure:...............................................................[**]
3rd failure:...............................................................[**]
4th failure:...............................................................[**]
5th failure:...............................................................[**]
6th & each subsequent failure:.............................................[**]

Novation's right to recover administrative damages in accordance with this
Section is in addition to any other rights and remedies Novation or the Clients
may have by reason of Supplier's failure to pay the Marketing Fees or provide
the reports or notices within the time and manner required by this Agreement.

11. NONPAYMENT OR INSOLVENCY OF A MEMBER. If a Member fails to pay Supplier for
Products, or if a Member becomes bankrupt or insolvent or makes an assignment
for the benefit of creditors or goes into liquidation, or if proceedings are
initiated for the purpose of having a

<PAGE> 15

Confidential Materials omitted and filed separately with the
Securities and Exchange commission. Asterisks denote omissions.

receiving order or winding up order made against a Member, or if a Member
applies to the court for protection from its creditors, then, in any such case,
this Agreement will not terminate, but Supplier will have the right, upon prior
written notice to Novation and the Member, to discontinue selling Products to
that Member.

12. INSURANCE.

a. POLICY REQUIREMENTS. Supplier will maintain and keep in force during
the Term product liability, general public liability and property damage
insurance against any insurable claim or claims which might or could arise
regarding Products purchased from Supplier. Such insurance will contain a
minimum combined single limit of liability for bodily injury and property damage
in the amounts of not less than 2,000,000 per occurrence and [**] in the
aggregate; will name Novation, the Clients and the Members, as their interests
may appear, as additional insureds, and will contain an endorsement providing
that the carrier will provide directly to all named insured copies of all
notices and endorsements. Supplier will provide to Novation, within fifteen (15)
days after Novation's request, an insurance certificate indicating the foregoing
coverage, issued by an insurance company licensed to do business in the relevant
states and signed by an authorized agent.

b. SELF-INSURANCE. Notwithstanding anything to the contrary in Subsection
12.a above, Supplier may maintain a self-insurance program for all or any part
of the foregoing liability risks, provided such self-insurance policy in all
material respects complies with the requirements applicable to the product
liability, general public liability and property damage insurance set forth in
Subsection 12.a. Supplier will provide Novation, within fifteen (15) days after
Novation's request: (1) the self-insurance policy; (2) the name of the company
managing the self-insurance program and providing reinsurance, if any; (3) the
most recent annual reports on claims and reserves for the program; and (4) the
most recent annual actuarial report on such program.

c. AMENDMENTS, NOTICES AND ENDORSEMENTS. Supplier will not amend, in any
material respect that affects the interests of Novation, the Clients or the
Members, or terminate said liability insurance or self-insurance program except
after thirty (30) days' prior written notice to Novation and will provide to
Novation copies of all notices and endorsements as soon as practicable after it
receives or gives them.

13. COMPLIANCE WITH LAW AND GOVERNMENT PROGRAM PARTICIPATION.

a. COMPLIANCE WITH LAW. Supplier represents and warrants that to the best
of its knowledge, after due inquiry, it is in compliance with all federal, state
and local statutes, laws, ordinances and regulations applicable to it ("Legal
Requirements") which are material to the operation of its business and the
conduct of its affairs, including Legal Requirements pertaining to the safety of
the Products, occupational health and safety, environmental protection,
nondiscrimination, antitrust, and equal employment opportunity. During the Term,
Supplier will: (1) promptly notify Novation of any lawsuits, claims,
administrative actions or other proceedings

<PAGE> 16

asserted or commenced against it which assert in whole or in part that Supplier
is in noncompliance with any Legal Requirement which is material to the
operation of its business and the conduct of its affairs and (2) promptly
provide Novation with true and correct copies of all written notices of adverse
findings from the U.S. Food and Drug Administration ("FDA") and all written
results of FDA inspections which pertain to the Products.

b. GOVERNMENT PROGRAM PARTICIPATION. Supplier represents and warrants
that it is not excluded from participation, and is not otherwise ineligible to
participate, in a "Federal health care program" as defined in 42 U.S.C. ss.
1320a-7b(f) or in any other government payment program. In the event Supplier is
excluded from participation, or becomes otherwise ineligible to participate in
any such program during the Term, Supplier will notify Novation in writing
within three (3) days after such event, and upon the occurrence of such event,
whether or not such notice is given to Novation, Novation may immediately
terminate this Agreement upon written notice to Supplier.

14. RELEASE AND INDEMNITY. SUPPLIER WILL RELEASE, INDEMNIFY, HOLD HARMLESS,
AND, IF REQUESTED, DEFEND NOVATION, THE CLIENTS AND THE MEMBERS, AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, REGENTS, AGENTS, SUBSIDIARIES, AFFILIATES AND
EMPLOYEES (COLLECTIVELY, THE "INDEMNITEES"), FROM AND AGAINST ANY CLAIMS,
LIABILITIES, DAMAGES, ACTIONS, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES, EXPERT FEES AND COURT COSTS) OF ANY KIND
OR NATURE, WHETHER AT LAW OR IN EQUITY, INCLUDING CLAIMS ASSERTING STRICT
LIABILITY, ARISING FROM OR CAUSED IN ANY PART BY (1) THE BREACH OF ANY
REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF SUPPLIER CONTAINED IN THIS
AGREEMENT; (2) THE CONDITION OF ANY PRODUCT, INCLUDING A DEFECT IN MATERIAL,
WORKMANSHIP, DESIGN OR MANUFACTURING; OR (3) THE WARNINGS AND INSTRUCTIONS
ASSOCIATED WITH ANY PRODUCT. SUCH OBLIGATION TO RELEASE, INDEMNIFY, HOLD
HARMLESS AND DEFEND WILL APPLY EVEN IF THE CLAIMS, LIABILITIES, DAMAGES,
ACTIONS, COSTS AND EXPENSES ARE CAUSED BY THE NEGLIGENCE, GROSS NEGLIGENCE OR
OTHER CULPABLE CONDUCT OF INDEMNITEES; PROVIDED, HOWEVER, THAT SUCH
INDEMNIFICATION, HOLD HARMLESS AND RIGHT TO DEFENSE WILL NOT BE APPLICABLE WHERE
THE CLAIM, LIABILITY, DAMAGE, ACTION, COST OR EXPENSE ARISES SOLELY AS A RESULT
OF AN ACT OR FAILURE TO ACT OF INDEMNITEES. THIS SECTION AND THE OBLIGATIONS
CONTAINED HEREIN WILL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS
AGREEMENT. THE REMEDIES SET FORTH IN THIS SECTION ARE IN ADDITION TO AND NOT A
LIMITATION ON ANY OTHER RIGHTS OR REMEDIES THAT MAY BE AVAILABLE AGAINST
SUPPLIER.

15. BOOKS AND RECORDS; FACILITIES INSPECTIONS.. Supplier agrees to keep,
maintain and preserve complete, current and accurate books, records and accounts
of the transactions contemplated by this Agreement and such additional books,
records and accounts as are necessary to establish and verify Supplier's
compliance with this Agreement. All such books, records and accounts will be
available for inspection and audit by Novation representatives at any time
during the Term and for two (2) years thereafter, but only during reasonable
business hours and upon reasonable notice. Novation agrees that its routine
audits will not be conducted more frequently than twice in any consecutive
twelve (12) month period, subject to Novation's right to conduct

<PAGE> 17

special audits whenever it deems it to be necessary. In addition, Supplier will
make its manufacturing and packaging facilities available for inspection from
time to time during the Term by Novation representatives, but only during
reasonable business hours and upon reasonable notice. The exercise by Novation
of the right to inspect and audit is without prejudice to any other or
additional rights or remedies of either party.

16. USE OF NAMES, ETC. Supplier agrees that it will not use in any way in its
promotional, informational or marketing activities or materials (i) the names,
trademarks, logos, symbols or a description of the business or activities of
Novation or any Client or Member without in each instance obtaining the prior
written consent of the person owning the rights thereto; or (ii) the existence
or content of this Agreement without in each instance obtaining the prior
written consent of Novation.

17. CONFIDENTIAL INFORMATION.

a. NONDISCLOSURE. Supplier agrees that it will:

(1) keep strictly confidential and hold in trust all Confidential
Information, as defined in Subsection 17.b below, of Novation, the Clients and
the Members;

(2) not use the Confidential Information for any purpose other than the
performance of its obligations under this Agreement, without the prior written
consent of Novation;

(3) not disclose the Confidential Information to any third party (unless
required by law) without the prior written consent of Novation; and

(4) not later than thirty (30) days after the expiration or earlier
termination of this Agreement, return to Novation, the Client or the Member, as
the case may be, the Confidential Information.

b. DEFINITION. "Confidential Information," as used in Subsection 17.a
above, will consist of all information relating to the prices and usage of the
Products (including all information contained in the reports produced by
Supplier pursuant to Section 7 above) and all documents and other materials of
Novation, the Clients and the Members containing information relating to the
programs of Novation, the Clients or the Members of a proprietary or sensitive
nature not readily available through sources in the public domain. In no event
will Supplier provide to any person any information relating to the prices it
charges the Members for Products ordered pursuant to this Agreement without the
prior written consent of Novation.

18. MISCELLANEOUS.

a. CHOICE OF LAW. This Agreement will be governed by and construed in
accordance with the internal substantive laws of the State of Texas and the
Texas courts will have jurisdiction over all matters relating to this Agreement;
provided, however, the terms of any agreement between Supplier and a Member will
be governed by and construed in accordance with the choice of law and venue
provisions set forth in such agreement.

<PAGE> 18

b. NOT RESPONSIBLE. Novation and the Clients and their subsidiaries and
affiliates will not be responsible or liable for any Member's breach of any
purchasing commitment or for any other actions of any Member. In addition, none
of the Clients will be responsible or liable for the obligations of another
Client or its subsidiaries or affiliates or the obligations of Novation or
Supplier under this Agreement.

c. THIRD PARTY BENEFICIARIES. All Clients and Members are intended third
party beneficiaries of this Agreement. All terms and conditions of this
Agreement which are applicable to the Clients will inure to the benefit of and
be enforceable by the Clients and their respective successors and assigns. All
terms and conditions of this Agreement which are applicable to the Members will
inure to the benefit of and be enforceable by the Members and their respective
successors and assigns.

d. NOTICES. Except as otherwise expressly provided herein, all notices or
other communications required or permitted under this Agreement will be in
writing and will be deemed sufficient when mailed by United States mail, or
delivered in person to the party to which it is to be given, at the address of
such party set forth below:

If to Supplier:

To the address set forth by Supplier on the signature page of this Agreement

If to Novation:

Novation
Attn: General Counsel
220 East Las Colinas Blvd.
Irving, TX 75039

or such other address as the party will have furnished in writing in accordance
with the provisions of this Subsection.

e. NO ASSIGNMENT. No assignment of all or any part of this Agreement may
be made without the prior written consent of the other party; except that
Novation may assign its rights and obligations to any affiliate of Novation. Any
assignment of all or any part of this Agreement by either party will not relieve
that party of the responsibility of performing its obligations hereunder to the
extent that such obligations are not satisfied in full by the assignee. This
Agreement will be binding upon and inure to the benefit of the parties'
respective successors and assigns.

f. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Agreement will be prohibited by or invalid
under applicable law, such provision will be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement. Each party will, at its own

<PAGE> 19

expense, take such action as is reasonably necessary to defend the validity and
enforceability of this Agreement and will cooperate with the other party as is
reasonably necessary in such defense.

g. ENTIRE AGREEMENT. This Agreement, together with the exhibits listed
below, will constitute the entire agreement between Novation and Supplier. This
Agreement, together with the exhibits listed below and each Member's purchase
order will constitute the entire agreement between each Member and Supplier. In
the event of any inconsistency between this Agreement and a Member's purchase
order, the terms of this Agreement will control, except that the Member's
purchase order will supersede Sections 4 and 5 of this Agreement in the event of
any inconsistency with such Sections. No other terms and conditions in any
document, acceptance, or acknowledgment will be effective or binding unless
expressly agreed to in writing. The following exhibits are incorporated by
reference in this Agreement:

Exhibit A Product and Service Description and Pricing

Exhibit B Non-Price Specifications

Exhibit C Special Conditions

Exhibit D Effective Date

Exhibit E Other Information Requirements

[Other Exhibits Listed, if any] EXHIBIT F

SUPPLIER: Aspect Medical Systems, Inc.

ADDRESS: 2 Vision Dr
Natick, MA 01760

SIGNATURE: /s/ J. Neal Armstrong

TITLE: VP & CFO DATE: 8/13/99

NOVATION, LLC

SIGNATURE: /s/ Edward Peterson

TITLE: Group Sr. Vice President DATE: 8/10/99

<PAGE> 20
Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

EXHIBIT A

ASPECT
MEDICAL SYSTEMS, INC.
1999 Sales Options A-2000
Revenue Units Only

Novation
A-2000 Monitor $[**]
Sensors $[**] per case
(case of [**] at $[**] each)

- -------------------------------- ------------------------------------------------------------------------------
Price Per Monitor Sensor Contract Pricing Schedule*
- -------------------------------- Annual Volume Unit
Total Cost Per per Monitor Price
Number of OR's Monitor ------------- -----
- -------------- -------------- Pricing Without Sensor Purchase Agreement 1 - 251 $[**]
------------------------------------------------------------------------------
1 OR $[**]
2-5 OR's $[**] Pricing With Sensor Purchase Agreement 252 - 299 $[**]
6-12 OR's $[**] 300 - 359 $[**]
13-29 OR's $[**] 360 - 407 $[**]
20" OR's $[**] 408 - 455 $[**]
- -------------------------------- 456 - 503 $[**]
> 504 $[**]
------------------------------------------------------------------------------
</TABLE>

1. SENSOR CONTRACT PRICING SCHEDULE
* Customers must issue a P.O. which commits to a 12 month minimum purchase
volume of a minimum of [**].
Sensor shipments must be rounded up to the nearest multiple of 25.

Customers who use more sensors than contracted for during the 12 month period,
which begins and has its anniversary on the date of the contract, will receive a
year-end rebate from Aspect. For example: Customer who signs an agreement to
purchase 300 sensors per year at $[**] but uses 456 sensors for the year will
receive a rebate equal to $[**] (i.e. the difference Between $[**] and $[**] per
sensor times the total sensors used).

[Illegible Text]

2. RENTAL AGREEMENT OPTION:
(a) $[**] per month monitor rental
(b) $[**] per Sensor
(c) [**] Months minimum rental

<PAGE> 21

Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

1999 Fee For Use Pricing Schedule
Assumes Monthly Purchases
FOR INTERNAL USE ONLY

LIST PRICING A-2000 Monitor $[**]
Sensors @ $[**] per case of [**] ($[**]/sensor)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Total Value Per Monitor: $[**]
Number of Monitors: [**]
Number of Sensor Purchases/Year: [**]

----------------------------------------------------------------
12 Months 24 Months 36 Months 48 Months 60 Months
Annual Sensor --------- --------- --------- --------- ---------
Usage
Per Monitor Unit Price Unit Price Unit Price Unit Price Unit Price
- ------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
[**] $[**] $[**] $[**] $[**] $[**]
[**] $[**] $[**] $[**] $[**] $[**]
[**] $[**] $[**] $[**] $[**] $[**]
[**] $[**] $[**] $[**] $[**] $[**]
[**] $[**] $[**] $[**] $[**] $[**]
[**] $[**] $[**] $[**] $[**] $[**]
[**] $[**] $[**] $[**] $[**] $[**]
- -------------------------------------------------------------------------------

<CAPTION>
- ------------------------------------------------------------------------------
Total Value Per Monitor: $[**]
Number of Monitors: $[**]
Number of Sensor Purchases/Year: $[**]

<PAGE> 22
Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

1999 Fee For Use Pricing Schedule
Assumes Monthly Purchases
FOR INTERNAL USE ONLY

LIST PRICING A-2000 Monitor $[**]
Sensors @ $[**] per case of [**] ($[**]/sensor)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Total Value Per Monitor: $[**]
Number of Monitors: [**]
Number of Sensor Purchases/Year: [**]

<CAPTION>
- ------------------------------------------------------------------------------
Total Value Per Monitor: $[**]
Number of Monitors: [**]
Number of Sensor Purchases/Year: [**]

<PAGE> 23

Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

1999 Fee For Use Pricing Schedule
Assumes Monthly Purchases
FOR INTERNAL USE ONLY

LIST PRICING A-2000 Monitor $[**]
Sensors @ $[**] per case of [**] ($[**]/sensor)

USAGE AGREEMENTS:

- - Customer will be invoiced for [**] sensors per month per monitor to meet
minimum commitment of [**] sensors per monitor per year. Sensor shipments
must be rounded up to the nearest multiple of [**].
- - Warranty and software upgrades are included with each usage agreement for
the life of the agreement.
- - After the minimum commitment is met, pricing reverts to the then current
Sensor Pricing Schedule.
<PAGE> 24
Confidential materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

EXHIBIT B

Non-Price Specifications

The term of the contract is three (3) years, commencing on September 01,
1999 through August 30, 2002, with [**] one-year renewals. Pricing will be firm
from [**].

Aspect Medical agrees to pay Novation a marketing fee to be defined as [**}
on all Novation contracted sales.

Warranty as expressed in 5(a) is valid from one [**] from the date
purchase.
<PAGE> 25

EXHIBIT C

SPECIAL CONDITIONS

N/A

<PAGE> 26

EXHIBIT D

EFFECTIVE DATE

This Agreement will be effective on September 01, 1999 Through August 30, 2002.

<PAGE> 27

EXHIBIT E

OTHER INFORMATION REQUIREMENTS

Novation and Supplier desire to facilitate contract administration
transactions ("Transactions") by electronically transmitting and receiving data
in agreed formats in substitution for conventional paper-based documents and to
assure that such Transactions are not legally invalid or unenforceable as a
result of the use of available electronic technologies for the mutual benefit of
the parties.

The parties agree as follows:

1. PREREQUISITES.

a.a DOCUMENTS; STANDARDS. Each party will electronically communicate to
or receive from the other party all of the required documents listed in the
Novation Electronic Communication Requirements Schedule attached hereto
(collectively "Documents"). All Documents will be communicated in accordance
with the standards set forth in the applicable sections of the Novation
Information Requirements Guidebook ("Guidebook"). Supplier agrees that the
Guidebook is the Confidential Information of Novation and will not disclose
information contained therein to any other party.

a.b. THIRD PARTY SERVICE PROVIDERS. Document swill be communicated
electronically to each party, as specified in the Guidebook, through any third
party service provider ("Provider") with which either party may contract or
VHAseCure.net(TM). Either party may modify its election to use, not use or
change a Provider upon thirty (30) days' prior written notice. Each party will
be responsible for the costs of any Provider with which it contracts, unless the
parties otherwise mutually agree in writing.

a.c. SIGNATURES. Each party will adopt as its signature an electronic
identification consisting of symbol(s) or code(s) which are to be affixed to or
contained in each Document transmitted by such Party ("Signatures"). Each party
agrees that any Signature of such party affixed to or contained in any
transmitted Document will be sufficient to verify such party originated and
intends to be bound by such Document. Neither party will disclose to any
unauthorized person the Signatures of the other party.

2. TRANSMISSIONS.

b.a. VERIFICATION. Upon proper receipt of any Document, the receiving
party will promptly and properly transmit a functional acknowledgement in
return, unless otherwise specified in the Guidebook.

b.b. ACCEPTANCE. If acceptance of a Document is required by the
Guidebook, any such Document which has been properly received will not give
rise to any obligation unless and until the party initially transmitting such
Document has properly received in return an Acceptance Document (as specified
in the Guidebook).

<PAGE> 28

b.c. GARBLED TRANSMISSION. If any properly transmitted Document is
received in an unintelligible or garbled form, the receiving party will
promptly notify the originating party (if identifiable from the received
Document) in a reasonable manner. In the absence of such a notice, the
originating party's records of the contents of such Document will control.

3. TRANSACTION TERMS.

c.a. CONFIDENTIALITY. No information contained in any Document or
otherwise exchanged between the parties will be considered confidential, except
to the extent provided by written agreement between the parties, or by
applicable law.

c.b. VALIDITY; ENFORCEABILITY. Any Document properly transmitted pursuant
to this Agreement will be considered, in connection with any Transaction, to be
a "writing" or "in writing" and any such Document when containing, or to which
there is affixed, a Signature ("Signed Documents") will be deemed for all
purposes to have been "signed" and to constitute an "original" when printed from
electronic files or records established and maintained in the normal course of
business.

4. STANDARDS.

ASC x 12 - Novation Information Requirements Guidebook

5. THIRD PARTY SERVICE PROVIDERS.

(If the parties will be transmitting Documents directly, insert "NONE")

<TABLE>
<CAPTION>
COMPANY VAN NAME ADDRESS TELEPHONE
- ------- -------- ------- ---------
NUMBER
------

<S> <C> <C> <C>
Novation AT&T 12976 Hollander Drive 800/624-5672
Bridgeton, MO 63044
</TABLE>

6. CONTRACT PRICING (PHARMACY).

Supplier will transmit contract pricing information electronically, to include
new contracts, contract renewals and any changes to a current contract. This
will be sent in a timely manner and in compliance with ANSI ASC X12-845 (Price
Authorization) and Novation Contract Pricing Guidelines. Contract pricing
information will include the following:

-2-
<PAGE> 29

Supplier Identification Number
HIN (Health Industry Number if Supplier is a HIN subscriber)
DEA Number (if HIN is not available)
Supplier Assigned Number (if HIN and DEA are not available)
Supplier Name
Supplier Contract Number
MFG Contract Number
Contract Effective Date
Contract Expiration Date
Member(s) (Member name, HIN or DEA number, Member start/stop dates)
Product Identifier
NDC
UPC (if NDC is not available)
Trade Name
Package Count
Package UOM
Selling Unit Price
Item Contract Effective Date
Item Contract Expiration Date

7. CONTRACT PRICING (MEDICAL/SURGICAL).

Supplier will communicate contract pricing information electronically, to
include new contracts, contract renewals and any changes to the current
contract. This will be sent in a timely manner and in compliance with the
Guidebook.

-3-

<PAGE> 30
NOVATION ELECTRONIC COMMUNICATION REQUIREMENTS SCHEDULE

This form is being completed by: Date:

- -------------------------------- ----------------
(Your Name)

Your Company Name: Your Title:

- -------------------------------- ----------------

Phone: E-mail:
---------------------- -----------------

Fax:
------------------------

Please complete the following questionnaire. Your answers to the following will
be used for planning purposes by the Novation Information Services staff. If
your company can already send the listed electronic information, please note
this in the date field.

