Purchase Agreement

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


PURCHASE AGREEMENT NO. __________


THIS AGREEMENT is made as of this 30th day of August 2005 ("Effective Date"), between General Electric Company, a corporation organized under the laws of the State of New York, acting by and through its GE Healthcare division ("Buyer" or "GE Healthcare"), and Aspect Medical Systems Inc., a corporation organized under the laws of the State of Delaware (together with its Affiliates (as hereinafter defined), "Seller").


WHEREAS, Seller is a developer, manufacturer and distributor of medical devices, equipment, related hardware, software and related products and accessories; and


WHEREAS, Buyer wishes to have Seller sell certain products to Buyer in accordance with the requirements of Buyer as more fully set forth in the terms and conditions of this Agreement, including its Attachments and schedules.


WHEREAS, Buyer and Buyer's Affiliates have entered into a number of agreements with Seller, which include, but are not limited to, that certain OEM Development and Purchase Agreement dated December 22, 1999 ("Marquette OEM Purchase Agreement"), that certain OEM-Purchase Agreement for Aspect BIS technology dated September 1, 2000 ("DO OEM Purchase Agreement"), that certain OEM-Purchase Agreement for Custom Datex-Ohmeda Sensors dated September 1, 2000 ("DO Custom OEM Purchase Agreement"), and that certain Aspect/Datex-Ohmeda Principles of Research and Development Cooperation agreement dated September 1, 2000 ("Cooperation Agreement" and together with the Marquette OEM Purchase Agreement, the DO OEM Purchase Agreement and the DO Custom OEM Purchase Agreement, the "Prior Agreements").


NOW THEREFORE, Seller and Buyer agree as follows:


1. INTRODUCTION AND DEFINITIONS


(a) Scope. THIS AGREEMENT AND ITS ATTACHMENTS AND SCHEDULES STATE THE TERMS AND CONDITIONS UNDER WHICH SELLER SHALL SELL TO BUYER, AND BUYER SHALL PURCHASE FROM SELLER, THOSE PRODUCTS IDENTIFIED IN ATTACHMENT D, AS WELL AS ALL COMPONENTS, SPARE PARTS, SERVICE TOOLS, MANUALS, SOFTWARE LICENSES, DATA AND RELATED


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INTERFACES WITH RESPECT THERETO (THE "PRODUCTS"). UNLESS OTHERWISE EXPRESSLY STATED, REFERENCES TO THIS "AGREEMENT" INCLUDE ALL ATTACHMENTS AND SCHEDULES.


(b) Parties. Seller expressly acknowledges that this Agreement is not intended to govern or obligate General Electric Company itself or any business, division or Affiliate of General Electric Company other than General Electric Company's GE Healthcare division. Seller agrees that General Electric Company's GE Healthcare division and any domestic or international Affiliate of General Electric Company that operates as part of General Electric Company's GE Healthcare division may place a Purchase Order under this Agreement, and that any such Affiliate shall be entitled to the same rights and obligations of "Buyer" as if it were an original signatory hereto. If any transaction-specific or country-specific modifications to this Agreement are required to facilitate the sale of the Products to any such Affiliate, both parties agree to negotiate such modifications in good faith, and to make only such modifications as are required by local law or as are required for logistics purposes. An "Affiliate" shall mean, with respect to any specified party, any other legal entity that directly or indirectly controls, is controlled by or is under common control with, such specified party.


(c) Effect on Prior Agreements. Upon execution, this Agreement shall be the sole agreement effective for the purchase of Products after the Effective Date, regardless of any inconsistent information contained on or incorporated into any purchase order. As of the Effective Date, and notwithstanding any requirements of notice prior to termination, the parties agree that the Prior Agreements shall be terminated, and effective only for determining the parties' respective rights and obligations with respect to any products or services ordered, or information exchanged or obtained, under such agreements. Notwithstanding the foregoing, and without determining whether any party has violated any of its obligations, or acted contrary to the prohibitions, contained in any of the foregoing agreements, the parties specifically agree that each party and its Affiliates are relieved of: (i) any obligation to exchange confidential information, experiences and know-how and to conduct good faith negotiations as set forth in the Cooperation Agreement; and (ii) except as provided in Section 21(b), any restrictions on their ability to offer competitive products or to offer, initiate development, promote or market, including without limitation, as set forth in the penultimate sentence of Section 4.1 of the Marquette OEM Purchase Agreement and as set forth in Sections 11.7 and 11.8 of the DO OEM Purchase Agreement, and are hereby released from any liability that they may have incurred as a result of any violations of any such obligations or restrictions.