<TABLE>
<CAPTION>
WHEN WILL YOUR COMPANY
MEET THIS REQUIREMENT
NOVATION REQUIREMENT NOVATION EXPECTATION (MM/DD/YY)
- --------------------- ---------------------------------- -----------------------------
<S> <C> <C>
REQUIREMENT 1: This only applies to new contracts, Your Novation product manager
New Contract Launch unless your company never provided will address this as new
this information. If needed, your contracts are negotiated.
See Section 4.2 Novation product manager will
contact you.
DUE AT CONTRACT SIGNING
- -----------------------------------------------------------------------------------------------
REQUIREMENT 2: Novation must receive contract item Date: ____/____/____
Ongoing Contract and pricing updates as prices change,
Maintenance and when items are added or deleted Will send information via
from contract. (check one):
See Section 4.3 DUE 60 DAYS PRIOR TO THE EFFECTIVE ( ) EDI 832
DATE OF THE LINE ITEM ( ) Novation Interim File
ADD/DELETE/CHANGE Format
- -----------------------------------------------------------------------------------------------
REQUIREMENT 3A: Current paper reports must be Date: ____/____/____
Summary Sales converted to electronic reporting
Reporting IMMEDIATELY. This will not be needed You will report sales by
once your company can report line ( ) LIC or ( ) HIN
See Section 4.4.2 item sales. See Requirement 3B. One or the other MUST BE USED
Due at the first contract reporting
period.
- -----------------------------------------------------------------------------------------------
REQUIREMENT 3B: Instead of monthly summary reports, Date: ____/____/____
Detailed Line Item detailed line item reports will be You will report sales by
Sales Reporting sent electronically. Plan for a 90- ( ) LIC Number or ( ) HIN
day testing period before stopping ( ) Interim File or
See Section 4.4.3 Requirement 3A. ( ) EDI 867
BEGIN TESTING WITHIN 120 DAYS OF If using Interim file,
CONTRACT EFFECTIVE DATE proposed date for converting
to EDI. Date:
____/____/____
One or the other MUST BE USED
- -----------------------------------------------------------------------------------------------
REQUIREMENT 4: You must be able to receive and Date: ____/____/____
Membership process periodic membership updates.
DUE IMMEDIATELY
See Section 4.5
- -----------------------------------------------------------------------------------------------
REQUIREMENT 5: Details which members have and have Date: ____/____/____
Commitment Forms not signed your contract enrollment
forms, if needed.
DUE IMMEDIATELY, IF APPLICABLE
See Section 4.6
- -----------------------------------------------------------------------------------------------
REQUIREMENT 6: Able to update Sale Representative Date: ____/____/____
</TABLE>

- --------------------- ---------------------------------- -----------------------------
<S> <C> <C>
Sales Representative information from a Business Partner
Contact Information Repository System download.
DUE WITHIN 30 DAYS OF CONTRACT
See Section 4.7 SIGNING
- -----------------------------------------------------------------------------------------------
REQUIREMENT 7: Able to update the items on contract Date: ____/____/____
Product Cross- with competitive cross-reference
referencing information
DUE WITHIN 90 DAYS OF CONTRACT
See Section 4.8 SIGNING
- -----------------------------------------------------------------------------------------------
Business Partner Able to connect to Novation BPRS Date: ____/____/____
Repository System via the VHAseCURE.neta. How many of your company
(BPRS) Access DUE WITHIN 60 DAYS OF CONTRACT employees need access to your
SIGNING Novation BPRS site? ______
See Section 3.0
- -----------------------------------------------------------------------------------------------
</TABLE>
RETURN WITHIN 30 DAYS TO:

Bill King, Manager, Supply Partner Operations, Novation LLC,
220 East Las Colinas Blvd., Irving, TX 75039
Telephone: (972) 581-5022, Fax: (972) 581-5154, E-mail: [email protected]

<PAGE> 32

Exhibit F

Exceptions

SUPPLIER NAME: ASPECT MEDICAL SYSTEMS, INC.
-----------------------------------------------------------------

PRINTED NAME: J. Neal Armstrong
-----------------------------------------------------------------

AUTHORIZED SIGNATURE: /s/ J. Neal Armstrong
----------------------------------------------------------

TITLE: Vice President and Chief Financial Officer
-------------------------------------------------------------------------

DATE: 6/15/99
--------------------------------------------------------------------------

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Page Paragraph Exception
No. No.
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1 2. a. Is changed to read as follows:
PURCHASE OF PRODUCTS. Novation and Supplier hereby agree that Supplier will make the
Products available for purchase by the Members at the Contract Prices in accordance
with the terms of this Agreement; provided, however, that this Agreement will not
constitute a commitment by any person to purchase any of the Products.

1 2.b. Is changed to read as follows:
OPTIONAL PURCHASING ARRANGEMENT. Novation and Supplier agree that each Member will
have the option of purchasing the Products under the terms of this Agreement or
under the terms of any other purchasing or pricing arrangement that may exist
between such Member and Supplier at any time during the Term; Supplier will use its
best efforts to report to Novation sales of Products to Members in accordance
with Sections 7 and 9 below. If any Member uses any other purchasing or pricing
arrangement with Supplier when ordering products covered by any contract between
Supplier and Novation, Supplier will notify any such Member included in the most
recent database supplied by Novation of the pricing and other significant terms of
the applicable Novation contract.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 1 of 7 Pages

<PAGE> 33

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2 2.c. Is changed to read as follows:
MARKET COMPETITIVE TERMS. Supplier agrees that the prices, quality, value and
technology of all Products purchased under this Agreement will remain market
competitive at all times during the Term. Supplier will [**] applicable to the
purchase of the Products as necessary to assure market competitiveness. During the
term of this Agreement, Supplier agrees to offer Products under this Agreement [**].
If at any time during the Term Novation receives information from any source
suggesting that Supplier's prices, quality, value or technology are not market
competitive, Novation may provide written notice of such information to Supplier,
and Supplier will, within [**] advise Novation in writing of and fully implement
all adjustments necessary to assure market competitiveness.
- ------------------------------------------------------------------------------------------------------------------------
2 2.d. Is changed to read as follows:
CHANGES IN CONTRACT PRICES. Subject to Subsection 2.e. below, unless otherwise
expressly agreed in any exhibit to this Agreement, the Contract Prices will not be
increased and any discount will not be eliminated or reduced during the Term. In
addition to any changes made to assure market competitiveness, Supplier may lower
the Contract Prices or increase any discount applicable to the purchase of the
Products at any time.
- ------------------------------------------------------------------------------------------------------------------------
2 2.f. Is changed to read as follows:
UNDERUTILIZED BUSINESSES. Certain Members may be required by law, regulation and/or
internal policy to do business with underutilized businesses such as Minority
Business Enterprises (MBE), Disadvantaged Business Enterprises (DBE), Small Business
Enterprises (SBE), Historically Underutilized Businesses (HUB) and/or
Women-owned Business Enterprises (WBE). To assist Novation in helping Members meet
these requirements, Supplier will use its best efforts to comply with all Novation
policies and programs with respect to such businesses and will use its best efforts
to provide, on request, Novation or any Member with statistical or other information
with respect to Supplier's utilization of such businesses as a vendor, distributor,
contractor or subcontractor.
- ------------------------------------------------------------------------------------------------------------------------
3 3.b. Is changed to read as follows:
TERMINATION BY NOVATION. Novation may terminate this Agreement at any time for any
reason whatsoever by delivering not less than [**] prior written notice thereof to
Supplier. In addition, Novation may terminate this Agreement immediately by
delivering written notice thereof to Supplier upon the occurrence of either of the
following events:

(0)1 Supplier breaches this Agreement and any such breach, except for a monetary
breach or breach of Section 13, which will warrant immediate termination, is not
cured within [**] after written notice from Novation to Supplier; or

(0)2 Supplier becomes insolvent or goes into liquidation or proceedings are
initiated by Supplier or against Supplier for the purpose of having a receiving
order or winding up order made against Supplier, or Supplier applies to the courts
for protection from its creditors.

Novation's right to terminate this Agreement due to Supplier's breach in accordance
with this Subsection is in addition to any other rights and remedies Novation, the
Clients or the Members may have resulting from such breach, including, but not
limited to, Novation's and the Clients' right to recover all loss of Marketing
Fees resulting from such breach through the date of termination.

- ------------------------------------------------------------------------------------------------------------------------
3 3.c. Is changed to read as follows:
TERMINATION BY SUPPLIER. Supplier may terminate this Agreement at any time
for any reason whatsoever by delivering not less than [**] prior written notice thereof
to Novation. In addition, Supplier may terminate this agreement immediately by
delivering written notice thereof to Novation upon the occurrence of either of the
following events:

(1) Novation breaches this Agreement and any such breach, except for a breach
of Section 13, which will warrant immediate termination, is not cured within [**]
after written notice from Supplier to Novation; or

(2) Novation becomes insolvent or goes into liquidation or proceedings are
initiated by Novation or against Novation for the purpose of having a receiving
order or winding up order made against Novation, or Novation applies to the courts
for protection from its creditors.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 2 of 7 Pages

<PAGE> 34

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 4.a. Is changed to read as follows:
DELIVERY AND INVOICING. On and after the Effective Date, Supplier agrees to deliver
Products ordered by the Members to the Members, FOB destination, and will direct its
invoices to the Members in accordance with this Agreement. Supplier agrees to prepay
and add to the invoice charges, if any, for transporting Products to the Members.
Payment terms are Net 30 days. Supplier will make whatever arrangements are reasonably
necessary with the Members to implement the terms of this Agreement; provided, however,
Supplier will not impose any purchasing commitment on any Member as a condition to
the Member's purchase of any Products pursuant to this Agreement, unless Member enters
into an Agreement with Supplier that requires minimum purchases.
- ------------------------------------------------------------------------------------------------------------------------
3 4.b. Is changed to read as follows:
PRODUCT FILL RATES; CONFIRMATION AND DELIVERY TIMES. Supplier agrees to provide
product fill rates to the Members of greater than ninety-five percent (95%),
calculated as line item orders. All products shall be ordered in writing, specifying
the product type, number of units, desired delivery date and means of shipment.
Purchase orders may be sent by fascimile machine. Such orders shall be considered to
have been accepted by Supplier unless Supplier otherwise notifies Member. Supplier's
notification may be verbal or sent by fascimile machine.
- ------------------------------------------------------------------------------------------------------------------------
4 4.d. Is changed to read as follows:
DISCONTINUATION OF PRODUCTS; CHANGES IN PACKAGING. Supplier will have no unilateral
right to discontinue any of the Products or to make any changes in packaging which
render any of the Products substantially different in use, function or distribution.
Supplier shall [**] any Products which may [**] any of the Products [**] to the [**].
In the event Supplier [**] in addition to any other rights and remedies Novation or
the Members may have by reason of such [**], (i) Novation will have the [**] any or
all of the Product(s) subject to such [**] any of the products [**] this Agreement
[**] of the [**] which may [**] any of the Products [**] or any time thereafter
[**] to Supplier.
- ------------------------------------------------------------------------------------------------------------------------
4 4.e. Is changed to read as follows:
REPLACEMENT OR NEW PRODUCTS. Supplier will have no unilateral right to replace any
of the Products listed in Exhibit A with other products or to add new products to
this Agreement. Supplier may [**], and such agreement shall [**] of any of the
Products or the [**] product that is [**] to the [**] of the [**] or to the [**]any
Product [**] product [**] to this Agreement be [**] agreement, and such agreement
shall [**] to the [**] product.
- ------------------------------------------------------------------------------------------------------------------------
5 4.g. This subsection is deleted in its entirety.
- ------------------------------------------------------------------------------------------------------------------------
5 4.h. Is changed to read as follows:
RETURN OF PRODUCTS. Any Member, in addition to and not in limitation of any other
rights and remedies, will have the right to return Products to Supplier under any of
the following circumstances: (1) the Product is [**]; (2) the Product is
[**] or is [**]; (3) the Product is [**], or is [**]; (4) the Product is [**] or the
[**]; and (5) the Product is [**]. Supplier agrees to accept the return of Products
under these circumstances without charge and for full credit.
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
5 4.i. Is changed to read as follows:
FAILURE TO SUPPLY. In the event of Supplier's failure to perform its supply
obligations in accordance with the terms of this Section 4, Novation may terminate
this Agreement in accordance with the terms of Subsection 3.b. The remedies set
forth in this Subsection are in addition to any other rights and remedies Novation,
the Clients or the Members may have resulting from such failure.
- ------------------------------------------------------------------------------------------------------------------------
5 5.a. This subsection is deleted in its entirety and replaced with the following:
WARRANTY. Subject to the limitations set forth in this Section 5, Supplier warrants
to the Members that all Products purchased from Supplier shall be free from defects
in materials and workmanship, when given normal, proper and intended usage and
maintenance, for a period of one year from the date of shipment to Member. Supplier
agrees during the warranty period to replace or repair all defective Products to
proper operating condition in accordance with Supplier's published specifications
for such Products. All defective parts must be returned, transportation prepaid, to
Supplier's offices in Natick, MA. All replaced parts shall become Supplier's
property on an exchange basis. Replacement parts may be new or refurbished, at the
election of Supplier.

The foregoing warranties shall not apply to expendable components, nor shall Supplier
have any obligation under this Agreement to make repairs or replacements which are
required by normal wear and tear, or which result, in whole or in part, from catastrophe,
fault or negligence, or from improper or unauthorized use or repair of the Products,
or use of the Products in a manner for which they were not designed, or by causes external
to the Products such as, but not limited to, power or air conditioning failure.

EXCEPT AS STATED ABOVE, SUPPLIER DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS OR IMPLIED,
WRITTEN OR ORAL, WITH RESPECT TO THE PRODUCTS, INCLUDING WITHOUT LIMITATION ALL
IMPLIED WARRANTIES OF FITNESS FOR ANY PARTICULAR PURPOSE.

SUPPLIER'S LIABILITY FOR DAMAGES TO MEMBER FOR ANY CAUSE WHATSOEVER, REGARDLESS OF
THE FORM OF ANY CLAIM OR ACTION, SHALL NOT EXCEED THE AGGREGATE PRICE PAID FOR
PRODUCTS UNDER THIS AGREEMENT. SUPPLIER SHALL IN NO EVENT BE LIABLE FOR ANY LOSS OF
DATA, PROFITS OR USE OF THE PRODUCTS OR FOR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING HEREUNDER.

IN NO EVENT WILL SUPPLIER BE LIABLE TO MEMBERS OR OTHER THIRD PARTIES FOR ANY DAMAGES,
INCLUDING BUT NOT LIMITED TO: (i) DAMAGES CAUSED BY MEMBER'S FAILURE TO PERFORM ITS
COVENANTS AND RESPONSIBILITIES; (ii) DAMAGES CAUSED BY REPAIRS OR ALTERATIONS DONE
WITHOUT SUPPLIER'S WRITTEN APPROVAL; (iii) DAMAGES DUE TO DETERIORATION DURING PERIODS
OF STORAGE BY MEMBER OR ITS CUSTOMERS; OR (iv) LOSS OF DATA, PROFITS OR USE OF THE
PRODUCTS OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THE
USE OR PERFORMANCE OF THE PRODUCTS.

NOVATION WARRANTIES. Novation acting on its own behalf only, shall extend a written
warranty at least as favorable to its customers as the warranty extended to it by
Supplier above, in connection with each sale or license of Products. Novation shall
perform and fulfill all of the terms and conditions of each such warranty. All labor
costs for warranty work shall be borne by Novation and shall not be passed on to
customers. Novation shall promptly notify Supplier of all warranty claims.

INDEMNIFICATION BY NOVATION. To the extent a claim or action is brought against
Supplier based on or related to Novation's failure to observe or perform its
obligations under this Agreement, including its obligation to notity customers of
limitations and disclaimers of warranties and liabilities, Novation shall defend and
hold Supplier harmless from and against any and all damages, costs and expenses,
including reasonable attorneys' fees, suffered by or awarded against Supplier.
- ------------------------------------------------------------------------------------------------------------------------
6 5.c. This subsection is deleted in its entirety and replaced with the following:
INFRINGEMENT INDEMNIFICATION BY SUPPLIER. Upon prompt notification in writing of any
action (and all prior related claims) brought against Novation based on a claim that
the Products infringe any valid United States patent, trademark, copyright or trade
secret, Supplier shall defend such action at its expense and pay all costs and
damages finally awarded in such action or settlement which are attributable to such
claim, provided that the failure to so notify the Supplier shall not relieve it from
any obligation which it may have hereunder or otherwise, except to the extent such
failure prejudices the Supplier's rights in any way. Supplier shall have sole
control of the defense of any such action and all negotiations for its settlement or
compromise. Novation shall cooperate fully with Supplier in the defense, settlement
or compromise of any such action. In the event that a final injunction is obtained
against Novation's use of the Product by reason of infringement of a valid United
States patent, copyright or trade secret, or if in the opinion of Supplier the
Product is likely to become the subject of a successful claim of such infringement,
Supplier may, at its option and expense, (i) procure for Novation the right to
continue using the Product, (ii) replace or modify the Product so that it becomes
non-infringing (so long as its functionality is essentially unchanged), or (iii) if
neither (i) or (ii) are reasonably available to Supplier, terminate the AGREEMENT
FOR THE PRODUCT.

Notwithstanding the foregoing, Supplier shall have no liability to Novation to the
extent that any infringement or claim thereof is based upon (i) use of any Product
in combination with equipment or software not supplied by Supplier where the Product
would not itself be infringing, (ii) compliance with designs, specifications or
instructions of Novation or any or its Members (while it is understood by the parties
that Novation does not currently and does not intend to provide designs, specifications
or instructions), (iii) use of any Product in an application or environment for
which it was not designed or not contemplated hereunder, (iv) modifications of the
Products by anyone other than Supplier, or (v) any claims of infringement of any
patent, copyright or trade secret in which Novation or any affiliate or customer of
Novation has an interest or license.

THE FOREGOING INDEMNIFICATION PROVISIONS STATE THE ENTIRE LIABILITY OF SUPPLIER
WITH RESPECT TO INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS,
TRADEMARKS, TRADE SECRETS AND OTHER INTELLECTUAL PROPERTY OR PROPRIETARY RIGHTS
BY THE PRODUCTS.

INFRINGEMENT INDEMNIFICATION BY NOVATION. Novation shall indemnify, defend and hold
harmless Supplier against all claims, liabilities, damages, expenses, judgments
and losses (including reasonable attorneys' fees) arising from (i) infringement or
alleged infringement of any patent, copyright, trade secret, trademark or other
intellectual property or proprietary right as a result of compliance by Supplier with
the designs, specifications or instructions of Novation or any of its Members (while it
is understood by the parties that Novation does not currently and does not intend to
provide designs, specifications or instructions), (ii) Novation's breach of any
of its obligations hereunder, and (iii) Novation's use and/or misuse of the Products
(while it is understood by the parties that Novation does not currently and does not
intend to use the Product).

OWNERSHIP OF PATENT AND TRADEMARKS. All patents, trademarks, trade names, copyrights
and designs in relation to the Products and the literature supplied in connection
therewith shall be and remain the property of Supplier and no rights to duplicate
such property shall accrue to Novation, the Clients or Members as a result of this
Agreement unless expressly provided herein or unless written permission is granted
by Supplier.

Supplier represents and warrants that, to the best of its knowledge, the products do
not infringe any United States patent, trademark, copyright or trade secret of any
third party.
- ------------------------------------------------------------------------------------------------------------------------
6 5.f. Is changed to read as follows:
SHELF LIFE. Sterile Products and other Products with a limited shelf life sold under
this Agreement will have the longest possible shelf life and the latest possible
expiration dates. Unless required by stability considerations, there will not be
less than a [**] interval between a Product's date of delivery by Supplier to the
Member and its expiration date.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 3 of 7 Pages

<PAGE> 35

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
6 6.a. through e. Is changed to read as follows:
a. DEFINITIONS. FOR PURPOSES OF THIS SECTION, THE FOLLOWING TERMS HAVE THE
RESPECTIVE MEANINGS GIVEN BELOW:

(1) "SYSTEMS" MEANS ANY OF THE PRODUCTS, SYSTEMS OF DISTRIBUTION FOR PRODUCTS
[**] THAT CONSIST OF OR INCLUDE ANY [**] (WHETHER GENERAL OR SPECIAL PURPOSE),
THAT ARE PROVIDED BY OR THROUGH SUPPLIER PURSUANT TO THIS AGREEMENT, OR ANY [**]
PROVIDED BY OR THROUGH SUPPLIER IN CONNECTION THEREWITH.

(2) "CALENDAR-RELATED" REFERS TO DATE VALUES BASED ON THE "GREGORIAN CALENDAR"
(AS DEFINED IN THE ENCYCLOPEDIA BRITANNICA, 15TH EDITION, 1982, PAGE 602) AND TO ALL
USES IN ANY MANNER OF THOSE DATE VALUES, INCLUDING WITHOUT LIMITATION MANIPULATIONS,
CALCULATIONS, CONVERSIONS, COMPARISONS, AND PRESENTATIONS.

(3) "CENTURY NONCOMPLIANCE" MEANS ANY ASPECTS OF THE SYSTEMS THAT FAIL TO
SATISFY THE REQUIREMENTS SET FORTH IN SUBSECTION 6.B BELOW.

b. REPRESENTATIONS. SUPPLIER WARRANTS, REPRESENTS AND AGREES THAT THE SYSTEMS
SATISFY THE FOLLOWING REQUIREMENTS:

(1) IN CONNECTION WITH THE USE AND PROCESSING OF CORRECTLY ENTERED AND FORMATTED
CALENDAR-RELATED DATA, THE SYSTEMS WILL NOT MALFUNCTION, WILL NOT CEASE TO FUNCTION,
WILL NOT GENERATE INCORRECT DATA, AND WILL NOT PRODUCE INCORRECT RESULTS.

(2) IN CONNECTION WITH PROVIDING CALENDAR-RELATED DATA TO AND ACCEPTING
CORRECTLY ENTERED AND FORMATTED CALENDAR-RELATED DATA FROM OTHER AUTOMATED, COMPUTERIZED,
AND/OR SOFTWARE SYSTEMS AND USERS VIA USER INTERFACES, ELECTRONIC INTERFACES, AND DATA
STORAGE, THE SYSTEMS REPRESENT DATES WITHOUT AMBIGUITY AS TO CENTURY.

(3) THE YEAR COMPONENT OF CALENDAR-RELATED DATA THAT IS PROVIDED BY THE SYSTEMS
TO OR THAT IS ACCEPTED BY THE SYSTEMS FROM OTHER AUTOMATED, COMPUTERIZED, AND/OR
SOFTWARE SYSTEMS AND USER INTERFACES, ELECTRONIC INTERFACES, AND DATA STORAGE IS
REPRESENTED IN A FOUR-DIGIT CCYY FORMAT, WHERE CC REPRESENTS THE TWO DIGITS
EXPRESSING THE CENTURY AND YY REPRESENTS THE TWO DIGITS EXPRESSING THE YEAR WITHIN
THAT CENTURY (E.G., 1996 OR 2003).

(0)3 SUPPLIER HAS VERIFIED THROUGH TESTING THAT THE SYSTEMS SATISFY THE
REQUIREMENTS OF THIS SUBSECTION INCLUDING, WITHOUT LIMITATION, TESTING OF EACH OF
THE FOLLOWING SPECIFIC DATES AND THE TRANSITION TO AND FROM EACH SUCH DATE:
SEPTEMBER 9, 1999; SEPTEMBER 10, 1999; DECEMBER 31, 1999; JANUARY 1, 2000; FEBRUARY
28, 2000; FEBRUARY 29, 2000; MARCH 1, 2000; DECEMBER 31, 2000; JANUARY 1, 2001;
DECEMBER 31, 2004; AND JANUARY 1, 2005.

c. REMEDIES. IN THE EVENT OF ANY CENTURY NONCOMPLIANCE IN THE SYSTEMS IN ANY
RESPECT, IN ADDITION TO ANY OTHER REMEDIES THAT MAY BE AVAILABLE TO NOVATION OR THE
MEMBERS, SUPPLIER WILL, AT NO COST TO THE MEMBERS, PROMPTLY UNDER THE CIRCUMSTANCES
(BUT, IN ALL CASES, WITHIN THIRTY (30) DAYS AFTER RECEIPT OF A WRITTEN REQUEST FROM
ANY MEMBER, UNLESS OTHERWISE AGREED BY THE MEMBER IN WRITING) ELIMINATE THE CENTURY
NONCOMPLIANCE FROM THE SYSTEMS.

d. NONCOMPLIANCE NOTICE. IN THE EVENT SUPPLIER BECOMES AWARE OF (i) ANY
POSSIBLE OR ACTUAL CENTURY NONCOMPLIANCE IN THE SYSTEMS OR (ii) ANY INTERNATIONAL,
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 4 of 7 Pages

<PAGE> 36

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9 7.b. IS CHANGED TO READ AS FOLLOWS:
REPORT FORMAT AND DELIVERY. THE REPORTS REQUIRED BY THIS SECTION WILL BE SUBMITTED
ELECTRONICALLY IN EXCEL 97 OR ACCESS 97 AND IN ACCORDANCE WITH OTHER SPECIFICATIONS
ESTABLISHED BY NOVATION FROM TIME TO TIME AND WILL BE DELIVERED TO:

NOVATION
ATTN: SRIS OPERATIONS
220 EAST LAS COLINAS BOULEVARD
IRVING, TX 75039
- ------------------------------------------------------------------------------------------------------------------------
9 7.c. IS CHANGED TO READ AS FOLLOWS:
OTHER INFORMATION REQUIREMENTS. IN ADDITION TO THE REPORTING REQUIREMENTS SET FORTH
IN SUBSECTIONS 7.a AND 7.b ABOVE, THE PARTIES AGREE, TO THE EXTENT PRACTICAL, TO
FACILITATE THE ADMINISTRATION OF THIS AGREEMENT BY TRANSMITTING AND RECEIVING
INFORMATION ELECTRONICALLY.
- ------------------------------------------------------------------------------------------------------------------------
9 9.a. IS CHANGED TO READ AS FOLLOWS:
CALCULATION. SUPPLIER WILL PAY TO NOVATION, AS THE AUTHORIZED COLLECTION AGENT FOR
EACH OF THE CLIENTS AND CERTAIN OF EACH CLIENT'S SUBSIDIARIES AND AFFILIATES,
RESPECTIVELY (AND NOT COLLECTIVELY), MARKETING FEES ("MARKETING FEES") BELONGING TO
ANY OF THE CLIENTS OR CERTAIN OF THEIR SUBSIDIARIES OR AFFILIATES EQUAL TO THE
AGREED PERCENTAGE OF THE AGGREGATE GROSS CHARGES OF ALL NET SALES OF THE PRODUCTS TO
THE MEMBERS DIRECTLY OR INDIRECTLY FROM SUPPLIER, WHETHER UNDER THE PRICING AND
OTHER TERMS OF THIS AGREEMENT OR UNDER THE TERMS OF ANY OTHER PURCHASING OR PRICING
ARRANGEMENTS THAT MAY EXIST BETWEEN THE MEMBERS AND SUPPLIER.[**] WILL BE DETERMINED
[**] OF THE PRODUCTS [**] AND THE PROVISION OF ANY OTHER SERVICES LISTED ON EXHIBIT
A. [**] THE DUE DATE OF THE INVOICE. THESE [**] WILL BE MADE [**] WILL BE [**]. THE
"AGREED PERCENTAGE" WILL BE DEFINED IN THE NON-PRICE SPECIFICATIONS.
- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
10 10 IS CHANGED TO READ AS FOLLOWS:
ADMINISTRATIVE DAMAGES. NOVATION AND SUPPLIER AGREE THAT NOVATION WOULD INCUR
ADDITIONAL ADMINISTRATIVE COSTS IF SUPPLIER FAILS TO PROVIDE NOTICE OF CHANGE IN
PRICING TERMS AS REQUIRED IN SUBSECTION 2.e ABOVE, FAILS TO PROVIDE REPORTS AS
REQUIRED IN SECTION 7 ABOVE, OR FAILS TO PAY MARKETING FEES AS REQUIRED IN SECTION 9
ABOVE, IN EACH CASE WITHIN THE TIME AND MANNER REQUIRED BY THIS AGREEMENT. NOVATION
AND SUPPLIER FURTHER AGREE THAT THE ADDITIONAL ADMINISTRATIVE COSTS INCURRED BY
NOVATION BY REASON OF ANY SUCH FAILURE TO SUPPLIER IS UNCERTAIN, AND THEY THEREFORE
AGREE THAT THE FOLLOWING SCHEDULE OF ADMINISTRATIVE DAMAGES CONSTITUTES A REASONABLE
ESTIMATION OF SUCH COSTS AND WERE DETERMINED ACCORDING TO THE PRINCIPLES OF JUST
COMPENSATION:

1ST FAILURE: [**]
2ND FAILURE: [**]
3RD FAILURE: [**]
4TH FAILURE: [**]
5TH FAILURE: [**]
6TH & EACH SUBSEQUENT FAILURE: [**]

NOVATION'S RIGHT TO RECOVER ADMINISTRATIVE DAMAGES IN ACCORDANCE WITH THIS SECTION
IS IN ADDITION TO ANY OTHER RIGHTS AND REMEDIES NOVATION OR THE CLIENTS MAY HAVE BY
REASON OF SUPPLIER'S FAILURE TO PAY THE MARKETING FEES OR PROVIDE THE REPORTS OR
NOTICES WITHIN THE TIME AND MANNER REQUIRED BY THIS AGREEMENT.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 5 of 7 Pages

<PAGE> 37

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
11 12.a. IS CHANGED TO READ AS FOLLOWS:
POLICY REQUIREMENTS. SUPPLIER WILL MAINTAIN AND KEEP IN FORCE DURING THE TERM
PRODUCT LIABILITY, GENERAL PUBLIC LIABILITY AND PROPERTY DAMAGE INSURANCE AGAINST
ANY INSURABLE CLAIM OR CLAIMS WHICH MIGHT OR COULD ARISE REGARDING PRODUCTS
PURCHASED FROM SUPPLIER. SUCH INSURANCE WILL CONTAIN A MINIMUM COMBINED SINGLE LIMIT
OF LIABILITY FOR BODILY INJURY AND PROPERTY DAMAGE IN THE AMOUNTS OF [**]. SUPPLIER
WILL PROVIDE TO NOVATION, WITHIN FIFTEEN (15) DAYS AFTER NOVATION'S REQUEST, AN
INSURANCE CERTIFICATE INDICATING THE FOREGOING COVERAGE, ISSUED BY AN INSURANCE
COMPANY LICENSED TO DO BUSINESS IN THE RELEVANT STATES AND SIGNED BY AN AUTHORIZED
AGENT.
- ------------------------------------------------------------------------------------------------------------------------
12 12.c. IS CHANGED TO READ AS FOLLOWS:
AMENDMENT, NOTICES AND ENDORSEMENTS. SUPPLER WILL NOT AMEND, IN ANY MATERIAL RESPECT
THAT AFFECTS THE INTERESTS OF NOVATION, THE CLIENTS OR THE MEMBERS, OR TERMINATE SAID
LIABILITY INSURANCE OR SELF-INSURANCE PROGRAM EXCEPT AFTER THIRTY (30) DAYS' PRIOR
WRITTEN NOTICE TO NOVATION.
- ------------------------------------------------------------------------------------------------------------------------
12 14 Is changed to read as follows:
RELEASE AND INDEMNITY. SUPPLIER WILL RELEASE, INDEMNIFY, HOLD HARMLESS, AND, IF
REQUESTED, DEFEND NOVATION AND THE CLIENTS AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
REGENTS, AGENTS, SUBSIDIARIES, AFFILIATES AND EMPLOYEES (COLLECTIVELY, THE
"INDEMNITEES"), FROM AND AGAINST ANY CLAIMS, LIABILITIES, DAMAGES, ACTIONS, COSTS
AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES, EXPERT FEES
AND COURT COSTS) OF ANY KIND OR NATURE, WHETHER AT LAW OR IN EQUITY, INCLUDING
CLAIMS ASSERTING STRICT LIABILITY, ARISING FROM OR CAUSED IN ANY PART BY (1) THE
BREACH OF ANY REPRESENTATION, WARRANTY, COVENANT OR AGREEMENT OF SUPPLIER CONTAINED
IN THIS AGREEMENT; (2) THE CONDITION OF ANY PRODUCT, INCLUDING A DEFECT IN MATERIAL,
WORKMANSHIP, DESIGN OR MANUFACTURING; OR (3) THE INSTRUCTIONS ACCOMPANYING ANY PRODUCT.
SUCH OBLIGATION TO RELEASE, INDEMNIFY, HOLD HARMLESS AND DEFEND WILL APPLY UNLESS
SUCH INDEMNIFICATION, HOLD HARMLESS AND RIGHT TO DEFENSE WILL NOT BE APPLICABLE
TO THE EXTENT THE CLAIM, LIABILITY, DAMAGE, ACTION, COST OR EXPENSE ARISES AS A
RESULT OF AN ACT OR FAILURE TO ACT OF INDEMNITEES. THIS SECTION AND THE OBLIGATIONS
CONTAINED HEREIN WILL SURVIVE THE EXPIRATION OR EARLIER TERMINATION OF THIS
AGREEMENT. THE REMEDIES SET FORTH IN THIS SECTION ARE IN ADDITION TO AND NOT A LIMITATION
ON ANY OTHER RIGHTS OR REMEDIES THAT MAY BE AVAILABLE AGAINST SUPPLIER. SUPPLIER SHALL
HAVE THE SOLE CONTROL AND AUTHORITY WITH RESPECT TO THE DEFENSE, SETTLEMENT OR
COMPROMISE THEREOF.

NOVATION WILL PROMPTLY NOTIFY SUPPLIER OF ANY CLAIM UNDER THIS SECTION 14, PROVIDED
THAT THE FAILURE TO SO NOTIFY THE SUPPLIER SHALL NOT RELIEVE IT FROM ANY OBLIGATION
IT MAY HAVE UNDER THIS SECTION 14 OR OTHERWISE, EXCEPT TO THE EXTENT SUCH FAILURE
PREJUDICES THE SUPPLIER'S RIGHTS IN ANY WAY.

- ------------------------------------------------------------------------------------------------------------------------
13 17.a. THROUGH THIS SECTION IS DELETED IN ITS ENTIRETY AND REPLACED WITH THE FOLLOWING:
b. CONFIDENTIALITY.

a. PROPRIETARY INFORMATION. EACH PARTY AGREES AND ACKNOWLEDGES THAT IN ORDER TO
FURTHER THE PERFORMANCE OF THIS AGREEMENT, THEY WILL BE REQUIRED TO DISCLOSE TO EACH
OTHER CERTAIN CONFIDENTIAL INFORMATION WHICH WILL BE IDENTIFIED AS SUCH IN WRITING
("CONFIDENTIAL INFORMATION"), INCLUDING BUT NOT LIMITED TO THE PRICES AND USAGE OF
THE PRODUCTS. IN NO EVENT WILL SUPPLIER PROVIDE TO ANY PERSON ANY INFORMATION
RELATING TO THE PRICES IT CHARGES THE MEMBERS FOR PRODUCTS ORDERED PURSUANT TO THIS
AGREEMENT WITHOUT THE PRIOR WRITTEN CONSENT OF NOVATION.

b. PROTECTION OF PROPRIETARY INFORMATION. THE RECEIVING PARTY AGREES TO PROTECT
THE CONFIDENTIALITY OF THE DISCLOSING PARTY'S CONFIDENTIAL INFORMATION WITH AT LEAST
THE SAME DEGREE OF CARE THAT IT UTILIZES WITH RESPECT TO ITS OWN SIMILAR PROPRIETARY
INFORMATION, INCLUDING WITHOUT LIMITATION AGREEING:

(i) NOT TO DISCLOSE OR OTHERWISE PERMIT ANY OTHER PERSON OR ENTITY ACCESS TO, IN
ANY MANNER, THE CONFIDENTIAL INFORMATION, OR ANY PART THEREOF IN ANY FORM
WHATSOEVER, EXCEPT THAT SUCH DISCLOSURE OR ACCESS SHALL BE PERMITTED TO AN EMPLOYEE
OF THE RECEIVING PARTY REQUIRING ACCESS TO THE CONFIDENTIAL INFORMATION IN THE
COURSE OF HIS OR HER EMPLOYMENT IN CONNECTION WITH THIS AGREEMENT AND WHO HAS SIGNED
AN AGREEMENT OBLIGATING THE EMPLOYEE TO MAINTAIN THE CONFIDENTIALITY OF THE
CONFIDENTIAL INFORMATION OF THIRD PARTIES IN THE RECEIVING PARTY'S POSSESSION;

(ii) TO NOTIFY THE DISCLOSING PARTY PROMPTLY AND IN WRITING OF THE CIRCUMSTANCES
SURROUNDING ANY SUSPECTED POSSESSION, USE OR KNOWLEDGE OF THE CONFIDENTIAL
INFORMATION OR ANY PART THEREOF AT ANY LOCATION OR BY ANY PERSON OR ENTITY OTHER
THAN THOSE AUTHORIZED BY THIS AGREEMENT; AND

(iii) NOT TO USE THE CONFIDENTIAL INFORMATION FOR ANY PURPOSE OTHER THAN AS
EXPLICITLY SET FORTH HEREIN.

c. EXCEPTIONS. NOTHING IN THIS SECTION 17 SHALL RESTRICT THE RECEIVING PARTY
WITH RESPECT TO INFORMATION OR DATA, WHETHER OR NOT IDENTICAL OR SIMILAR TO THAT
CONTAINED IN THE CONFIDENTIAL INFORMATION, IF SUCH INFORMATION OR DATA: (i) WAS
RIGHTFULLY POSSESSED BY THE RECEIVING PARTY BEFORE IT WAS RECEIVED FROM THE
DISCLOSING PARTY; (ii) IS INDEPENDENTLY DEVELOPED BY THE RECEIVING PARTY WITHOUT
REFERENCE TO THE DISCLOSING PARTY'S INFORMATION OR DATA; (iii) IS SUBSEQUENTLY
FURNISHED TO THE RECEIVING PARTY BY A THIRD PARTY NOT UNDER ANY OBLIGATION OF
CONFIDENTIALITY WITH RESPECT TO SUCH INFORMATION OR DATA, AND WITHOUT RESTRICTIONS
ON USE OR DISCLOSURE; OR (iv) IS OR BECOMES PUBLIC OR AVAILABLE TO THE GENERAL
PUBLIC OTHERWISE THAN THROUGH ANY ACT OR DEFAULT OF THE RECEIVING PARTY.

- ------------------------------------------------------------------------------------------------------------------------
14 18.a. IS CHANGED TO READ AS FOLLOWS: CHOICE OF LAW.
THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
SUBSTANTIVE LAWS OF THE STATE OF DELAWARE.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 6 of 7 Pages

<PAGE> 38

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
14 18.c. IS CHANGED TO READ AS FOLLOWS:
THIRD PARTY BENEFICIARIES. SUBJECT TO THE PROVISION OF THIS AGREEMENT ALL CLIENTS AND
MEMBERS ARE INTENDED THIRD PARTY BENEFICIARIES OF THIS AGREEMENT. ALL SECTIONS OF THIS
AGREEMENT WHICH BY THEIR TERMS SPECIFICALLY APPLY TO CLIENTS WILL INURE TO THE
BENEFIT OF AND BE ENFORCEABLE BY THE CLIENTS AND THEIR RESPECTIVE SUCCESSORS AND
ASSIGNS. ALL SECTIONS OF THIS AGREEMENT WHICH BY THEIR TERMS SPECIFICALLY APPLY TO
MEMBERS WILL INURE TO THE BENEFIT OF AND BE ENFORCEABLE BY THE MEMBERS AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS.
- ------------------------------------------------------------------------------------------------------------------------
15 18.e. IS CHANGED TO READ AS FOLLOWS:
NO ASSIGNMENT. IN THE EVENT OF ANY ASSIGNMENT OR PROPOSED ASSIGNMENT OF THIS
AGREEMENT BY SUPPLIER, OR ANY SUCCESSOR OF SUPPLIER, SUPPLIER SHALL NOTIFY NOVATION
IN WRITING (THE "NOTICE") AND REQUEST THAT NOVATION NOTIFY SUPPLIER, OR ANY
SUCCESSOR OF SUPPLIER, IN WRITING WITHIN 20 DAYS OF RECEIPT OF THE NOTICE THAT
NOVATION DOES NOT CONSENT TO THE ASSIGNMENT. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT, THE SOLE REMEDY OF NOVATION FOR ANY ASSIGNMENT OR PROPOSED
ASSIGNMENT OF THIS AGREEMENT WITHOUT THE CONSENT OR APPROVAL OF NOVATION SHALL BE TO
TERMINATE THIS AGREEMENT, WITHOUT PENALTY OR PREJUDICE TO SUPPLIER OF ANY KIND. ANY
ASSIGNMENT OF ALL OR ANY PART OF THIS AGREEMENT BY EITHER PARTY WILL NOT RELIEVE
THAT PARTY OF THE RESPONSIBILITY OF PERFORMING ITS OBLIGATIONS HEREUNDER TO THE EXTENT
THAT SUCH OBLIGATIONS ARE NOT SATISFIED IN FULL BY THE ASSIGNEE. THIS AGREEMENT WILL
BE BINDING UPON AND INURE TO THE BENEFIT OF THE PARTIES' RESPECTIVE SUCCESSORS AND
ASSIGNS.
- ------------------------------------------------------------------------------------------------------------------------
15 18.g. IS CHANGED TO READ AS FOLLOWS:
ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE EXHIBITS LISTED BELOW, WILL
CONSTITUTE THE ENTIRE AGREEMENT BETWEEN NOVATION, MEMBERS AND SUPPLIER. THIS
AGREEMENT, TOGETHER WITH THE EXHIBITS LISTED BELOW AND EACH MEMBER'S PURCHASE ORDER
WILL CONSTITUTE THE ENTIRE AGREEMENT BETWEEN EACH MEMBER AND SUPPLIER. IN THE EVENT
OF ANY INCONSISTENCY BETWEEN THIS AGREEMENT AND A MEMBER'S PURCHASE ORDER, THE TERMS
OF THIS AGREEMENT WILL CONTROL UNLESS AGREED UPON IN WRITING BY SUPPLIER. NO
OTHER TERMS AND CONDITIONS IN ANY DOCUMENT, ACCEPTANCE, OR ACKNOWLEDGMENT WILL BE
EFFECTIVE OR BINDING UNLESS EXPRESSLY AGREED TO IN WRITING. THE FOLLOWING EXHIBITS
ARE INCORPORATED BY REFERENCE IN THIS AGREEMENT:

EXHIBIT A PRODUCT AND SERVICE DESCRIPTION AND PRICING

EXHIBIT B NON-PRICE SPECIFICATIONS

EXHIBIT C SPECIAL CONDITIONS

EXHIBIT D EFFECTIVE DATE

EXHIBIT E OTHER INFORMATION REQUIREMENTS

EXHIBIT F EXCEPTIONS

[OTHER EXHIBITS LISTED, IF ANY]
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

Page 7 of 7 Pages

<PAGE> 1
EXHIBIT 10.25

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

ASPECT MEDICAL SYSTEMS, INC.
has requested that the marked portions of this agreements be granted
confidential treatment pursuant to Rule 406 under the Securities Act of 1933

_______________________________________________________________

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

BETWEEN ASPECT MEDICAL SYSTEMS

AND

HEWLETT-PACKARD COMPANY

Effective Date: Oct 01, 1999

Confidential

Agreement # CP-99-00004

Page 1 of 21
<PAGE> 2

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

GENERAL

This Distribution Agreement between Aspect Medical Systems (referred to
herein as "AMS"), with its principal offices at 2 Vision Drive, Natick, MA
01760-2059 and Hewlett-Packard Company (referred to herein as "HP") with
its offices at 3000 Minuteman Rd. Andover, MA 01810 (the "Parties") is
effective Oct 01, 1999 ("Effective Date").

WHEREAS AMS manufactures medical products and seeks to establish a
distribution channel in certain territories, and,

WHEREAS HP manufactures and distributes medical products and seeks to
distribute additional products to its customers; and,

WHEREAS AMS desires to appoint HP as an authorized Distributor in certain
territories of certain medical products, accessories and related goods to
be supplied by AMS and HP desires to accept such appointment.

THEREFORE HP agrees to purchase and AMS agrees to sell such Products upon
the following terms and conditions:

ARTICLE 1. DEFINITIONS

The following terms have the meaning indicated here when used in this
Agreement:

"AFFILIATE": Any person, firm, corporation, other legal entity which
controls or is controlled by or under common control with either AMS or HP.

"DISTRIBUTOR": HP.

"EXHIBITS": Documents attached to, incorporated by reference in, or added
to this Agreement at a later date.

"PRICES": Net US$ prices at which AMS shall sell Products to HP as set
forth in EXHIBIT 1.

"PRODUCTS": All medical products, supplies, accessories, parts and related
goods listed in EXHIBIT 1 as well as any and all updates, enhancements,
follow-on or related products that the parties mutually agree to add to
Exhibit 1.

"TERRITORIES": Countries and locations as set forth in EXHIBIT 2.

ARTICLE 2. APPOINTMENT

2.1 AMS hereby appoints HP as a non-exclusive Distributor for the Products
in the Territories.

2.2 Distributor may make sales outside the Territories if, and only if,
prior written permission is given by AMS, which shall not be unreasonably
withheld, and the product meets the regulatory requirements of the
Territory.

2.3 AMS agrees and confirms that Distributor may sub-contract any or all of
its obligations hereunder pursuant to ARTICLE 7.

Confidential

Agreement # CP-99-00004

Page 2 of 21
<PAGE> 3

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

2.4 Distributor agrees to exert its reasonable commercial efforts to
promote, sell and support the Products to ultimate users of the Products.

2.5 The obligations set forth herein are in lieu of any "best efforts" or
similar obligation.

ARTICLE 3. RELATIONSHIP

3.1 The relationship of Distributor to AMS shall be that of an independent
contractor engaged in purchasing Products from AMS for resale to
Distributor's customers.

3.2 Nothing contained in this Agreement shall be deemed to create a
partnership or joint venture between the Parties. Neither the making nor
the performance of this Agreement shall be construed in any manner to have
established a joint venture or partnership.

3.3 Neither Party shall hold itself out as the agent of the other, nor
shall they incur any indebtedness or obligations in the name of, or which
shall be binding on the other, without the prior written consent of the
other. Each Party assumes full responsibility for its own personnel under
laws and regulations of the governmental authorities of the competent
jurisdiction.

ARTICLE 4. AGREEMENT PRECEDENCE AND DOCUMENTS

4.1 This Agreement supersedes any previous communication, representations,
or agreements between the Parties, whether oral or written, regarding
transactions hereunder.

4.2 All Exhibits attached to the Agreement shall be deemed a part of this
Agreement and incorporated herein. Terms that are defined in this
Agreement, and used in any Exhibit, have the same meaning in the Exhibit as
in this Agreement. The following Exhibits are hereby made a part of this
Agreement:

Exhibit 1 - Products and Prices
Exhibit 2 - Territories
Exhibit 3 - General Provisions
Exhibit 4 - Product Support Requirements

ARTICLE 5. TERM OF AGREEMENT

The term of this Agreement shall be for the period October 01, 1999 to
September 30, 2001 inclusive. This Agreement will remain in effect until
expiry unless terminated earlier as provided in ARTICLE 6. In the event of
such expiration or any early termination, this Agreement shall continue to
apply to all orders previously accepted by AMS unless cancelled by
Distributor pursuant to ARTICLE 6.

ARTICLE 6. TERMINATION

6.1 Not withstanding ARTICLE 5 above, this Agreement is terminable by
either party at any time after the expiry of the first year with or without
cause upon six months prior written notice.

6.2 To the extent permitted by law, if either Party becomes insolvent, is
unable to pay its debts when due, files for bankruptcy, is subject of
involuntary bankruptcy, has a receiver appointed, or has its assets
assigned, the other Party may terminate this Agreement immediately upon
notice to the other party and may cancel any unfulfilled obligations.

Confidential

Agreement # CP-99-00004

Page 3 of 21
<PAGE> 4

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

6.3 If either Party hereto shall fail to perform any of the obligations
imposed upon it under the terms of this Agreement, the other Party may
terminate the Agreement upon three months written notice. Such termination
shall be effective three months after deposit of the notice in the mail
unless the other Party cures the breach within such three month period.

6.4 Distributor shall immediately cease to be an authorized AMS distributor
upon the effective date of termination of this Agreement. Distributor shall
thereafter refrain from representing itself as an authorized AMS
distributor and from using any AMS trademark or trade name.

6.5 Upon termination of the Agreement, [**] any or all of the AMS Products
which [**] may have [**], are in [**] are on the [**] and are [**] (if
there is a [**] the [**] for such Products or the [**] for such Products
[**].

ARTICLE 7. ASSIGNMENT AND MODIFICATION OF AGREEMENT

7.1 During the term of this Agreement, the rights of the Distributor under
this Agreement shall not be assigned nor shall the performance of
Distributor's duties hereunder be delegated, without the other AMS's prior
written consent which shall not be unreasonably withheld except either
Distributor may assign this Agreement (i) to an Affiliate that is an
Affiliate as of date of execution of this Agreement or (ii) to an Affiliate
whose assets consist entirely of the assets of an Affiliate or Affiliates
that were Affiliates as of the date of execution of this Agreement
(collectively the "permitted assignees").

7.2 An assignment of such rights for purpose of Section 7.1 shall include
any transaction including but not limited to, any merger, consolidation or
purchase of stock that results in a third party that is not a permitted
assignee controlling, directly or indirectly, a legal entity that holds
such rights. For purpose of this provision, the term "control" shall mean
the beneficial ownership, directly or indirectly, of fifty per cent (50%)
or more of voting shares of such entity. In the event of a change in
control by AMS, AMS shall give HP prompt notice and this Distribution
Agreement shall survive the change in control.

7.3 No sale, assignment or other transfer of any rights of a Party
hereunder shall be effective unless the purchaser, assignee or transferee
assumes such Party's obligations under this Agreement. Any assignment shall
not relieve the assigning Party of its responsibility for obligations
hereunder.

7.4 Except as set forth in Article 7.5 below, modifications of this
Agreement shall be effective and binding only if agreed in writing and
executed by respective duly authorized representative of each of the
Parties hereto.

7.5 Distributor may, at its option, delete Products from individual
Territories.

7.6 Neither Party's failure to exercise any of its rights under this
Agreement will constitute or be deemed a waiver or forfeiture of those
rights.

7.7 This Agreement may be assigned by HP to any new company that is formed
which essentially contains the elements of HP's measurement businesses.

ARTICLE 8. PRICES AND PAYMENTS

8.1 Distributor sets the end user selling prices at the sole judgement of
the Distributor.

8.2 Prices, which Distributor shall pay AMS for the Products purchased,
shall be the prices appearing in the EXHIBIT 1.

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Demonstration Prices for the AS2000 System will be $[**]. Demonstration
Prices for the BIS Sensor will be [**] for a maximum quantity of [**]/
Case for quantities from [**] cases. AMS [**] of the [**] to other parties
[**] of the [**] in any agreement [**] of this Agreement. If there are
additions or changes to Products, Distributor will have the right to
purchase these products and prices will be established and Exhibits so
revised.

8.3 Prices include the Product, labeling, packaging, freight, duties and
insurance to the F.O.B point of Leiden, Netherlands.

8.4 The prices set forth in EXHIBIT 1 may be revised based on market
conditions, supplier costs and the expected unit volume of Products
purchased under this Agreement. If [**] then [**] to the [**] prices.

8.5 Orders issued by Distributor with requested or acknowledged delivery
dates within thirty (30) days after the effective date of any price change
will be billed at the lower price. This includes backlog and orders already
placed but have not received acknowledged delivery dates.

8.6 Payment shall be in U.S. dollars with a [**] discount if paid within
[**] days fully payable without discount in net thirty days, after the
later of receipt by Distributor of an invoice or the corresponding
Products. Invoices must include details such as HP order number, HP product
numbers and quantities as reference. Distributor may deduct from AMS
invoices any monies owned to Distributor.

8.7 In competitive situations or as part of a large order, Distributor and
AMS may agree on a special price arrangement and split the cost of
additional discounts.

ARTICLE 9. SHIPMENT AND DELIVERY

9.1 Distributor will submit written (fax or electronic) orders to AMS after
receipt from the customer. Acknowledgment of delivery date will be received
by Distributor within no more than five work days. Distributor will not be
obligated to stock Products. Distributor may without charge postpone,
decrease, increase or cancel any order by notice to AMS, if such notice is
given at least [**] prior to the delivery date. Distributor may
without charge decrease any order by a maximum of [**] by notice to AMS, if
such notice is given within ninety days prior to the delivery date.

9.2 AMS will make every reasonable effort to meet delivery within [**] days
or the date quoted or acknowledged. AMS shall give Distributor prompt
notice of any prospective failure to meet the acknowledged delivery date.
If AMS fails to deliver Products for [**] days beyond the agreed delivery
date, Distributor may cancel such orders without charge.

9.3 Distributor may request changes in delivery dates, quantity and
configuration for Products appearing on its orders at no charge provided
written notice of said changes is received by AMS at least [**] working
days prior to requested date.

9.4 Upon Distributor's request with the necessary information, AMS shall
evaluate special requests for suitability of software or suitability of a
particular hardware interface between Products and hardware/software used
by Distributor's customers and inform Distributor of the result within a
reasonable time.

9.5 AMS shall provide a packing list with Distributor's purchase order
number, HP product numbers (the HP equivalent of AMS's part numbers),
serial numbers, quantity shipped and date shipped with each unit shipped.
If applicable, the packing list should also provide lot number, batch
number or any shelf life information (ie. datecode).

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9.6 AMS shall preserve, package, handle, and pack Products so as to protect
the Products from loss or damage, in conformance with good commercial
practice, government regulations, and other applicable requirements. AMS
shall mark the exterior of the boxes with the associated Product and serial
numbers of the contents. AMS shall be responsible for any loss or damage
due to its failure to properly preserve, package, handle, or pack Products.
Distributor shall not be required to assert any claims for such loss or
damage against the common carrier involved. AMS will ship Products in the
final packaging as intended to be received by the end user as ordered

9.7 Title to Products and risk of loss or damage will pass to Distributor
when Products are delivered to the defined Distributor location specified
in EXHIBIT 3- General Provisions.

9.8 Distributor will be the exporter of record and obtains duty drawback
rights to Products. If Products delivered under this Agreement are
imported, AMS shall when possible allow Distributor to be the importer of
record. If Distributor is not the importer of record and AMS obtains duty
drawback rights to the Products, AMS shall, upon Distributor's request,
provide Distributor with documents required by the customs authorities of
the country of receipt to prove importation and transfer duty drawback
rights to Distributor

9.9 Items missing in shipment will be promptly replaced and shipped at no
charge to Distributor.

ARTICLE 10. ADVERTISING, PROMOTIONS, TRADEMARKS AND COPYRIGHTED MATERIAL

10.1 AMS agrees to provide sample quantities of current or new sales
literature, artwork, advertising materials, promotional plans and other
information or programs reasonably related to this Agreement. Distributor
specific literature and advertising will be the responsibility of
Distributor.

10.2 AMS together with Distributor will evaluate requirements and define
promotional plans to which both will adhere. AMS will also provide
recommended reference sites and will actively pursue clinical evaluations
and the development of local/country reference sites and clinical trials.

10.3 AMS hereby grants Distributor a revocable license to use any AMS
trademark or trade name associated with the Products solely in the
advertisement and promotion of the Products during the term of this
Agreement. Except as provided in this paragraph, Distributor shall have no
right, title or interest in or to any patent, trademark of trade name
belonging to AMS.

10.4 AMS hereby grants Distributor a revocable license to reproduce
materials provided to Distributor by AMS as is reasonable for promotion,
demonstration, sale and support of AMS Products, including but not limited
to posting such materials on the Internet, Intranet, or web.

ARTICLE 11. SALES AND SUPPORT

11.1 HP will provide AMS with a forecast of [**] projected sales unit
volumes. Quantities listed in such correspondence between the Parties are
only estimates made as an accommodation for planning purposes and do not
constitute a commitment to purchase such quantity. Distributor may revise
any forecasts in its sole discretion. The arrangements provided herein are
[**] within this Agreement.

11.2 Distributor agrees to purchase demonstration Product and to maintain
trained staff capable of demonstrating and selling the Products. AMS agrees
to provide, at its costs, reasonable sales training and material and
support to the Distributor. Distributor agrees to participate in AMS's
sales and marketing meetings, Product and competitive training courses or
product launch meetings as mutually

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MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

agreed upon. AMS agrees to provide sales training in a mutually agreeable
location each six (6) months and upon product launch if sooner.

11.3 Distributor agrees to maintain trained staff capable of supporting the
Products. AMS agrees to provide, at no charge, reasonable service training
and support. Distributor agrees to participate in AMS's service training
programs. AMS undertakes to provide initial technical service training
prior to the time both Parties agree that distribution into the Territory
is to commence. Thereafter Distributor will send technicians to update
technical knowledge as mutually agreed upon.

11.4 AMS shall provide documentation to enable Distributor to establish the
support plan and deliver support services for the Products and Territories.
The product support plan shall prepared by both Parties and agreed upon
prior to the time distribution is to commence. AMS shall support the
Distributor with service information, parts (as provided in Section 11.5),
training and technical and clinical assistance and back-up support by
letter, fax, e-mail or telephone as appropriate.

11.5 Distributor agrees to purchase necessary spare parts and test
equipment to support systems installed in Territories. Spare parts to
support in-warranty repairs will be replaced for Distributor at no cost.
Out-of-warranty spare parts are at Distributor's cost.

11.6 Distributor shall use its reasonable efforts to handle and resolve
feedback from its customers. AMS shall have ultimate responsibility for
resolution of Product related issues. Problems that can not be resolved
locally will be escalated in accordance with ARTICLE 26.

ARTICLE 12. QUALITY ASSURANCE

12.1 AMS agrees to maintain ISO9001, EN46001 and Directive 93/42/EEC Annex
II certification status and compliance with the Food and Drug
Administration's (FDA) Quality System Regulation, the Medical Device
Directive and/or appropriate regulations that apply to countries within and
outside the European Union. As manufacturer, AMS will comply with all
applicable regulations and standards that pertain to manufacturers for
Products and Territories set forth herein.

12.2 Distributor will, from time to time, inform AMS of applicable
regulations in the Territories and AMS shall ensure that Products comply
with all such regulations.

12.3 Upon request, AMS agrees to furnish to Distributor any information
required to enable the Distributor to comply with all applicable
regulations and standards that pertain to distributors for Products and
Territories set forth herein.

12.4 If the Products and/or Territories covered in this Agreement are
modified, then AMS will maintain compliance with local regulations where
Products are manufactured and where Products are sold prior to the time
that both Parties agree that the distribution is to commence.

ARTICLE 13. MODIFICATION OF PRODUCTS

13.1 All Products marketed by Distributor shall be sold only in the form as
packaged by AMS. Distributor shall not alter or change Product or its
package, prior to sale.

13.2 AMS shall not, without the Distributor's prior written consent, make
any process or design changes affecting regulatory status or Product
specifications of Products in the Territories

13.3 AMS will affix "Distributed by Hewlett-Packard" labels as requested
by Distributor.

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MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

13.4 AMS shall provide Distributor written notice of all Product
discontinuances [**] months prior to the last order date.

13.5 AMS agrees to [**] for all [**] to the [**].

ARTICLE 14. EXPORT CERTIFICATION, PRODUCT REGISTRATION AND LOCALIZATION

14.1 Upon request, AMS shall provide at its own costs and expenses export
certificates issued by US Government and other documents that are necessary
for import and sale of the Products in the defined Territories. As required
by governments of any Territory, AMS agrees to site inspections of AMS's
factory.

14.2 AMS shall obtain and maintain at its costs all such Product
registrations that are necessary for demonstration and sale of Products as
required by law in the defined Territories.

14.3 AMS shall comply with all applicable regulatory requirements for
Product localization, including labeling and documentation as required in
countries agreed to by AMS and HP.

14.4 Upon mutual agreement, Distributor may provide Product registration
and/or localization assistance. In the case of documentation localization,
all master documentation is maintained and controlled, for the purpose of
quality system compliance, by AMS.

ARTICLE 15. IMPORT LICENSES AND EXPORT CONTROLS

15.1 AMS shall be responsible for obtaining and maintaining any export
license(s) required for delivery of the Products to Distributor under this
Agreement.

15.2 Upon Distributor's request, AMS shall provide an appropriate
certification stating the country of origin for Products, sufficient to
satisfy the requirements of (i) the customs authorities of the country of
ultimate destination, (ii) any applicable export licensing regulations,
including those of the United States, and (iii) requirements for duty
drawback.

15.3 AMS shall mark every Product (or the Product's container if there is
not room on the Product itself) with the country of origin. AMS shall, in
marking the Products, comply with the requirements of the customs
authorities of the country of ultimate destination. For each shipment of
Products of US origin issue a certificate specifying the US Export Control
Classification Number (ECCN number). Products must not be resold, exported
or re-exported in violation of the US Export Administration Act.

ARTICLE 16. WARRANTY AND LIMITATION OF REMEDIES

16.1. The Products listed on the attached Exhibits are covered by a
14-month written warranty starting from the date of delivery of the
Products to Distributor (the "User Warranty"). Such Products shall be
referred to as the "Warranty Products".

16.2 Distributor will supply a copy of the User Warranty with each Warranty
Product sold herein.

16.3 If Distributor finds that any Product is defective prior to its sale
by Distributor, Distributor shall contact an authorized AMS representative
and describe the defect. AMS will grant approval, provide the values for
customs purposes, and a return authorization number for repair or
replacement of the

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Product. Distributor undertakes to quote the authorization number on all
documentation that accompanies Products being returned. Distributor should
ensure that equipment is suitably packed for export and that accurate
values, as specified by AMS, are used in documentation. These defective
units will be promptly replaced at no charge to Distributor.

16.4 After AMS approves the return of the defective units, AMS will inform
Distributor as to the return location and send return labels to Distributor
or advise all details by electronic means.

16.5 AMS shall be entitled to verify the reason for the return and to
determine in its discretion whether to replace (rather than repair) the
unit. AMS shall not repair or replace units free of charge if the failure
is due to any of the following reasons:

i Damage from abuse or misuse;
ii Attempted repair by unauthorized service center; or
iii Repossession

16.6 For any Product repaired or replaced under warranty, the warranty
period will terminate at the end of the original warranty period as
provided in Article 16.1 or no less than six (6) months after the repair or
replacement.

16.7 AMS warrants that no Product provided hereunder shall be adulterated
or misbranded, with the meaning of the Federal Food, Drug, and Cosmetic
Act.

16.8 AMS warrants that the Products provided herein will be "Year 2000
Compliant". Year 2000 Compliant Products will perform without error, loss
of data or loss of functionality arising from any failure to process,
calculate, compare or sequence date data accurately. In addition, Year 2000
Compliant Products will not cause any associated products or systems in
which they may be used to fail in any of the ways described above.

16.9 AMS warrants that all Products shall (i) conform strictly to its
specifications, (ii) be free from defects in design, material, and
workmanship when used for their proper and intended purposes, and (iii) be
free from all liens, encumbrances, and other claims against title.

16.10 In addition to warranties specified above, where an exceptionally
high failure rate occurs (more than [**] quoted in EXHIBIT 4. Product
Support Requirements), AMS undertakes to apply additional resources to
return the failure rate to normal as soon as reasonably practicable. AMS
shall reimburse Distributor for costs incurred by Distributor in case of
such abnormal failures. Failure is defined as a situation where the end
user cannot fully utilize the Product.

ARTICLE 17. IN-WARRANTY REPAIR

17.1 AMS shall cover parts costs and Distributor shall cover labor costs
for field repair during the warranty period as set forth in ARTICLE 16.1.
In such case, Distributor may purchase replacement parts for no charge from
AMS.

17.2 If Warranty Products are returned to AMS, then parts and labor costs
for returned Products are covered by AMS. Distributor or its customer must
pay for transportation, insurance and handling charges of shipment of
Product to AMS for repair or replacement. Repaired or replaced Warranty
Products will be returned to sender at AMS's expense

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17.3 Distributor shall perform installation services at Distributor's
expense.

ARTICLE 18. OUT OF WARRANTY REPAIR

18.1 Distributor or its customer shall bear all shipping charges for
out-of-warranty repairs.

18.2 Repairs made by AMS outside of the warranty period shall be billed at
the AMS repair charge set forth in EXHIBIT 1. Such out-of-warranty repairs
will have a six (6) month parts warranty.

18.3. Out of warranty repairs performed by AMS will be formed at AMS's
facility set forth in EXHIBIT 3.

18.4 AMS shall provide technical support and make out of warranty repair
parts for the Products available to Distributor, at Distributor's cost, for
a term of ten years after Distributor ships the last Product. If unable to
provide such service and support, AMS shall provide Distributor with a
mutually agreeable alternative. In the case of termination of this
Agreement on any grounds other than a breach of this Agreement by
Distributor, AMS shall at the request of Distributor guarantee a continued
supply of Product and its updates or supply sufficient data regarding
product reliability to allow for the possible incremental purchase of
Product for the Distributor's standard ten year support life.

ARTICLE 19. COMPLAINTS, QUALITY RECORDS AND RECALLS

19.1 Distributor will notify, in writing, AMS's quality assurance
department of all Product complaints or any regulatory/conformance issues
that may affect the marketability of Products. AMS shall notify the
appropriate regulatory agent(s) if required and shall conduct any safety
investigations or other necessary follow-up activities. Distributor will
provide any information essential to such activities. AMS will promptly
notify Distributor if corrective action is necessary in the Territory.

19.2 Distributor shall keep records of the names and addresses of customers
and Product serial numbers for the active Product life to enable
Distributor to notify customers of Product safety information. Distributor
shall maintain the following information when distributing AMS's Products:

- Name and address of initial consignee
- Identification of device and quantity of devices shipped
- Date of shipment

19.3 Upon request, Distributor will supply AMS a quarterly report of
repairs, maintenance or service activity for Products. The report will
include the product number, serial number, fault found, action taken and
date of the activity.

19.4 In the event of any recall of a Product required by a governmental
agency for safety or efficacy reasons, or requested by Aspect at its sole
discretion, which is the result of AMS's failure to supply Products that
(1) conform in all material respects to the applicable published
specifications or (2) are free from defects in material and workmanship
(when given normal, proper and intended usage), AMS agrees to repair or
replace at its own costs all Products subject to the recall and previously
delivered to Distributor. AMS also agrees to consult with Distributor to
establish a reasonable process for managing the recall and Aspect shall be
responsible for all reasonable out-of-pocket expenditures incurred by
Distributor (including, but not limited to shipping costs, labor and travel
costs) that are consistent with the recall process agreed to by the
Parties.. In the event the recall is not required by a governmental agency
for safety or efficacy reasons, but is instead requested by AMS at its sole
discretion, AMS will be responsible for determining the scope of the
recall, including the number of units, timeframe for the recall, and
criteria for completion. Distributor agrees to maintain all necessary sales
records to facilitate the recall.

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ARTICLE 20. PRODUCT STEWARDSHIP

20.1 AMS shall accept back, free of charge, any material including the
Products and packaging returned freight prepaid by Distributor from any
country that legally requires product take back from the user at the end of
product life.

20.2 AMS shall, upon request, provide available environmentally related
information regarding materials included in Products and packaging that AMS
ships to Distributor including material safety data sheets.

ARTICLE 21. FORCE MAJEURE

No Party to this Agreement shall be liable for failure or delay of
performance of any of its obligations hereunder if such failure or delay is
due to causes beyond its reasonable control including, without limitation,
natural disasters, fires, earthquake or storm, strikes, failures of public
utilities or common carriers, acts of war, or intervention, acts restraints
or regulations of any governmental authority including compliance with any
order of any governmental considerations; provided that any such delay or
failure shall be remedied by such Party as soon as possible after removal
of the cause of such failure. A Party suffering such delay or which expects
to suffer such delay shall promptly notify the other Party in writing of
the cause and expected duration of such delay. In the event a delay lasts
or is expected to last more than sixty (60) days the other Party shall have
the option to terminate this Agreement upon written notice.

ARTICLE 22. CONFIDENTIALITY

Both Parties agree to keep in confidence the terms and conditions of this
Agreement.

ARTICLE 23. INTELLECTUAL PROPERTY RIGHTS AND INDEMNITY

AMS shall, except as otherwise provided below, defend or settle any claim
made or any suit proceeding brought against Distributor and its
subsidiaries, assigns, subcontractors, and customers so far as it is based
on an allegation that any Product furnished herein infringes a patent,
utility model, industrial design, copyright, trade secret, mask work of
trademark of the United States, or of the country where the Product is
sold, if notified promptly in writing and given information, assistance and
the sole authority to defend or settle same (at AMS's expense), and AMS
shall pay all damages and costs finally awarded in any such suit or
proceeding against Distributor. In case said Product is in such suit held
to infringe and the use or sale of said Product is enjoined, or in the case
of a settlement as referred to above, AMS shall have the option at its own
expense, to procure for Distributor the right to continue using or selling
said Product, or replace same with a non-infringing Product, or modify same
so it becomes non-infringing; in the event that none of the previous
options are commercially feasible, then AMS shall grant a refund to
Distributor of the price paid by Distributor for any of such Products
returned to AMS by Distributor. Notwithstanding anything to the contrary
above, in no event shall AMS have any liability under this Section 23 for
any such claims resulting from (a) modifications to the Products by anyone
other than AMS where the unmodified Products do not infringe, (b) the
combination of the Products with other products not provided by AMS, or (c)
use of the Products for purposes for which they were not intended. The
foregoing states the entire liability of AMS for infringement by Products
furnished herein.

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MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

ARTICLE 24. INDEMNITY AND LIMITATION OF LIABILITY

24.1 AMS shall indemnify Distributor and its Affiliates from and against
any and all liabilities, claims, demands, damages, costs and expenses or
money judgements (including legal fees) incurred by or rendered against any
of them from third party claims or actions for personal injury or property
damage which arise out of a defect due to defective design, parts,
packaging, labeling, faulty workmanship of Products of which AMS is the
manufacturer or is the Party responsible for failure to warn except to the
extent that such personal injuries or property damage arise out of
Distributor's (or its Affiliates) negligence or breach of this Agreement
(as set forth in herein).

24.2 EXCEPT AS PROVIDED HEREIN, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR
PUNITIVE DAMAGES OF ANY KIND WHATSOEVER INCLUDING BUT NOT LIMITED TO LOST
PROFITS, IN CONJUNCTION WITH OR ARISING OUT OF THE PERFORMANCE UNDER THIS
AGREEMENT OR THE USE OR PERFORMANCE OF PRODUCTS AND SUPPORT SERVICES EVEN
IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
CONSEQUENTIAL LOSS FOR THE PURPOSES OF THIS AGREEMENT SHALL MEAN AND
INCLUDE WITHOUT LIMITATION OF THE GENERAL STATEMENT EARLIER APPEARING, IN
EACH CASE WHETHER ARISING IN TORT OR CONTRACT AND INCLUDING IN EACH CASE
NEGLIGENCE:

(a) LOSS OF PROFITS;
(b) LOSS OF CONTRACTS;
(c) LOSS OF ANTICIPATED SAVINGS;
(d) LOSS OF DATA;
(e) LOSS OF BUSINESS;
(f) LOSS OF GOODWILL;
(g) LOSS OF REVENUE;
(h) LOSS OF ORDERS; AND LOSSES ARISING PRIOR TO THE COMMENCEMENT
OF THE CONTRACT ARE ALSO EXCLUDED.

24.3 The above limitation of liability shall not apply to damages with
respect to the indemnity for the infringement of intellectual property
rights as provided in Article 23.

24.4 This indemnity shall not be affected or terminated by reason of
termination or expiration of this Agreement.

ARTICLE 25. INSURANCE

Upon request, AMS shall provide evidence of product liability, general
liability and property damage insurance against an insurable claim or
claims, which might or could arise regarding AMS products purchased from
AMS. Such insurance will contain a minimum limit of liability for bodily
injury and property damage of not less than [**] US$.

ARTICLE 26. CONFLICT RESOLUTION

26.1 The appointed representatives set forth in EXHIBIT 3- General
Provisions shall address conflicts that arise relative to this Agreement.
If these representatives can not resolve such conflicts, then AMS and the
Distributor shall promptly establish a review board comprised of
appropriate members of management from AMS and the Distributor to resolve
the conflict.

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26.2 In the event that the review board of the Parties does not resolve a
dispute within thirty (30) days from the date of escalation, then the
Parties agree to consider seriously the use of mediation. Such mediation
process shall be non-binding and voluntary. The Parties shall agree on the
procedural aspects of the mediation, including the venue, during the time
that the mediation is being considered.

26.3 If the Parties do not attempt to resolve a dispute through the
foregoing mediation process or upon failure of or withdrawal from such
mediation process, then either of the Parties may elect to pursue any
remedies available at law.

26.4 The laws of Commonwealth of Massachusetts, USA, will govern any
disputes arising in connection with this Agreement. AMS and HP hereby
consent to the jurisdiction and venue of the courts located in the
Commonwealth of Massachusetts.

ARTICLE 27. ADMINISTRATION AND NOTICES

Any notices pursuant to this Agreement shall be sent to the address(s)
specified Exhibit 3- General Provisions.

By signing this document, the Parties below indicate their Agreement with
and acceptance of this Agreement, including all Exhibits.

ARTICLE 28.

Within [**] days following the end of [**], Aspect shall remit to HP a
payment equal to [**] of payments received by Aspect for sales of [**] customers
in the United States and Canada in the [**]. In the event that Aspect's [**]
have also been installed at such sites in addition to [**] will be entitled to
a [**] commission [**] sales intended for use with [**]. The Parties will agree
upon a reasonable basis for estimating the number of [**] in this event (e.g. a
pro rata determination based on the total number of [**] installed at such
locations during the period) and will calculate the [**] due to HP accordingly.
To facilitate such calculations, HP will be responsible for providing Aspect
with documentation, on a [**] basis, of the total number of [**] installed in
the U.S. and Canada, the locations of such modules, and the dates of
installation.

SIGNATURES

For Aspect Medical Systems For Hewlett-Packard Company

/s/ Neal Armstrong /s/ James A. Cyrier
----------------------------- ------------------------------

Authorized Representative Signature Authorized Representative Signature

Name: Neal Armstrong Name: James A. Cyrier

Title: Vice President and CFO Title: Vice-President of Medical
Products Group Worldwide
Sales and Marketing

/s/ Jay Mazelsky
------------------------------

Authorized Representative Signature

Name: Jay Mazelsky

Title: Medical Supplies General
Manager.

Effective Date Oct 01, 1999

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MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

EXHIBIT 1 - PRODUCTS AND PRICES

The following Exhibit is attached to and form part of the Distribution
Agreement between AMS and Hewlett-Packard Company

Technical descriptions of Product are specified in AMS documents numbered:
075-0002 (Operator's Manual) and 070-0015 (Service Manual)

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
PART NUMBER PROD NO. DESCRIPTION ESTIMATED YEARLY LEAD PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMS# 186-0075 A-2000 Monitoring System; [**] [**] [**]
- ----------------------------------------------------------------------------------------------------------------
HP# APB-60075 185-0070 A-2000 Bis Monitor [**] [**] [**]

185-0071 A-2000 Signal Converter [**] [**] [**]

185-0092 A-2000 Ship Kit (Pole Clamp Assy, [**] [**] [**]
Sensor and Reference Manual)

070-00XX A-2000 Operator's Manual [**] [**] [**]
(English, French, German, Spanish,
Swedish, Dutch, Portuguese, Italian)

536-00XX Power Cord [**] [**] [**]
- ----------------------------------------------------------------------------------------------------------------
AMS# 186-0100 Bis Sensor [**] [**] [**]
- ----------------------------------------------------------------------------------------------------------------
HP# APB-60100 Case of [**] Sensors; [**] [**] [**]
2 Boxes of [**] Sensors each.
- ----------------------------------------------------------------------------------------------------------------

</TABLE>

SERVICE REPAIR PARTS PRICES: (note: boards & displays are needed for
support strategy Exh. 4)

<TABLE>
<CAPTION>
PART DESCRIPTION LEAD TIME PRICE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
186-0067 BIS Sensor Interface Cable [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
150-0037 Pole Clamp Assy [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
185-0071 A-2000 Signal Converter [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
140-0017 Main PCB Rev 3 Board [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
140-0018 Interconnect Board - Rev 2 [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
195-0020 Power Boards Rev 2 [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
465-0012 Assembly EL Display [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
Replacement Service Manual [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------
070-0015 Replacement Operators Manual [**] [**]
==== ====
- --------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------------------
</TABLE>

Confidential

Agreement # CP-99-00004

Page 14 of 21
<PAGE> 15

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

EXHIBIT 2 - TERRITORIES

The following Exhibit is attached to and form part of the Distribution Agreement
between AMS and Hewlett-Packard Company

Herein, the Territories are established for the above referenced Agreement.

------------------------------
REGIONS
------------------------------
Europe
======
------------------------------
Asia Pacific (except Japan)
------------------------------
Latin America
------------------------------

Confidential

Agreement # CP-99-00004

Page 15 of 21
<PAGE> 16

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

EXHIBIT 3 - GENERAL PROVISIONS

The following Exhibit is attached to and form part of the Distribution Agreement
between AMS and Hewlett-Packard Company

Any notice pursuant to this Agreement should be sent certified mail to the
Address(s) below:

Hewlett-Packard Company
3000 Minuteman Road
Andover, Massachusetts, USA 01810-1099

AMS's address

Ship-to address for Products from AMS to HP:

Invoice-to address for Products from AMS to HP:

For information concerning this Agreement, contact the appropriate person below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
AMS COMPANY ROLE: NAME: LOCATION: PHONE NUMBER:
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES MANAGER [**] [**] [**]
- ----------------------------------------------------------------------------------------------
QUALITY/ REGULATORY [**] [**]
ASSURANCE MANAGER
- ----------------------------------------------------------------------------------------------
SERVICE TECHNICAL [**] [**] [**]
SUPPORT MANAGER
- ----------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
HP ROLE: NAME: LOCATION: PHONE NUMBER:
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ALLIANCE MANAGER [**] [**] [**]
- ----------------------------------------------------------------------------------------------
QUALITY/REGULATORY [**] [**] [**]
ENGINEER
- ----------------------------------------------------------------------------------------------
SERVICE TECHNICAL [**] [**] [**]
SUPPORT MANAGER
- ----------------------------------------------------------------------------------------------
ORDER FULFILLMENT [**] [**] [**]
ENGINEER
- ----------------------------------------------------------------------------------------------
PRODUCT MANAGER [**] [**] [**]
- ----------------------------------------------------------------------------------------------
PROGRAM MANAGER [**] [**] [**]
- ----------------------------------------------------------------------------------------------
</TABLE>

Confidential

Agreement # CP-99-00004

Page 16 of 21
<PAGE> 17

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

MEDICAL PRODUCTS DISTRIBUTION AGREEMENT

EXHIBIT 4 - PRODUCT SUPPORT REQUIREMENTS

The following Exhibit is attached to and form part of the Distribution
Agreement between Aspect Medical Systems and Hewlett-Packard Company

The following Exhibit establishes the support requirements for the A-2000
Monitoring System covered by this Agreement.

1. GENERAL SUPPORT STRATEGY: The support strategy consists of "bench repair"
by AMS (board swapping or replacement) at the Natick, MA facility or by
HP in the field

2. [**] REQUIREMENTS: AMS agrees to provide [**]

3. [**] The expected [**] of the installed base per month for the Monitoring
System is [**] and for the Converter is [**].

4. MEAN TIME TO REPAIR: The average labor time to repair (board swap) a
monitor is one (1) hour.

5. AVERAGE PARTS COSTS PER FAILURE: The average parts cost per repair (board
swap) is the price of the power board in Exhibit 1.

6. GUARANTEED PARTS AVAILABILITY: AMS will provide spare parts within 48 hours
of receipt of order.

7. GUARANTEED RESPONSE TIME: AMS will provide response to escalated customer
issues within 24 hours for safety-related issues or 48 hours otherwise.

8. REPAIR PARTS INVENTORY: AMS recommends spare parts stock of 2 boards and 2
displays for every 20 monitors sold.

Confidential

Agreement # CP-99-00004

Page 17 of 21

<PAGE> 1
Exhibit 10.26

Aspect Medical Systems, Inc.
requests that the marked portions of this document be granted confidential
treatment pursuant to Rule 406 under the Securities Act of 1933.

PRIVILEGED AND CONFIDENTIAL
ATTORNEY-CLIENT AND WORK PRODUCT PRIVILEGES
FOR GE MARQUETTE ONLY

ASPECT MEDICAL SYSTEMS, INC.

OEM DEVELOPMENT AND PURCHASE AGREEMENT

Agreement dated this 22nd day of December, 1999, by and between Aspect
Medical Systems, Inc, a Delaware corporation with its principal offices located
at Two Vision Drive, Natick, Massachusetts ("Aspect") and GE Marquette Medical
Systems, Inc. ("Marquette"), a Wisconsin corporation with its principal offices
located at 8200 W. Tower Ave., Milwaukee, Wisconsin for the purchase and/or
license by Marquette of products under the terms and conditions contained in
this Agreement.

1. BACKGROUND.

1.1 Aspect is a developer, manufacturer and distributor of medical
devices, equipment, related hardware, software and related
products and accessories.

1.2 Marquette is a developer, manufacturer and distributor of
medical devices, equipment, related hardware, software and
related products and accessories, including multiparameter
patient monitors.

1.3 Marquette desires to integrate Aspect's BIS and EEG technology
into Marquette's multiparameter patient monitors.

1.4 Aspect agrees to sell and/or license to Marquette the products
described below, subject to the terms and conditions contained
in this Agreement.

2. DEFINITIONS.

"ASPECT'S BISPECTRAL INDEX" or "BIS" is Aspect's proprietary processed
EEG parameter that measures the hypnotic effects of anesthetic and
sedative agents on the brain during surgery.

"ASPECT'S EEG PARAMETERS" or "EEG" are Aspect's processed EEG
parameters including Spectral Edge frequency, Median Frequency,
Suppression Ratio, EMG and SQI (Signal Quality Index).

"MARQUETTE PATIENT MONITOR" means any multi-parameter modular patient
monitoring systems manufactured by or for Marquette. When the BIS/EEG
Module Development

<PAGE> 2

Project is complete, the Marquette BIS/EEG module will allow the
Marquette Patient Monitor to display BIS and certain EEG data
(waveforms, numerics, status info), and provide setup and operation
information (user interface), alarming, and network connectivity.

"MARQUETTE BIS/EEG MODULE" is the sum of all components involved in
integrating the BIS and EEG with Marquette Patient Monitors.

"DSC CABLE" is a cable used to connect the DSC-2 or DSC-4 to the
Marquette BIS/EEG Engine.

"MARQUETTE BIS/EEG ENGINE" is the processing unit for deriving the BIS
and EEG data from the raw EEG signal and consists of Aspect's "BIS
Engine" board modified for Marquette.

"DIGITAL SIGNAL CONVERTER-2" (or "DSC-2") is used to amplify the analog
EEG signals as acquired by the BIS sensors and convert it from analog
to digital signals. The DSC-2 is used by Marquette BIS/EEG Module
customers to obtain the BIS.

"DIGITAL SIGNAL CONVERTER-4" (or "DSC-4") is used to amplify the analog
EEG signals as acquired by the Zipprep electrodes and convert it from
analog to digital signals. The DSC-4 is used by Marquette BIS/EEG
Module customers to obtain 2 or 4-channel EEG data only.

"ASPECT BIS/EEG MODULE KIT" means the bundle of all components of the
Marquette BIS/EEG Module that are developed and manufactured by or for
Aspect and licensed/sold to Marquette under this Agreement: DSC-2,
DSC-4, DSC Cable, Marquette BIS/EEG Engine, and Module Cable.

"ASPECT BIS SENSOR" means a single use disposable sensor manufactured
by Aspect for use with the A2000 or with the Aspect BIS/EEG Module Kit
and that is required to generate Aspect's Bispectral Index.

"A2000" means Aspect's stand-alone BIS monitor for use with the Aspect
BIS Sensor and that generates Aspect's Bispectral Index.

"ASPECT PRODUCTS" means Aspect BIS/EEG Module Kit and any other product
that can be ordered by Marquette as listed in Exhibit A (Aspect
Products and Purchase Prices).

"SOFTWARE" means Aspect software programs in binary code form which are
designed for use with the Aspect BIS/EEG Module Kit.

"DOCUMENTATION" means the BIS Engine Serial Interface Specification.

"TERRITORY" shall mean all countries in which Marquette is permitted
under this Agreement to distribute Aspect Products.

"PARTY" or "PARTIES" shall mean Aspect and Marquette each individually
or jointly.

-2-
<PAGE> 3
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

3. BIS/EEG MODULE DEVELOPMENT PROJECT.

3.1 PROJECT TIMING. The overall project duration is expected to be
at least [**]. The product introduction is targeted for the
annual meeting of the [**], but if such target can not be
satisfied the product introduction shall be targeted for no
later than the annual meeting of [**]. A preliminary outline
of the development project is attached to this Agreement as
Exhibit C.

3.2 PROJECT MANAGEMENT.

(a) Each Party shall appoint a "Project Manager" who
shall oversee and manage the joint project on a
day-to-day basis.

(b) The Project Managers shall meet regularly based on
the project needs to assess the project status and
discuss and resolve any issues or problems. These
meetings may be held face-to-face or as telephone or
video conferences.

(d) All communication in conjunction with this Agreement
shall be directed to the appropriate person and
address as listed in Exhibit D (Contact
Persons/Addresses).

3.3 MARQUETTE RESPONSIBILITIES.

(a) Marquette shall develop the Marquette BIS/EEG Module
according to mutually agreed specifications at
Marquette's own cost.

(b) Marquette shall develop, design and test the modular
integration of the components of the Aspect BIS/EEG
Module Kit with the Marquette Patient Monitors

3.4 ASPECT RESPONSIBILITIES.

(a) Aspect shall design, develop, and test the Aspect
BIS/EEG Module Kit according to the mutually agreed
specifications. The costs for Aspect to complete this
project, for which preliminary estimates are included
in Exhibit C, shall be borne by Marquette. [**] of
total estimated project costs shown on Exhibit C
shall be paid by Marquette within [**] days of the
date on which this Agreement is signed by both
parties; [**] of total estimated project costs, shown
on Exhibit C shall be paid [**] days thereafter, and
the final payment of the remaining actual project
costs (including labor at Aspect's standard labor
rates) shall be paid upon the project's completion.
Any [**] the [**] will be [**]; provided, however,
that Marquette shall not pay over [**] toward
non-recurring engineering ("NRE") and tooling to
Aspect.

-3-
<PAGE> 4

4. PURCHASE AND SALE OBLIGATIONS; LICENSES.

4.1 GENERAL. Subject to the terms and conditions of this
Agreement, Aspect agrees to sell to Marquette the Aspect
Products listed on Exhibit A (Aspect Products and Purchase
Prices). The components of the Aspect BIS/EEG Module Kits
purchased from Aspect under this Agreement shall only be used
as components in, incorporated into, or integrated with,
systems and products which Marquette sells or leases to
third-party users in the regular course of business. The
components of the Aspect BIS/EEG Module Kits shall only be
resold, leased, rented, licensed or otherwise transferred to
third parties for use as a part of an Marquette BIS/EEG Module
or as replacement parts used in Marquette BIS/EEG Modules and
Marquette shall only sell Aspect approved accessories
including cables and sensor products in connection with any
Marquette BIS/EEG Module. During the term of this Agreement,
Marquette agrees that it may offer complementary but not
directly competitive products to the Marquette BIS/EEG Module.
Marquette products other than the Marquette BIS/EEG Module
that display a parameter claiming to be a measure of the
hypnotic effect of anesthesia, are considered to be directly
competitive products for purposes of this Section 4.1.

4.2 DISTRIBUTION OF ASPECT BIS SENSORS. Aspect hereby grants to
Marquette a non-exclusive right to distribute Aspect BIS
Sensors solely to Marquette customers outside of North America
who have purchased Marquette BIS/EEG Modules. Prices for
Aspect BIS Sensors purchased by Marquette hereunder shall be
as set forth in Exhibit A (Aspect Products and Purchase
Prices).

4.3 ASPECT SOFTWARE LICENSE. Aspect hereby grants to Marquette a
non-exclusive and non-transferable worldwide license, without
the right to sublicense (except to purchasers of Marquette
BIS/EEG Modules), during the term of the Agreement to use the
Software and related Documentation provided by Aspect solely
in connection with operation of the components of Aspect
BIS/EEG Module Kit in the Marquette BIS/EEG Module.
Thereafter, Aspect grants to Marquette a right to use the
Software and related Documentation used in conjunction with
the Marquette BIS/EEG Modules being sold by Marquette on the
date of termination with respect to service and support of
installed Marquette BIS/EEG Modules for a period of 10 years,
after termination of the Agreement. All rights granted to
Marquette customers to use the Marquette BIS/EEG Modules shall
survive any termination of this Agreement as long as such
customers remain in compliance with the terms of use for such
Marquette BIS/EEG Modules. Marquette shall not disclose,
furnish, transfer, distribute or otherwise make available the
Software, the Documentation or any portion thereof in any form
to any third party (other than to purchasers of Marquette
BIS/EEG Modules and to Marquette's subdistributors) and shall
not duplicate the Software, the Documentation or any part
thereof (other than for Marquette's internal use as provided
above). Title to and ownership of any and all proprietary
rights in or related to the Software and the Documentation
therefor shall at all times remain with Aspect or its
licensor(s). Nothing in this Agreement shall be construed as a
sale of any rights in the Software or the Documentation. All
references in this Agreement to sale, resale or purchase of
the

-4-
<PAGE> 5
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

Aspect BIS/EEG Module Kits or the components thereof, or
references of like effect, shall, with respect to the Software
and the Documentation mean licenses or sublicenses of the
Software and the Documentation pursuant to this Section 4.
Marquette shall not disassemble, decompile or otherwise
reverse engineer the Software or any part thereof, except if
Aspect is required under applicable law to permit Marquette to
reverse engineer any Software. In such event, Marquette may
reverse engineer the Software but only to the extent Aspect is
required to permit such reverse engineering. Marquette shall
retain and shall not alter or obscure any notices, markings or
other insignia affixed to the Software, the Documentation or
any part thereof at the time it receives such Software or such
Documentation.

4.4 EXCLUSIVITY. Except to the extent Marquette and Aspect may
agree in the future to undertake co-marketing programs
pursuant to Section 22, nothing in this Agreement shall be
construed to grant Aspect any license to sell, distribute or
license to any third party the Marquette BIS/EEG Module, the
Marquette BIS/EEG Engine, or the Aspect BIS/EEG Module Kit. It
is understood, however, that Aspect sells, distributes, and
licenses to other third parties both generic and customized
Aspect BIS/EEG Engines and Aspect BIS/EEG Module Kits to meet
the needs of other OEM customers, and nothing in this
Agreement shall prohibit Aspect from continuing to sell,
distribute, or license these products or components thereof to
customers other than Marquette.

4.5 STANDARD OF CARE; PRIORITY. In connection with Aspect's
performance of its obligations hereunder, Aspect shall use
commercially reasonable efforts in the performance of its
obligations hereunder and will do so with the same degree of
care, skill and prudence customarily exercised when engaged in
similar activities for itself.

5. ROYALTIES AND COMMISSIONS.

5.1 ROYALTIES ON PURCHASES OF ASPECT MODULE KITS. For each Aspect
BIS/EEG Module Kit that Marquette purchases from Aspect,
Marquette shall pay a royalty fee and a price for all
components of the Aspect BIS/EEG Module Kit. Royalty fees and
component prices are specified in Exhibit A (Aspect Products
and Purchase Prices); provided that the prices specified in
Exhibit A shall not apply to the [**] for the [**] a [**] in
[**] for [**] as part [**] agreement pursuant to [**], as [**]
will be [**] to [**] at the [**] described in Exhibit A.
Aspect BIS/EEG Module Kits sold by Aspect under this
Agreement, [**], will be priced based on the Royalty fees and
component prices specified in Exhibit A.

5.2 [**]. For [**] Aspect [**] by Aspect to Marquette [**] in
North America for [**] with [**] or with Aspect [**] as part
of any [**] pursuant to Section [**],

-5-
<PAGE> 6
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

Aspect shall [**] Marquette a [**] to [**] of the [**] by
Aspect for [**] Aspect [**]. Aspect shall [**] such [**] to
Marquette on a [**]. With such [**], Aspect shall [**] to
Marquette a [**] of Marquette [**] to which such [**], the
[**] of [**] in that [**], and the [**] from the [**] of the
[**] by Aspect. This [**] shall be [**] to Marquette no later
than [**] the end of [**]. In the event that Aspect's
standalone BIS monitors and/or the BIS modules of other
manufacturers have also been installed at such sites in
addition to Marquette BIS modules, [**] will be [**] to a [**]
only on [**] for [**] with [**]. The Parties will agree upon a
reasonable [**] for [**] the number of [**] with [**] in such
an event (e.g. a [**] determination based on the [**] of [**]
of [**] at [**] during the period) and [**] the [**] to
Marquette accordingly. To facilitate [**], Marquette will be
responsible for providing Aspect with [**] of the [**],
the [**].

6. SCOPE OF DELIVERY

6.1 PURCHASE ORDERS. Purchase orders (via Fax, e-mail, other
electronic transmission or paper) for Aspect Products to be
purchased under this Agreement (the "Orders") must be received
by Aspect during the term of this Agreement and must specify a
delivery date in accordance with the lead-time schedule
outlined below under Section 6(e). All Marquette Purchase
Orders shall make reference to the appropriate engineering
drawing or manufacturing reference numbers. There is no
minimum volume commitment required for each purchase order.

6.2 ORDER ACKNOWLEDGEMENTS. Marquette purchase orders shall be
acknowledged by Aspect within 5 days after receipt of the
order, provided that the order is technically correct and that
the requested delivery time is within the agreed lead time and
that the latest forecast provided by Marquette is not exceeded
by more than [**] and the quantity ordered does not exceed by
more than [**] of the quantity ordered in the preceding month.
If the requested delivery time is less than the agreed lead
time, or if Marquette's latest forecast is exceeded by more
than [**], or if the quantity ordered exceeds by more than
[**] the quantity ordered in the preceding month, Aspect shall
use reasonable efforts to complete the requirements of such
nonconforming orders within seventy (70) days from the date it
receives such nonconforming order and to acknowledge such
orders within 10 days of its receipt. Order acknowledgements
shall not be unreasonably withheld.

6.3 FORECASTS. Marquette shall furnish to Aspect a non-binding
quarterly forecast during the term of this Agreement with the
number and type of Aspect Products for which Marquette expects
to submit orders for the following twelve months.

-6-
<PAGE> 7
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

6.4 CANCELLATION CHARGES. In the event of the cancellation of any
Order by Marquette, Marquette shall be liable for the payment
of cancellation charges based on the number of days prior to
scheduled delivery date that written notice of cancellation is
received by Aspect, as outlined below:

<TABLE>
<S> <C>
[Greater than] 10 weeks prior to acknowledged delivery [**]
6 - 10 weeks prior to acknowledged delivery [**] of order value
4 - 6 weeks prior to acknowledged delivery [**] of order value
2 - 4 weeks prior to acknowledged delivery [**] of order value
[Less than] 2 weeks prior to acknowledged delivery [**] of order value
</TABLE>

6.5 COMMITMENT. Except as set forth in Section 6.4, Marquette has
no commitment to purchase any minimum quantity of Aspect
Products or Aspect BIS Sensors pursuant to this Agreement.
Except as set forth in Section 6.4, unless agreed otherwise in
writing by the parties, Marquette shall not be responsible or
in any way liable to Aspect or any third party with respect to
any component purchase commitments or production arrangements
in excess of the amounts or in advance of the times necessary
to meet Marquette's delivery schedules set forth in its
Orders.

6.6 LEAD TIMES. Lead times for the Aspect BIS/EEG Module Kit are
expected to be [**] days. Late deliveries are subject to late
fees of [**] per month (pro-rated daily. In the event of late
deliveries by Aspect, Aspect will also promptly reimburse
Marquette for expedited shipment charges that Marquette incurs
as a direct result of late shipments of the Aspect BIS/EEG
Module Kit from Aspect .

7. PRICES.

7.1 PURCHASE PRICES. The prices of Aspect Products purchased by
Marquette hereunder (the "Purchase Prices") which are ordered
during the term of the Agreement shall be as set forth in
Exhibit A (Aspect Products and Purchase Prices).

7.2 PURCHASE PRICE CHANGES. In consideration of the market
situation and after consultation with Marquette, the Purchase
Prices set forth in Exhibit A (Aspect Products and Purchase
Prices) shall be reviewed 12 months after first delivery of
production units and annually thereafter. Any price adjustment
shall become effective only after mutual agreement between
both Parties. [**], Aspect shall have the right [**] during
the term of this Agreement to increase the Purchase Price of
the Aspect Products without the consent of Marquette by an
equivalent amount by delivering reasonable documentation
supporting such increase and by giving Marquette written
notice of the increase not less than [**] days prior to the
date upon which the increased Purchase Price is to become
effective. [**] shall apply to orders for Aspect Products
accepted by Aspect prior to or during such [**] day period
which are to be delivered within [**] days of the date of such
notice.

-7-
<PAGE> 8
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

Notwithstanding anything to the contrary in this Section 7.2,
[**] unless [**] reasonable efforts to [**] of the [**] which
have [**] in [**] and, [**] reasonable efforts, was not [**]
to [**].

7.3 PURCHASE PRICE REDUCTIONS. Aspect may reduce the Purchase
Price of any Aspect Product at any time. Such reduction shall
be applicable to all Aspect Products shipped after the date of
the reduction. [**] the [**] of the [**] for the [**] by [**]
as provided in Section 7.2, Aspect shall reduce the Purchase
Prices for all Aspect Products (excluding license fees and
volume discounts) by not less than [**] per year. The first
price reduction will be effective on the [**] anniversary of
the introduction of the Marquette BIS/EEG Module, and the
second price reduction shall be effective on the [**]
anniversary of the introduction of the Marquette BIS/EEG
Module.

7.4 [**]. In no case shall the [**] by any other Party that has
[**] with Aspect [**] of this Agreement for [**] under [**]
terms and conditions.

7.5 TAXES. All prices for Aspect Products are exclusive of all
federal, state and local taxes, levies and assessments, and
Marquette shall be responsible for the payment of all such
taxes, levies and/or assessments imposed on Aspect Products
purchased and/or licensed by Marquette hereunder, excluding
taxes based on Aspect's net income from the transaction.
Marquette shall be responsible for providing in a timely
manner all documentation, in the nature of exemption
certificates or otherwise, necessary to allow Aspect to
refrain from collections, such as sales tax, which it would
otherwise be obligated to make.

8. TERMS OF PAYMENT.

8.1 INVOICES. Marquette shall pay to Aspect the Purchase Price for
all Aspect Products shipped hereunder within forty-five (45)
days after the receipt of Aspect's invoice. Nothing herein
shall affect Aspect's right to withhold shipment or otherwise
exercise its rights under Section 23 (Termination) hereof in
the event of Marquette's failure to make payment when due for
Aspect Products delivered to Marquette. Marquette shall have
the right to provide Aspect with a specific address to which
Aspect will send invoices for Aspect Products purchased under
this Agreement.

8.2 LATE PAYMENT CHARGE. Subject to applicable law, service and/or
interest charges not exceeding the lesser of [**] per month or
the highest amount permitted by law may, at the election of
Aspect, be assessed on amounts past due more than [**] days
(that is, more than [**] days after the payment due date as
specified in Section 8.1).

9. SHIPMENT AND DELIVERY.

9.1 DELIVERY LOCATION. Each shipment must indicate the exact
address of the recipient on the outside of the packaging as
follows:

-8-
<PAGE> 9
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

[TBD]

9.2 DELIVERY TERMS. All shipments hereunder shall be FOB Aspect's
Massachusetts point of origin (Incoterms 1990). All Aspect
Products shall be deemed delivered and subject to Marquette's
dominion and control only when placed in the possession of a
carrier designated by Marquette, properly packed and ready for
shipment to Marquette. Aspect shall cooperate with Marquette
in the documentation and proof of loss claims promptly
presented by Marquette to the appropriate carrier and/or
insurer.

9.3 DELIVERY DATE AND DATE OF DISPATCH. The requested delivery
date shall be specified on the Marquette Purchase Order
provided that such delivery date must be at least [**] days
after the date Aspect receives the Order; provided, however,
that Aspect shall use its reasonable efforts to deliver the
Order as early as reasonably possible (taking other customer
demands on Aspect into account). Aspect shall utilize
reasonable efforts to ensure that the order is delivered in
accordance with Aspect's order acknowledgement and that the
date of dispatch is ten (10) days prior to the delivery date.
Late delivery penalties to Aspect will apply as specified in
Section 6.6 of this Agreement.

10. ACCEPTANCE.

Any Aspect Product shipped hereunder may be subjected to inspection and
performance testing by Marquette, to confirm that it functions in accordance
with Aspect's applicable product specifications in effect at the time of
delivery of such Aspect Products to Marquette . Marquette shall provide written
notice to Aspect of the rejection of any such Aspect Product within [**] days of
the date of receipt of any Aspect Product. Aspect shall have [**] days from
receipt of a notice from Marquette rejecting an Aspect Product either, at its
option, to make any necessary repairs to the defective Aspect Product or to
replace it. If Aspect replaces an Aspect Product, Marquette shall dispose of the
replaced Aspect Product in accordance with Aspect's instructions and at Aspect's
expense. Marquette's sole remedy for rejected Aspect Products shall be limited
to prompt repair or replacement of such Aspect Products.

11. WARRANTY.

11.1 GENERAL. Aspect warrants solely to Marquette that Aspect
Products (including Software) delivered hereunder shall
perform substantially in accordance with the specifications in
Exhibit B (Aspect's Standard Module Kit) or other applicable
product specifications as published by Aspect in effect at the
time of delivery of such Aspect Product (including Software),
and shall be free from defects in materials and workmanship,
when given normal, proper and intended usage, for twelve (12)
months from the date of shipment of the Marquette BIS/EEG
Module at Marquette's end customer site or eighteen (18)
months from the date of shipment by Aspect to Marquette,
whichever is less. Aspect agrees, during the applicable
warranty period, to repair or replace (at Aspect's option) all
defective Aspect Products within thirty (30) days after the
date of return to Aspect and without cost (including shipping)
to Marquette. In the event that Aspect is unable to repair or
replace such defective Aspect Products

-9-
<PAGE> 10

within such thirty (30) day period, Aspect agrees to refund to
Marquette the amounts paid to Aspect for such defective Aspect
Products. This warranty shall not apply to expendable
components and supply items, such as, but not limited to,
cables, fuses and bulbs (or disposable items such as an Aspect
BIS Sensor after the expiration date marked on the Sensor
packaging); nor shall Aspect have any obligation under this
Agreement to make repairs or replacements which are required
by normal wear and tear, or which result, in whole or in part,
from catastrophe, fault or negligence of Marquette, or anyone
claiming through or on behalf of Marquette, or from improper
or unauthorized use of Aspect Products, or use of Aspect
Products in a manner for which they were not designed, or by
causes external to Aspect Products such as, but not limited
to, power or air conditioning failure.

11.2 WARRANTY PROCEDURES. Marquette shall notify Aspect of any
Aspect Products which it believes to be defective during the
applicable warranty period and which are covered by the
warranties set forth in Section 11.1. At Aspect's option, such
Aspect Products shall be returned by Marquette to Aspect's
designated facility for examination and testing, or may be
repaired on site by Aspect. Aspect shall either repair or
replace, within thirty (30) days of receipt by Aspect, any
such Aspect Product found to be so defective and promptly
return such Aspect Products to Marquette. Transportation and
insurance costs shall be borne by Aspect. Should Aspect's
examination and testing not disclose any defect covered by the
foregoing warranty, Aspect shall so advise Marquette and
dispose of or return the Aspect Product in accordance with
Marquette's instructions and at Marquette's sole expense, and
Marquette shall reimburse Aspect for such transportation and
insurance costs.

11.3 REPAIR WARRANTY. Aspect warrants its repair work and/or
replacement parts for the duration of the original warranty
period as set forth in Section 10(a) or at least six (6)
months, whichever is longer.

11.4 DISCLAIMER OF WARRANTIES. 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.

12. SERVICE AND SUPPORT.

12.1 SERVICE AND SUPPORT. Marquette shall be responsible for
providing installation, customer training, service and support
(including repair) to its end customers for the Aspect
Products Marquette sells to such customers, and Marquette
shall bear all related costs incurred for labor, parts, or
travel to perform such service.

12.2 CENTRAL REPAIR SERVICE. For the term of this Agreement, Aspect
agrees to provide central repair service (as opposed to field
service) to Marquette for Aspect Products sold hereunder.

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<PAGE> 11

12.3 SERVICE TRAINING. Aspect agrees to provide initial service
training to a mutually agreed upon number of Marquette service
representatives prior to the market release of the EEG/BIS
module, as well as periodic (annually at a minimum) ongoing
training for existing and new Marquette service personnel.

12.4 SERVICE PERIOD. For a period of seven (7) years following the
last delivery to Marquette of the applicable Aspect Product
ordered by Marquette hereunder, Aspect shall use its
reasonable efforts to make available repair service (or at
Aspect's sole discretion, exchange units for the Aspect
Products) for purchase by Marquette and third party users of
the Aspect products at Aspect's then-current prices for such
repair services and exchange units. After expiry of this seven
(7) year period, Aspect may, in its sole discretion, continue
to supply repair services (and/or exchange units for the
Aspect Products) subject to the mutual written agreement of
the Parties.

12.5 SERVICE REPORTING. Aspect shall maintain a complete record of
all repair activities performed on any Aspect products
received for repair, and shall provide Marquette with a
quarterly report on all service actions including failure and
repair statistics at a sub-assembly level Service Reports for
each product shall be sent electronically by email to a
designated procurement and technical marketing engineer
(Contact Persons shown in Exhibit D, Contact Persons /
Addresses). Root cause analysis is to be performed and
reported by Aspect to Marquette in case of abnormal failures,
incidents and malfunctions.

13. QUALITY ASSURANCE.

13.1 CERTIFICATION STATUS. Both parties agree to maintain ISO900x,
EN460x, European directive 93/42/EEC Annex II ("MDD AX-II")
certification status and compliance with the U.S. Food and
Drug Administration's ("FDA") Quality System Regulation
("QSR"), the European Medical Device Directive ("MDD"), and
other appropriate regulations pertinent to the development,
manufacturing and marketing of medical products similar to the
Aspect Products.

13.2 ASPECT PRODUCT COMPLIANCE. All Aspect Products sold by Aspect
under this Agreement shall fully comply with the above quality
requirements and guidelines (MDD AX-II, FDA QSR, etc.)

13.3 QA AND REGULATORY AUDITS. Aspect shall permit Marquette's
Quality Assurance department to conduct a reasonable audit of
its facilities at a mutually agreed upon date after the date
of this Agreement for the purpose of approving its status as
an OEM supplier, and reasonable periodic audits thereafter for
the purpose of confirming continuing compliance with
applicable quality and regulatory requirements and guidelines.
Such audits shall be scheduled with at least thirty (30) days
advance notice during normal business hours and shall not take
place more than once per calendar year.

14. REGULATORY MATTERS.

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<PAGE> 12

14.1 ASPECT PRODUCTS. Aspect shall assume full regulatory
responsibility for the Aspect Products, including obtaining
and maintaining all applicable governmental authorizations and
regulatory approvals required to distribute the Aspect BIS/EEG
Module Kit. Both Parties shall work together to develop a
regulatory plan which defines precisely what these regulatory
and localization requirements are for all countries where the
Marquette BIS/EEG Module is intended to be sold. In
particular, Aspect shall be responsible for generating its own
Device Master Record for the Aspect BIS/EEG Module Kit. It is
understood that the Aspect BIS/EEG Module Kit shall be a
component of the Marquette BIS/EEG Module. Marquette shall be
responsible for obtaining and maintaining all applicable
governmental authorizations and regulatory approvals required
to distribute the combination of Aspect and Marquette products
in the Marquette BIS/EEG Module as provided in Section 14.3.

14.2 MARQUETTE PATIENT MONITORS. Marquette shall assume full
regulatory responsibility for the Marquette Patient Monitors,
including obtaining and maintaining all applicable
governmental authorizations and regulatory approvals required
to distribute the Marquette Patient Monitors in all countries
in the Territory.

14.3 MARQUETTE BIS/EEG MODULE. Marquette shall assume the
regulatory responsibility for the combination of the Aspect
and Marquette components in the Marquette BIS/EEG Module.
Aspect shall fully support Marquette as required in the
process of obtaining regulatory approvals by making available
to Marquette any required information, data, certificates, or
technical files in the requested formats.

14.4 INTERNATIONAL REGULATORY RESPONSIBILITIES. For bringing the
Aspect Products into the market in countries affected by the
European Medical Device Directive ("MDD"), Aspect is the
legally responsible manufacturer under the MDD. The Aspect
Products shall be marked accordingly.

14.5 PRODUCT COMPLAINTS AND INCIDENT REPORTING. Marquette and
Aspect shall inform each other in writing immediately about
any event that may require incident reporting in any country.
Marquette and Aspect shall inform each other in writing within
two (2) business days of a customer complaint regarding the
Marquette BIS/EEG Module, the Aspect Products, or (within the
Territory) Aspect BIS Sensors. Both parties will cooperate and
use commercially reasonable efforts to resolve such customer
complaints. Closure of any customer complaint relating to the
Marquette BIS/EEG Module will occur when Marquette notifies
Aspect that the problem is resolved. Closure of any customer
complaint relating solely to Aspect Products or Aspect Sensors
will occur when Aspect notifies Marquette that the problem is
resolved.

14.6 RECALLS. In the event of any recall of an Aspect Product
required by either a governmental agency, by Aspect, or by
Marquette for safety or efficacy reasons which is the result
of Aspect's failure to supply Aspect Products that (1) conform
in all material respects to the applicable published
specifications (including the

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<PAGE> 13
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

specifications set forth in Exhibit B (Aspect's Standard
Module Kit)) or (2) are free from defects in material and
workmanship (when given normal, proper and intended usage),
Aspect agrees to repair or replace at its own costs all Aspect
Products subject to the recall and previously delivered to
Marquette. Aspect also agrees to consult with Marquette to
establish a reasonable process for managing the recall and
Aspect shall be [**] (including, but not limited to [**] that
are consistent with the recall process agreed to by the
Parties. In the event that Aspect at its sole discretion
requests a recall that is not required by a governmental
agency for safety or efficacy reasons, Aspect shall be
responsible for determining the scope of the recall, including
the number of units, timeframe for the recall, and criteria
for completion. Marquette agrees to maintain all necessary
sales records to facilitate the recall.

14.7 DELEGATION. Marquette may at its sole discretion delegate some
of the obligations under this Section 14 to its
sub-distributors.

14.8 TRACEABILITY. For the purpose of facilitating product
traceability, all Products purchased from Aspect by Marquette
shall require identification of an internal order number and
tracking code.

15. PRODUCT CHANGES; DISCONTINUED PRODUCTS; FUTURE PRODUCTS; CONTINUED
SUPPLY.

15.1 PRODUCT CHANGES. Aspect shall have the right, at any time and
from time to time, to make substitutions and modifications to
Aspect Products, provided that such substitutions or
modifications shall not materially affect form, fit, function,
reliability, serviceability, performance, functional
interchangeability or interface capability of Aspect Products.
In the event that any proposed substitution or modification
affects, in Aspect's reasonable judgment, the form, fit,
function, reliability, serviceability, performance, functional
interchangeability or interface capability of an Aspect
Product, Aspect shall give Marquette written notice of such
proposed substitution or modification at least [**] days prior
to its taking effect and Marquette shall have the right,
during such [**] day period and for [**] days thereafter, to
order Aspect Products without such substitution or
modification for delivery up to [**] days after such
substitution or modification takes effect. Aspect shall
provide the appropriate verification and validation
information for evaluating the effect of the change on the
Marquette BIS/EEG Module.

15.2 DISCONTINUED PRODUCTS. Aspect agrees to notify Marquette in
writing not less than [**] in advance of the discontinuance of
any Aspect Product. Marquette shall be able to place orders
for at least [**] after receipt of the written notice in any
case. In addition, Marquette shall be entitled to determine
its lifetime-buy quantities and place a corresponding last
purchase order.

15.3 FUTURE PRODUCTS. The Aspect Products are designed for use in
measuring the effects of anesthetic and sedative agents on the
brain during surgery. In the event that Aspect develops a
product involving this or a different type of index, patient

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<PAGE> 14

sensor, or application, Aspect and Marquette agree to discuss
in good faith a new agreement for the purchase of such new
product or products by Marquette.

16. OWNERSHIP AND PROTECTION OF RESULTS.

16.1 NO TRANSFER OF OWNERSHIP. It is expressly agreed that neither
Aspect nor Marquette shall transfer to the other Party any
patent rights, copyrights or other intellectual property of
any kind that either Party owns as of the Effective Date of
this Agreement.

16.2 MODELS, PATTERNS, DIES, ETC. Aspect shall retain the title to
and possession of any models, patterns, dies, molds, jigs,
fixtures, and other tools made for or obtained in connection
with this Agreement and related to the Aspect Products, even
if made for, obtained by or paid for by Marquette.

16.3 DEVELOPMENTS. If there are developments (including patentable
inventions) conceived, created or reduced to practice under
this Agreement then the rights to such developments shall be
retained (a) by Aspect if conceived, created and reduced to
practice solely by Aspect, or (b) by Marquette, if solely
conceived, created and reduced to practice by Marquette, or
(c) jointly by Marquette and Aspect (without any duty to
account to the other) if jointly developed by Marquette and
Aspect, provided that:

(i) Marquette shall assign to Aspect all rights
to any developments conceived, created or
reduced to practice by Marquette solely
relating to the Aspect BIS/EEG Module Kit;
and

(ii) Aspect shall assign to Marquette all rights
to any development solely relating to the
Marquette Patient Monitor.

17. DOCUMENTATION AND TRAINING.

Aspect agrees to provide Marquette with such product literature, operations and
maintenance manuals, and other information and training (including training to
avoid possible misrepresentation of Aspect's Bispectral Index) as is mutually
agreed, to enable Marquette to properly sell and maintain Aspect Products,
provided that in no event shall the source code or source listings of Aspect
Software be required to be disclosed or provided by Aspect to Marquette [**].
Aspect agrees to give Marquette the rights to use or reproduce its user
documentation for incorporation into Marquette documentation excluding source
code or source listings as previously mentioned. Such documentation should be
provided in an electronic format. Aspect shall be given the opportunity to
review and approve Marquette documentation that incorporates Aspect
documentation prior to publication. The training Aspect is required to provide
Marquette under this Section 17 shall begin at least three (3) months prior to
introduction of the Marquette BIS/EEG Module and shall be defined as part of the
Project's marketing plan.

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<PAGE> 15

18. CONFIDENTIALITY.

No confidential information disclosed by either Party to the other in connection
with this Agreement shall be disclosed to any person or entity other than the
recipient Party's employees and contractors directly involved with the recipient
Party's use of such information who are bound by written agreement to protect
the confidentiality of such information, and such information shall otherwise be
protected by the recipient Party from disclosure to others with the same degree
of care accorded to its own confidential information of like importance. In
addition, each Party and its representatives shall use the confidential
information only for the purposes specified under this Agreement and such
information shall not be used for any other purpose without the prior written
consent of the disclosing Party. To be subject to this provision, information
must be delivered in writing and designated as proprietary or confidential, or
if initially delivered orally, must be identified at the time of disclosure, and
confirmed in writing as confidential within ten (10) days after such oral
disclosure. Information shall not be subject to this provision if it is or
becomes a matter of public knowledge without the fault of the recipient Party,
if it was a matter of written record in the recipient Party's files prior to
disclosure to it by the other Party, if it was or is received by the recipient
Party from a third person under circumstances permitting its unrestricted
disclosure by the recipient Party, or if it was independently developed by the
recipient Party without reference to the confidential information. Upon
termination of this Agreement, each Party shall promptly destroy all
confidential information of the other Party in the possession or control of such
Party and all copies thereof, provided that each Party may retain one copy
thereof for archival purposes. The obligations under this Section 18 shall
continue for both parties for a period of five (5) years after delivery by
Aspect to Marquette of the last Aspect Product under this Agreement, provided,
however that any [**] pursuant to [**] shall be maintained in confidence in
perpetuity. Marquette is entitled to transmit confidential information of Aspect
to Marquette subsidiaries and affiliated companies. In such, case these
subsidiaries and affiliated companies may only use such information to the same
extent as Marquette is entitled to use such information under this Agreement.
Marquette shall be responsible if any of these subsidiaries and affiliated
companies fail to comply with the confidentiality provisions of this Agreement.

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<PAGE> 16

19. WARRANTIES AND INDEMNITIES.

19.1 WARRANTIES BY ASPECT.

(a) Aspect represents and warrants that it either has all
rights, title and interest in, or valid licenses to,
the Aspect Products and any related intellectual
property rights thereto. Aspect represents and
warrants that it has not granted in the Territory any
exclusive licenses or exclusive sublicenses in the
Aspect Products that would prevent it from granting
Marquette the licenses set forth in Section 4.3
(Aspect Software License). Aspect also represents and
warrants that it has the right and authority to
engage in the joint development of the Marquette
BIS/EEG module as contemplated hereunder and that to
its knowledge such activity will not infringe upon or
misappropriate any third party's intellectual
property rights.

(b) Aspect warrants that it will deliver all Aspect
Products free from the rightful claims of any third
party for infringement of any Patents, Trademarks or
Copyrights or misappropriation of Trade Secrets.
Aspect also warrants that as of the date of this
Agreement, Aspect has received no notice of a claim
of infringement or misappropriation from any third
party regarding Aspect Products. Marquette's
exclusive remedy with respect to breach of any
warranty provided in this Section 19.1 shall be that
Aspect will defend at its own expense, and will pay
the costs and damages (including attorneys fees,
other professional fees and other costs of litigation
or settlement) made in settlement or awarded as a
result of, any action brought against Marquette or
any of Marquette's customers based on an allegation
of such infringement or misappropriation with respect
to any Aspect Product, provided that the
Indemnification Procedures set forth in Section 19.3
are followed. If an injunction is obtained against
Marquette's or its customers' use of an Aspect
Product by reason of an infringement or
misappropriation described above, or if in Aspect's
opinion an Aspect Product or any part thereof is
likely to become the subject of a claim of such
infringement or misappropriation, Aspect will, at its
option and its own expense procure the right for
Marquette and its customers to continue using such
Aspect Product, or replace or modify such Aspect
Product or any part thereof so that it becomes
non-infringing. If neither of the foregoing options
are reasonably available to Aspect, Aspect shall have
the right to discontinue supplying such Aspect
Products to Marquette. Aspect shall not have any
obligation to Marquette or its customers under any
provision of this Section if the infringement or
misappropriation claim is based upon the modification
of any Aspect Product not made by Aspect, the use of
Aspect Products in combination with any program or
equipment, or any part thereof, not furnished or
recommended in writing by Aspect, or the use of such
Aspect Products in a manner or environment, or for
any purpose, for which Aspect did not design or
license them.

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<PAGE> 17
(c) In the event that any claim is brought against
Marquette as a result of personal injuries and/or
property damages resulting from that portion of the
Marquette BIS/EEG Module developed and manufactured
by Aspect, and provided further that such claims do
not arise as a result of the misuse of the Aspect
Products, or the use of the Aspect Products in an
application for which it was not designed by Aspect,
where such claim would not have occurred but for such
misuse or use, Aspect agrees that it shall indemnify
and hold Marquette and its directors, officers,
employees, representatives and agents harmless from
and against any damages, liabilities, costs and
expenses (including attorneys' and other professional
fees and other costs of litigation) arising out of
such claim, provided that the procedures set forth in
Section 19.3 are followed.

19.2 WARRANTIES BY MARQUETTE.

(a) Marquette represents and warrants that it either has
all rights, title and interest in, or valid license
to, the Marquette Patient Monitor and any related
intellectual property rights thereto. Marquette also
represents and warrants that it has the right and
authority to engage in the development of the
Marquette BIS/EEG Module as contemplated hereunder
and that to its knowledge such activity will not
infringe upon or misappropriate any third party's
intellectual property rights or violate the terms of
any agreement Marquette has entered into with a third
party.

(b) Marquette warrants that as of the date of this
Agreement, Marquette has received no notice of a
claim of infringement or misappropriation from any
third party regarding the Marquette Patient Monitor
or any other Marquette-supplied component of the
Marquette BIS/EEG Module. Aspect's exclusive remedy
with respect to breach of any warranty provided in
this Section 19.2 shall be that Marquette will defend
at its own expense, and will pay the costs and
damages (including attorneys fees, other professional
fees and other costs of litigation or settlement)
made in settlement or awarded as a result of, any
action brought against Aspect or any of Aspect's
customers based on an allegation of such infringement
or misappropriation with respect to any Marquette
Patient Monitor or any other Marquette-supplied
component of the Marquette BIS/EEG Module, provided
that the Indemnification Procedures set forth in
Section 19.3 are followed. If an injunction is
obtained against Aspect's or its customers' use of a
Marquette Patient Monitor or any other
Marquette-supplied component of the Marquette BIS/EEG
Module by reason of an infringement or
misappropriation described above, or if in
Marquette's opinion a Marquette Patient Monitor or
any other Marquette-supplied component of the
Marquette BIS/EEG Module or any part thereof is
likely to become the subject of a claim of such
infringement or misappropriation, Marquette will, at
its option and its own expense procure the right for
Aspect and its customers to continue using such
Marquette Patient Monitor or any other
Marquette-supplied component of the Marquette

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<PAGE> 18
BIS/EEG Module, or replace or modify such Marquette
Patient Monitor or any other Marquette-supplied
component of the Marquette BIS/EEG Module or any part
thereof so that it becomes non-infringing. Marquette
shall not have any obligation to Aspect or its
customers under any provision of this Section 19.2 if
the infringement or misappropriation claim is based
upon the use of Marquette Patient Monitors or any
other Marquette-supplied component of the Marquette
BIS/EEG Modules in combination with any program or
equipment, or any part thereof, not furnished or
recommended in writing by Marquette, or the use of
such Marquette Patient Monitors or any other
Marquette-supplied component of the Marquette BIS/EEG
Modules in a manner or environment, or for any
purpose, for which Marquette did not design or
license them.

(c) In the event that any claim is brought against Aspect
as a result of personal injuries and/or property
damages resulting from the Marquette BIS/EEG Module,
and provided further that such claims do not arise as
a result of the defective design or operation of that
portion of the Marquette BIS/EEG Module developed or
manufactured by Aspect, Marquette agrees that it
shall indemnify and hold Aspect and its directors,
officers, employees, representatives and agents
harmless from and against any damages, liabilities,
costs and expenses (including attorneys' and other
professional fees and other costs of litigation)
arising out of such claim, provided that the
procedures set forth in Section 19.3 are followed.

19.3 INDEMNIFICATION PROCEDURES.

(a) In the event that any person intends to claim
indemnification pursuant to this Agreement, (an
"Indemnitee"), it shall promptly notify the
indemnifying Party (the "Indemnitor") in writing of
such alleged liability, provided that the failure to
promptly notify the Indemnitor shall not relieve the
Indemnitor of any obligation under this Agreement
except to the extent such failure to provide prompt
notice adversely impairs the Indemnitor's ability to
defend against the claim, suit or proceeding.

(b) The Indemnitor shall have the sole right to control
the defense and settlement thereof, provided, that
(i) the Indemnitor may not consent to imposition of
any obligation or restriction on the Indemnitee in
any settlement unless mutually agreed among Aspect
and Marquette (ii) Indemnitor shall keep Indemnitee
fully informed and permit the Indemnitee to
participate (at Indemnitee's expense) as the
Indemnitee may reasonably request and (iii)
Indemnitee may, without affecting its right to
indemnity hereunder, defend and settle any such
claim, suit or proceeding if Indemnitor declines to
defend against such claim, suit or proceeding or
Files for Bankruptcy. The Indemnitee shall cooperate
with the Indemnitor and its legal representatives in
the investigation of any action, claim or liability
covered by this Agreement.

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<PAGE> 19

(c) The Indemnitee shall not, except at its own cost,
voluntarily make any payment or incur any expense
with respect to any claim or suit without the prior
written consent of Indemnitor, which Indemnitor shall
not be required to give, provided that the Indemnitee
may, without affecting its right to indemnity
hereunder, defend and settle any such claim, suit or
proceeding if the Indemnitor declines to take
responsibility or Files for Bankruptcy.

20. TRADEMARKS.

20.1 TRADEMARKS.

(a) OWNERSHIP. Marquette acknowledges and agrees that
Aspect is the sole and exclusive owner of all right,
title and interest in, or has valid licenses to the
trademarks (the "Aspect Trademarks") identified on
Exhibit E (Aspect Trademarks). Aspect acknowledges
and agrees that Marquette is the sole and exclusive
owner of all right, title and interest in and to the
trademarks (the "Marquette Trademarks") identified on
Exhibit F (Marquette Trademarks). Each Party
recognizes the value of the other Party's Trademarks
and the good will associated with the other Party's
Trademarks. Marquette agrees that its use of the
Aspect Trademarks and any good will arising therefrom
shall inure to the benefit of Aspect. Aspect agrees
that its use of the Marquette Trademarks and any good
will arising therefrom shall inure to the benefit of
Marquette. Nothing contained herein shall create, nor
shall be construed as an assignment of, any right,
title or interest in or to the Aspect Trademarks to
Marquette, or the Marquette Trademarks to Aspect,
other than the grant of the licenses in Section 20.1
(c) below; it being acknowledged and agreed that all
other right, title and interest in and to the Aspect
Trademarks is expressly reserved by Aspect and its
licensors, and all other right, title and interest in
and to the Marquette Trademarks is expressly reserved
by Marquette. Each Party shall keep the other Party's
Trademarks free from all liens, mortgages or other
encumbrances. Each Party agrees that it shall not
attack or otherwise challenge the title, validity or
any other rights of the other Party in or to its
Trademarks.

(b) NOTICE. All Marquette BIS/EEG Modules that use the
Aspect Trademarks shall be accompanied, where
reasonable and appropriate, by a proprietary notice
consisting of the following elements:

(i) The statement "[insert trademark(s)] is a
trademark(s) of [or licensed to] Aspect
Medical Systems, Inc."

(ii) Marquette shall include the "(TM)" or "(R)"
symbol, as instructed by Aspect, after the
first prominent use of the Aspect Trademark
in the Marquette Patient Monitor and related
materials. Marquette shall have a period of
sixty (60) days in which to begin to use the

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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

"(R)" symbol in replacement of the "(TM)"
symbol upon receiving instructions to do so
by Aspect for all new stock of such
materials. Marquette may continue to deliver
stocked literature before the change becomes
effective.

Marquette shall reproduce copyright and trademark notices of
Aspect on the "splash screen" or in the same location where
Marquette reproduces its own copyright and trademark notices .

(c) LICENSE. Each Party hereby grants to the other a
nonexclusive, worldwide, royalty-free license
(without the right to sublicense) to use the other
Party's Trademarks to designate and promote Aspect
Products in conjunction with Marquette BIS/EEG
Modules. Neither Party shall have any other right to
use, display or utilize the other Party's Trademarks
for any other purpose or in any other manner.

(d) QUALITY STANDARDS.

(i) INSPECTION. Upon reasonable notice and
request, each Party will furnish to the
other samples of its applicable advertising
and promotional materials as necessary to
allow the requesting Party to monitor
compliance with this Agreement.

(ii) COMPLIANCE. Aspect acknowledges the high
standards of quality and excellence
established by Marquette with respect to
products bearing Marquette's trademarks.
Marquette acknowledges the high standards of
quality and excellence established by Aspect
with respect to products bearing the Aspect
Trademarks. Each Party agrees that Marquette
BIS/EEG Modules with which both parties'
Trademarks are used shall be of such quality
so as to maintain such high standards and to
reflect well upon both Parties. Each Party
agrees to adhere to its own or the following
quality standards (whichever may be more
rigorous) for use of the other Party's
Trademarks in connection with the Marquette
BIS/EEG Module:

- In order to ensure that the
Marquette BIS/EEG Module
distributed under both parties'
Trademarks complies with the
consistent quality standards of
each Party, all Marquette BIS/EEG
Modules distributed by or for
Marquette which bear an Aspect
Trademark shall conform to those
commercially reasonable standards
which Aspect provides to Marquette
in writing. Marquette shall cause
each major new release of such
Marquette BIS/EEG Modules to comply
with such standards or remove the
Aspect Trademark(s) from any such
new release, which does not comply
with such standards. Marquette
shall have a period of [**] in
which to bring newly manufactured
Marquette

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Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

BIS/EEG Modules into compliance
with any commercially reasonable
standard provided to it in writing
by Aspect following the date of
receipt of such standard.

- Each Party acknowledges that if
Marquette BIS/EEG Modules bearing
both Parties' Trademarks fail to
satisfy the quality standards set
forth above, the substantial good
will which each Party has built and
now possess in its own products and
Trademarks shall be impaired.

(e) PROTECTION AND INFRINGEMENT. Each Party agrees to
cooperate with and assist the other Party in
obtaining, maintaining, protecting, enforcing and
defending the other Party's proprietary rights in and
to its Trademarks. In the event that either Party
learns of any infringement, threatened infringement
or passing-off of the other Party's Trademarks, or
that any third party claims or alleges that the other
Party's Trademarks infringe the rights of the third
party or are otherwise liable to cause deception or
confusion to the public, the Party obtaining such
information shall notify the other Party giving the
particulars thereof, and if such claims or
allegations relate to this Agreement, the Marquette
BIS/EEG Module, the Aspect BIS/EEG Kit or Aspect
Products sold hereunder, shall provide necessary
information and assistance reasonably requested by
such other Party in the event that such other Party
decides that proceedings should be commenced.

(f) TERMINATION. In addition to the termination rights
set forth in Section 23 hereof, in the event that
either Party is in material breach of any provision
of this Section 20, the non-breaching Party may, upon
[**] days written notice, terminate the license
granted in Section 20.1 (c) if the breaching Party
does not cure such breach or default within such [**]
day period. In addition to the provisions of Section
23 hereof, upon termination of the license granted in
Section 20.1 (c), or upon termination of this
Agreement, for whatever cause:

(i) each Party shall immediately cease and
desist from any further use of the other
Party's Trademarks and any trademarks
confusingly similar thereto, either directly
or indirectly;

(ii) All rights in the Aspect Trademarks granted
to Marquette hereunder shall immediately
revert to Aspect, and all rights in the
Marquette Trademarks granted to Aspect
hereunder shall immediately revert to
Marquette;

(iii) In the event that this Agreement is
terminated for any reason other than a
material breach or material default by
Marquette, Marquette shall thereafter to
dispose of all of the unsold Marquette
Patient Monitors bearing the Trademarks and
advertising and promotional

-21-
<PAGE> 22
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

materials relating thereto which had been
completed by it prior to such termination,
provided such Marquette Patient Monitors and
materials were in the process of manufacture
before such termination.

(g) PROMOTIONAL CLAIMS. The general form of any
promotional claims by Marquette regarding Aspect's
Bispectral Index technology and/or the integration of
Aspect's Bispectral Index technology in Marquette
Patient Monitors, and the specific form of the use of
Aspect's trade names and trademarks, and of intended
use claims regarding Aspect's Bispectral Index
technology, in promotional material, advertisement,
and/or in written technical literature shall be
subject to review and approval by Aspect prior to its
publication or display. The general form of any
promotional claims by Aspect regarding Marquette's
Patient Monitors or the integration of Aspect's
Bispectral Index technology in Marquette Patient
Modules, and the specific form of the use of
Marquette's trade names and Trademarks, and of
intended use claims regarding the Marquette BIS/EEG
Modules, in promotional material, advertisement,
and/or in written technical literature shall be
subject to review and approval by Marquette prior to
its publication or display.

21. EXPORT.

Marquette shall not export, directly or indirectly, Aspect Products (including
when integrated into a Marquette Patient Monitor) or other products, information
or materials provided by Aspect hereunder, to any country for which the United
States requires any export license or other governmental approval at the time of
export without first obtaining such license or approval. It shall be Marquette's
responsibility to comply with the latest United States export regulations, and
Marquette shall defend and indemnify Aspect from and against any damages, fines,
penalties, assessments, liabilities, costs and expenses (including reasonable
attorneys' fees and court costs) arising out of any claim that Marquette Patient
Monitors or other products, information or materials provided by Aspect
hereunder were exported or otherwise shipped or transported in violation of
applicable laws and regulations.

22. CO-MARKETING PROGRAM.

Marquette and Aspect will undertake co-marketing programs in the future in
certain geographies, including North America, consistent with the goals and
principles outlined in Exhibit F to this Agreement. The Parties further agree to
utilize their best efforts to finalize a definitive co-marketing agreement to
implement the goals outlined in Exhibit F within [**] days following the date on
which this OEM Development and Purchase Agreement is signed by both Parties.

-22-
<PAGE> 23
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

23. TERM; DEFAULT AND TERMINATION.

23.1 TERM AND RENEWAL. The initial term of this Agreement shall
commence on the Effective Date and shall continue for a period
of three (3) years following introduction of the Marquette
BIS/EEG Module. The term of this Agreement shall be renewed
automatically for successive twelve (12) month periods, unless
either Party provides written notice of termination to the
other Party at least sixty (60) days prior to expiration of
the Agreement.

23.2 TERMINATION FOR GOOD CAUSE.

(a) TERMINATION BY ASPECT. The Agreement may be
terminated by Aspect giving [**] prior
written notice to Marquette in the event Marquette
has not commercially introduced a Marquette BIS/EEG
Module by October 31, 2001.

(b) TERMINATION BY MARQUETTE. The Agreement may be
terminated by Marquette giving [**] written notice
to Aspect if Aspect has failed to provide a Aspect
BIS/EEG Module Kit consistent with the specifications
outlined in Exhibit C to Marquette by December 31,
2000. Furthermore, Marquette will require prototype
Aspect BIS/EEG Module Kits in advance of the December
31, 2000 date, as follows in order to make the date
specified in Section 23.2(a): [**] then current
Aspect BIS/EEG Module Kit approximately 10-12 weeks
after the project commences; [**] then current Aspect
BIS/EEG Module Kits approximately five (5) months
thereafter; and approximately [**] then current
Aspect BIS/EEG Module Kits two (2) months thereafter.
Specific schedules and volumes for prototype Aspect
BIS/EEG Module Kits will be mutually agreed upon by
both Parties to meet the mutual timelines.

(c) MATERIAL COMPETITIVE FEATURES. Either Party may
terminate this Agreement if the other Party's [**] do
not [**] for [**] the [**] of [**] and [**] on the
[**] . In order to exercise its rights under this
Section 23.2(c), a Party must provide [**] prior
written notice to the other Party, specifying in
reasonable detail the [**] or [**] that are [**].
Following receipt of such notification, the notified
Party shall have [**] to [**] in [**]. If at the end
of such [**] period, the notified Party is unable to
do so, the notifying Party may terminate the
Agreement; provided, that no such notification shall
be effective prior to [**].

-23-
<PAGE> 24

23.3 EVENTS OF DEFAULT. The following shall constitute events of
default under this Agreement:

(i) if either Party assigns this Agreement or
any of its rights or obligations hereunder
without the prior written consent of the
respective other Party, except: (a) as
specifically permitted under this Agreement;
or (b) in connection with the sale or other
transfer of such Party's business to which
this Agreement relates (the word "assign" to
include, without limiting the generality
thereof, a transfer of a majority interest
in the Party) or

(ii) if either Party shall neglect or fail to
perform or observe any of its obligations to
the other Party hereunder, including,
without limiting the generality thereof, the
timely payment of any sums due, and such
failure is not cured within thirty (30) days
(ten (10) days in the event of a default in
the payment of amounts owed the other Party)
after written notice thereof from the other
Party; or

(iii) if there is (w) a dissolution, termination
of existence, liquidation, insolvency or
business failure of either Party, or the
appointment of a custodian or receiver of
any part of either Party's property, if such
appointment is not terminated or dismissed
within thirty (30) days; (x) a composition
or an assignment or trust mortgage for the
benefit of creditors by either Party; (y)
the commencement by either Party of any
bankruptcy proceeding 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 (z) the commencement against
either Party of any proceeding 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, which proceeding is not dismissed
within thirty (30) days ("File for
Bankruptcy").

23.4 REMEDIES. Upon any event of default, and in addition to any
other remedies either Party may have at law or in equity, the
non-defaulting Party may terminate the Agreement, cancel any
outstanding Order, refuse to make or take further Orders or
deliveries, cancel any discount given, and declare all
obligations immediately due and payable. Any such termination
or other action taken by the non-defaulting Party pursuant to
this Section 23.4 shall not relieve the defaulting Party of
its obligations hereunder and the non-defaulting Party shall
retain all legal and equitable remedies after such
termination.

-24-
<PAGE> 25

Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

24. INSURANCE.

Upon request, Aspect shall provide evidence of product liability, general
liability and property damage insurance against an insurable claim or claims
which might or could arise regarding Aspect products purchased from Aspect. Such
insurance shall contain a minimum limit of liability for bodily injury and
property damage of not less than 2,000,000 (two million) US$.

25. **

25.1 [**]. Aspect warrants that the [**], together with all [**],
as now exists or hereafter becomes available including but not
limited to, the then [**] of [**] for the [**] will have been
[**] at Marquette's expense [**] pursuant to an agreement
between [**] is reasonably satisfactory to Marquette, and
Aspect [**]. Such [**] shall be [**] to Marquette within
thirty (30) days from the execution date hereof that [**] have
been [**]. [**] by Aspect upon execution hereof to [**] upon
written notice thereof by Marquette promptly after any of the
following occurrences:

(a) Aspect fails to [**] as it is required to do under
Sections [**] and [**] of this Agreement;

(b) Aspect suspends or discontinues business or indicates
its intention to suspend or discontinue business.

25.2 MARQUETTE'S RIGHT TO [**]. Upon the occurrence of any of the
above, Marquette shall have the right to [**].

25.3 [**]. Marquette shall have the right to [**] at any
time, at its own cost, [**]; and the right to [**] Marquette
that it is the [**].

25.4 DISPUTES. Should there be any dispute as to whether Marquette
shall be entitled to [**], then such dispute shall be resolved
in accordance with the terms and conditions set forth in
Section 26 (Dispute Resolution) of this Agreement.

-25-
<PAGE> 26

26. DISPUTE RESOLUTION

26.1 GENERAL. Any dispute, controversy or claim arising out of or
relating to this Agreement or any related agreement or the
validity, interpretation, breach or termination thereof (a
"Dispute"), including claims seeking redress or asserting
rights under applicable law, shall be resolved in accordance
with the procedures set forth herein. Until completion of such
procedures, no Party may take any action not contemplated
herein to force a resolution of the Dispute by any judicial or
similar process, except to the limited extent necessary to;
(i) avoid expiration of a claim that might eventually be
permitted hereby; or (ii) obtain interim relief, including
injunctive relief, to preserve the status quo or prevent
irreparable harm.

26.2 WAIVER. In connection with any Dispute, the parties expressly
waive and forego any right to (i) punitive, exemplary,
statutorily, enhanced or similar damages in excess of
compensatory damages and (ii) trial by jury.

26.3 GOOD FAITH NEGOTIATIONS. Any Dispute relating to this
Agreement (a "Dispute") will be resolved first through good
faith negotiations between appropriate management-level
representatives of each Party having responsibility for the
sale or use of products involved.

26.4 MEDIATION. If within sixty (60) day the parties are unable to
resolve the dispute through good faith negotiation, either
Party may submit a Dispute for resolution by mediation
pursuant to the Center for Public Resources Model Procedure
for Mediation of Business Disputes as then in effect. The
mediation shall be conducted in New York City. Mediation will
continue for at least thirty (30) days unless the mediator
chooses to withdraw sooner. At the request of either Party,
the mediator will be asked to provide an evaluation of the
Dispute and the parties' relative positions. Each Party shall
bear its own costs of mediation effort.

26.5 ARBITRATION. After completion of any mediation effort, a Party
may submit the Dispute for resolution by arbitration pursuant
to the Non-Administered Arbitration Rules of the Center for
Public Resources as in effect on the date hereof, unless the
parties agree to adopt such rules as in effect at the time of
the arbitration. The arbitral tribunal shall be composed of
one arbitrator; and the arbitration shall be conducted in New
York. If the resolution of the Dispute is not found within the
terms of this Agreement, the arbitrator shall determine the
Dispute in accordance with the governing law of the Agreement,
without giving effect to any conflict of law rules or other
rules that might render such law inapplicable or unavailable.
The prevailing Party in any arbitration conducted under this
Section shall be entitled to recover from the other Party (as
part of the arbitral award or order) its reasonable attorneys'
fees and other costs of arbitration.

26.6 APPLICABLE LAW. The law applicable to the validity of this
arbitration provision, the conduct of the arbitration, the
challenge to or enforcement of any arbitral award or order or
any other question of arbitration law or procedure shall be

-26-

<PAGE> 27

governed exclusively by the Federal Arbitration Act, 9 U.S.C.
sections 1-16; however, the award can be modified or vacated
on grounds cited in the Federal Arbitration Act or, if the
arbitrator's findings of facts are not supported by
substantial evidence or the conclusions of law are erroneous,
under the laws of the State of New York. The place of
arbitration shall be in New York City. The parties agree that
the federal and state courts located in the State of New York
shall have exclusive jurisdiction over any action brought to
enforce this arbitration provision, and each Party irrevocably
submits to the jurisdiction of said courts. Notwithstanding
the foregoing sentence, either Party may apply to any court of
competent jurisdiction, wherever situated, for enforcement of
any judgment on an arbitral award.

26.7 TIME LIMIT. Except as time barred under any applicable statute
of limitation of lesser duration, any claim by either Party
shall be time-barred unless the asserting Party commences an
arbitration proceeding with respect to such claim within two
years after the cause of action has accrued.

26.8 PROVISIONAL OR INTERIM JUDICIAL MEASURES. Notwithstanding any
other provision of this Agreement, the parties expressly agree
that prior to the first meeting of the arbitrator either shall
have the right to apply to any state or federal court in the
State of New York or any other court that would otherwise have
jurisdiction, for provisional or interim measures.

26.9 CONSOLIDATED PROCEEDINGS. Each Party hereby consents to a
single, consolidated arbitration proceeding of multiple
claims, or claims involving more than two parties. The
prevailing Party or parties in any arbitration conducted under
this paragraph shall be entitled to recover from the other
Party or parties (as part of the arbitral award or order) its
or their reasonable attorneys' fees and other reasonable costs
of arbitration.

27. GENERAL PROVISIONS.

27.1 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, fire,
casualty, flood, war, strike, lock out, failure of public
utilities, injunction or any act, exercise, assertion or
requirement of governmental authority, epidemic, destruction
of production facilities, insurrection, inability to procure
materials, labor, equipment, transportation or energy
sufficient to meet manufacturing needs, or any other cause
beyond the reasonable control of the Party invoking this
provision, and if such Party shall have used its best efforts
to avoid such occurrence and minimize its duration and has
given prompt 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.

-27-
<PAGE> 28
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

27.2 PUBLICITY. Neither Party shall originate any publicity, news
release or other public announcement relating to this
Agreement or the existence of an arrangement between the
Parties without the prior written approval of the other Party,
except as otherwise required by law.

27.3 WAIVER. The waiver by either Party of a breach or a default of
any provision of this Agreement by the other Party shall not
be construed as a waiver of any succeeding breach of the same
or any other provision, nor shall any delay or omission on the
part of either Party to exercise or avail itself of any right,
power or privilege that it has, or may have hereunder, operate
as a waiver of any right, power or privilege by such Party.

27.4 NO AGENCY. Nothing contained in this Agreement shall be deemed
to constitute either Party as the agent or representative of
the other Party, or both Parties as joint venturers or
partners for any purpose. Neither Party shall be responsible
for the acts or omissions of the other Party, and neither
Party shall have authority to speak for, represent or obligate
the other Party in any way without prior written authority
from the other Party.

27.5 SURVIVAL OF OBLIGATIONS. All obligations of either Party under
Sections 4.3 (but only insofar as it relates to the rights of
Marquette customers to continue using Marquette BIS/EEG
Modules), 5 (Royalties), 11 (Warranty), 12 (Service and
Support), 14 (Regulatory Matters), 16 (Ownership and
Protection of Results), 18 (Confidentiality), 19
(Indemnities), 20 (Trademarks), [**], 26 (Dispute Resolution),
and 27.6 (Limitation on Liability) shall survive the
expiration or termination of this Agreement and continue to be
enforceable.

27.6 LIMITATION ON LIABILITY. EXCEPT AS PROVIDED IN SECTION 19,
EACH PARTY'S LIABILITY ARISING OUT OF THE MANUFACTURE, SALE OR
SUPPLYING OF ASPECT PRODUCTS OR THEIR USE OR DISPOSITION,
WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE,
SHALL NOT EXCEED THE SUM OF (i) THE TOTAL ACTUAL PURCHASE
PRICE PAID BY MARQUETTE FOR ALL ASPECT PRODUCTS PURCHASED
HEREUNDER; (ii) ALL AMOUNTS PAID BY MARQUETTE TO ASPECT FOR
PROJECT DEVELOPMENT COSTS PURSUANT TO SECTION 3.4 OF THIS
AGREEMENT; AND (iii) ALL AMOUNTS PAID BY MARQUETTE TO ASPECT
FOR SERVICE AND SUPPORT PURSUANT TO SECTION 12 OF THIS
AGREEMENT. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR OTHER
INDIRECT DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF
PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING OUT OF
THE MANUFACTURE, SALE OR SUPPLYING OF ASPECT PRODUCTS.

-28-
<PAGE> 29

27.7 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.

27.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts, without reference to conflict of laws
principles, and shall not be governed by the U.N. Convention
on Contracts for the International Sale of Goods.

27.9 NOTICES. Any notice or communication with regard to the
termination of or changes to this Agreement from one Party to
the other shall be in writing and either personally delivered
or sent via certified mail, postage prepaid and return receipt
requested addressed, to such other Party at the address of
such Party specified in this Agreement or such other address
as either Party may from time to time designate by notice
hereunder.

27.10 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Parties. No waiver, consent,
modification or change of terms of this Agreement shall bind
either Party unless in writing signed by both Parties, and
then such waiver, consent, modification or change shall be
effective only in the specific instance and for the specific
purpose given. There are no understandings, agreements,
representations or warranties, expressed or implied, not
specified herein regarding this Agreement or the Aspect
Products purchased and/or licensed hereunder. Only the terms
and conditions contained in this Agreement shall govern the
transactions contemplated hereunder, notwithstanding any
additional, different or conflicting terms which may be
contained in any Order or other document provided by one Party
to the other. Failure of Aspect to object to provisions
contained in any Order or other document provided by Marquette
shall not be construed as a waiver of the terms and conditions
of this Agreement nor an acceptance of any such provision.

27.11 HEADINGS. Captions and headings contained in this Agreement
have been included for ease of reference and convenience and
shall not be considered in interpreting or construing this
Agreement.

-29-
<PAGE> 30

27.12 EXHIBITS: The following Exhibits shall be part of this
Agreement:

EXHIBIT A: Aspect Products and Purchase Prices

EXHIBIT B: Aspect's Standard BIS Module Kit

EXHIBIT C: Development Project

EXHIBIT D: Contact Persons/Addresses Prices

EXHIBIT E: Aspect and Marquette Trademarks

27.13 BENEFICIARIES. Except for the provisions of Section 19 hereof,
which are also for the benefit of the other Persons
indemnified, this Agreement is solely for the benefit of the
parties hereto and their respective affiliates, successors in
interest and permitted assigns and shall not confer upon any
other person any remedy, claim, liability, reimbursement or
other right in excess of those existing without reference to
this Agreement.

27.14 ASSIGNMENT. Neither Party may assign or delegate this
Agreement or any rights or obligations under this Agreement
without the prior written consent of the other, which shall
not be unreasonably withheld; provided, however, that
Marquette may, without the prior written consent of Aspect,
assign and delegate this Agreement and any or all of its
rights and obligations hereunder to any of its affiliates
within the GE Medical Systems division of General Electric
Company, and provided that either party shall have the right
to assign this Agreement in connection with a sale of the
business of such party to which this Agreement relates.

IN WITNESS WHEREOF, this Agreement has been duly executed as a sealed
instrument as of the date specified above.

Aspect Medical Systems, Inc. GE Marquette Medical Systems, Inc.

By: /s/ J. Breckenridge Engle By: /s/ Kevin King
------------------------------ ------------------------------
J. Breckenridge Engle Kevin King

Title: Chairman Title: Vice President and
--------------------------- General Manager of
Global Marketing
---------------------------

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<PAGE> 31
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

EXHIBIT A
ASPECT PRODUCTS AND PURCHASE PRICES

A) ASPECT BIS/EEG MODULE KIT:

Within thirty (30) days of the date of this Agreement, Marquette shall
[**] of the following [**] by giving Aspect written notice [**].

[**]:

List price for Aspect BIS/EEG Module Kit: [**] (includes [**] for
components and [**] for BIS license)

Volume discounts:

- --------------------------------------------------------------------------------
QUANTITY
PER YEAR PRICE (COMPONENTS + LICENSE DISCOUNT
-------- --------------------------- --------
<S> <C> <C>

[**] [**] [**]
[**] [**] [**]
[**] [**] [**]
</TABLE>
- --------------------------------------------------------------------------------

Exceptions to [**].

[**]: Assumes [**] of [**] and [**]:

[**] (based on installed base of approximately [**] GE Marquette OR
monitors at [**] /unit)

[**] volume discounts according to the following schedule:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
QUANTITY
PER YEAR PRICE (COMPONENTS ONLY) DISCOUNT
-------- ----------------------- --------
<S> <C> <C>

[**] [**] [**]
[**] [**] [**]
[**] [**] [**]
</TABLE>
- --------------------------------------------------------------------------------

-31-
<PAGE> 32
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

Composite volume discount schedule [**] - for illustration
purposes only:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRICE DISCOUNT
(COMPONENTS (COMPONENTS
QUANTITY AND LICENSE AND LICENSE)
PER YEAR NOTE A NOTE A
-------- ----------- ------------
<S> <C> <C>

[**] [**] [**]
[**] [**] [**]
[**] [**] [**]

</TABLE>
- --------------------------------------------------------------------------------

Note A: assumes imputed BIS license fee of [**] per unit

B) ASPECT BIS SENSOR:

Transfer price to Marquette for distribution solely to Marquette
customers outside North America and solely for use with Marquette BIS/EEG
Modules: [**] of Aspect's list price in the U.S.

C) ASPECT SPARE PARTS/ACCESSORY PRICES

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Aspect Marquette
Orderable List Price Price
Parts/Products (US$) (US$) - Note A
-------------- ---------- --------------
<S> <C> <C>

DSC-2 [**] [**]
(replacement

BIC Engine PCB [**] [**]
(replacement)

Sensor Cable [**] [**]
(replacement)

DSC-4 [**] [**]
(replacement)

User Manual [**] [**]

</TABLE>
- --------------------------------------------------------------------------------

-32-
<PAGE> 33
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

EXHIBIT B: SPECIFICATIONS ASPECT'S
STANDARD BIS MODULE KIT

Aspect's BIS Module Kit is designed specifically for OEM applications and allows
the integration of Aspect's BIS monitoring technology into OEM equipment. 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 Kit 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 12 foot
cable that is hard wired at the DSC-2.

The small BIS Engine circuit 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), power, and DSC connections.

DETAILED TECHNICAL SPECIFICATIONS:

Digital Output: [**]
Main Parameters: [**]
Electrical Safety: [**]
Power: [**]
Artifact Rejection: [**]
Bispectral Index: [**]

DIGITAL SIGNAL CONVERTER (DSC-2)

Description: [**]
Weight: [**]
Dimensions: [**]
[**]
Cable Length: [**]

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<PAGE> 34
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

(a) BIS Engine PCB

Physical: [**]
Processing Power: [**]

(b) Software Upgrades

The BIS engine software is stored in reprogrammable FLASH memory. Software
upgrades can be accomplished on-site or remotely via the serial interface.

Each BIS engine is given a unique serial identifier. This allows for electronic
identification/tracking of every BIS Engine.

-34-
<PAGE> 35
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

EXHIBIT C: DEVELOPMENT PROJECT -
PRELIMINARY OUTLINE

1. SCOPE

This preliminary outline describes a development project that Aspect would
perform for GE Marquette. This outline is based on notes from a meeting held at
Aspect on August 18, 1999. A more detailed project description needs to be
completed before the timetable and costs can be finalized.

2. DEVELOPMENT TIMETABLE

A detailed project schedule needs to be developed. It is planned that the total
elapsed time of the project will be approximately [**].

3. SOFTWARE PROJECT - [**]

Expanded BIS Engine Software Functionality: Aspect will [**] so that, in
addition to all of the functionality of the standard BIS Module Kit (described
in Attachment A), the system will [**] when a [**] is connected to the BIS
Engine circuit board. Upon connection of the [**], the BIS software will
automatically [**] processing. The BIS engine will then [**] including [**]. The
BIS engine will then transmit these [**] to the host system via the [**].

4. TASKS

Determine and Specify:
System Specifications (Aspect/GE Marquette) including hazard
analysis Software Specifications (Aspect)
Develop/Implement (Aspect)
Verification & Validation (Aspect)

After Aspect has validated the BIS/EEG module kit, GE Marquette will have the
responsibility to validate, with Aspect's assistance, the BIS/EEG module in the
GE Marquette system.

The approximate cost to complete this software project is [**].

DSC-4 Hardware Development Project

Conceptually, Aspect will [**] the [**] that is [**] . However, this [**]. A
preliminary review indicates that [**]. Additionally, there may be [**].
Therefore a small development budget needs to be established in order to bring
this product back on-line. An estimate of the project cost including engineering
and tooling is roughly [**]. A full review of the manufacturability of the DSC-4
needs to be completed before Aspect can commit to the actual development expense
and the transfer price of the DSC-4.

-35-
<PAGE> 36
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

EXHIBIT D: CONTACT PERSONS/ADDRESSES

CONTACT PERSONS AND RESPONSIBILITIES AT ASPECT:

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
EMAIL
PHONE NUMBER/
PERSON TITLE RESPONSIBILITY FAX NUMBER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
[**] [**] [**] [**]
[**]
[**]
- --------------------------------------------------------------------------------------------------
[**] [**] [**] [**]
[**]
[**]
- --------------------------------------------------------------------------------------------------
[**] [**] [**] [**]
[**]
[**]
- --------------------------------------------------------------------------------------------------
[**] [**] [**] [**]
[**]
[**]
- --------------------------------------------------------------------------------------------------
[**] [**] [**] [**]
[**]
[**]
- --------------------------------------------------------------------------------------------------
</TABLE>

MAILING ADDRESS: Aspect Medical Systems, Inc.
2 Vision Drive
Natick, MA 01760-2059
USA

CONTACT PERSONS AND RESPONSIBILITIES AT GE MARQUETTE:

- --------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------
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MAILING ADDRESS: GE Marquette Medical Systems, Inc.

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<PAGE> 37

EXHIBIT E: ASPECT TRADEMARKS

TRADEMARK REFERENCE
- --------- ---------

Aspect(R) None*

A-2000(TM) A-2000 is a trademark of Aspect Medical
Systems, Inc.

Bispectral Index(R) Bispectral is a registered trademark of
Aspect Medical Systems, Inc.

BIS logo is a registered trademark of
Aspect Medical Systems, Inc.

* This trademark is registered as a trademark to another company, and is used
under license by Aspect Medical Systems.

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<PAGE> 38
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

EXHIBIT F: CO-MARKETING PROGRAM

a) Goals:

- to provide GE Marquette customers with access to BIS, and a seamless
transition from Aspect's A-2000 BIS monitor to GE Marquette's BIS
Module, during the period in which the BIS module is under
development by GE Marquette

- to ensure that the field organizations of both Aspect and GE
Marquette are properly incented to assist one another, and to work
in collaboration, to promote the BIS technology, irrespective of the
platform on which it is available.

- to minimize the likelihood that GE Marquette customers will be
disposed to delay purchasing BIS until GE Marquette completes the
development of a BIS module.

- to minimize the incremental costs to customers of exchanging one BIS
platform for another when the module becomes available; and

- to encourage existing GE Marquette customers to remain loyal to GE
Marquette, and to stimulate monitoring system sales to new
customers, by offering a BIS solution that address current and
future needs at a very attractive price.

b) Term: beginning immediately following an announcement by GE Marquette and
Aspect that GE Marquette intends to develop a BIS module until the module
is launched. It is understood that the module will be launched
approximately 2-3 months prior to becoming commercially available.

c) Proposed Pricing: Aspect list price [**] per monitor. Aspect's current
list prices vary from [**] per monitor depending on the number of monitors
purchased. In addition to outright sales, the parties will also make
available a fee-for-use program using equivalent terms. (Aspect would need
to do the fee-for-use program - Marquette would just submit the referral
to Aspect and Marquette would still exchange for the module at no module
charge.) In exchange, customers will receive A-2000 monitors initially; as
soon as the BIS module is available, the module will be exchanged for the
monitor.

d) Mechanics: following each sale under this program, Aspect will assume
responsibility for installation, in-service, and clinical support for the
A-2000. Following release of the BIS Module, Marquette will assume
responsibility for installation and in-service of the module, at which
time the used A-2000 will be returned to Aspect.

e) [**]: proceeds from sale of the BIS platform (i.e. the A-2000 followed by
the BIS Module) will be [**]. In the event GE Marquette fails to deliver a
BIS module within a suitable period of time as specified in the Agreement.

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<PAGE> 39
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

f) Sales rep compensation: it is understood that a compensation program for
both field organizations will be established that appropriately ties rep
compensation to success of the program.

g) Elements of co-marketing program: customer lists to be shared, high
priority accounts to be jointly identified and developed, co-promotional
activities to be coordinated (e.g. trade shows, joint seminars and
customer presentations, etc.); reimbursements to Marquette due quarterly
with customer lists, selling price, number of sensors purchased by
customer.

h) Territory: U.S. and other countries to be discussed.

i) Possible role of MVP: in the event MVP acts as a distributor for Aspect,
the terms of their participation in the co-marketing program to be
negotiated.

j) Demonstration Equipment: for promotional purposes only (not to be sold to
any end-user), Marquette will require five (5) demonstration Aspect A-2000
Monitors. Terms of the transfer price for these demonstration units will
be negotiated.

k) BIS Sensor [**]: Marquette [**] BIS Sensors [**] as a result of the [**]
to a [**].

-39-

<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
January 20, 2000

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