(d) No Obligation. Notwithstanding anything to the contrary in this Agreement, it is the express understanding of the parties that Buyer shall have no obligation to purchase Products exclusively from the Seller, and may use other suppliers for any and all products that perform the same or similar function as the Products.


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(e) Documents. The following attachments are an integral part of this Agreement (the "Attachments"). The provisions of each Attachment shall be incorporated by reference into and be deemed to be a part of this Agreement. If any conflict exists between the provisions of this Agreement and of the Attachments, or between the provisions of Attachments themselves, the order of precedence shall be:


1. This Agreement


2. Attachment D (Product Schedule)


3. Attachment A (Product Specifications)


4. Attachment C (Quality Systems Certifications)


5. Attachment F (Standard Terms and Conditions)


6. Attachment B (Quality Plan)


7. Attachment H (Seller Change Notice Form)


8. Attachment M (Purchased Material Quality Requirements)


9. Attachment N (Seller Trademarks)


10. Attachment O (Buyer Trademarks)


(f) Definitions.


"BISx System" means the integrated solution of Seller's BIS Engine processing technology and the DSC-XP. The BISx System includes a patient interface cable and a host monitor cable.


"Buyer BIS/EEG Engine" is the processing unit for deriving the BIS and EEG data from the raw EEG signal and consists of Seller's "BIS Engine" board modified for Buyer.


"Buyer BIS/EEG Module" is all components involved in integrating the BIS and EEG with Buyer Patient Monitors.


"Buyer Patient Monitor" means any multi-parameter patient monitoring system manufactured by or for Buyer.


"BIS/EEG Module Kit" means the bundle of all components of the Buyer BIS/EEG Module that are developed and manufactured by or for Seller and licensed/sold to Buyer under this Agreement: DSC-4, DSC-XP, DSC Cable, Buyer BIS/EEG Engine, and module cable. "Digital Signal Converter" or "DSC" means the processing unit that amplifies the analog EEG signals as acquired by the BIS sensors and converts them from analog to digital signals. The DSC-XP is used by Buyer BIS/EEG Module customers to obtain the BIS.


"Custom Sensor" means a single use sensor that incorporates level-of-consciousness monitoring technology developed by Buyer, as more fully described in the attached product specifications.


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"BIS Sensor" means a single use disposable sensor developed and manufactured by Seller for use with the A2000, the BIS/EEG Module Kit or the BISx System and that is required to generate Seller's Bispectral Index.


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


"Smart Sensor Technology" or "SST" means the Seller technology which may be used by Buyer Patient Monitors to interface with the Custom Sensors.


"Sensor Connector" means the sensor connector currently being used with the Custom Sensor, or any replacement sensor connector where the change was made in accordance with the terms of this Agreement.


"Entropy module" is the processing unit for deriving Buyer's proprietary processed EEG parameter that measures the hypnotic effects of anesthetic and sedative agents on the brain.


"Cable Connector" means the mating connector to the Sensor Connector currently being used with the Custom Sensor, or any replacement mating connector where the change was made in accordance with the terms of this Agreement.


"Purchase Order" means a purchase order released by Buyer for Products.


2. TERM


(a) Initial Term. The term of this Agreement is from the Effective Date through December 31, 2008 (the "Initial Term" and, together with any Extension Term (as hereinafter defined), the "Term").


(b) Extensions. The then current Term shall automatically renew for all of the Products for additional one year periods (the "Extension Term(s)") unless one party notifies the other party three (3) months prior to the expiration of the Term that it intends to terminate the Agreement at the end of the then current Term.


3. QUANTITIES


(a) Forecast. At least quarterly, Buyer shall submit to Seller forecasts of its anticipated Product needs for the next twelve (12) months. Any such forecast shall not be binding in any way on Buyer and may be modified at any time by Buyer in its sole discretion. During any month, any failure by Seller to deliver in a timely manner an amount of Products equal to the


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greater of one hundred fifty (150) units or thirty percent (30%) more than the greatest quantity of such Products ordered in any one of the three (3) preceding months (the "Guaranteed Amounts") will subject Seller to the charges set forth in Section 12. If Buyer orders Products in excess of the Guaranteed Amounts or requests a delivery time that is less than the applicable lead time, Seller shall exercise commercially reasonable efforts to deliver the Products so ordered within the delivery time requested by Buyer, provided that if Seller is not able to supply the quantity of Products ordered by Buyer, and Seller is permitted to sell similar products to other customers, Seller shall allocate such products on a pro-rata basis among all of its customers of the applicable products that also ordered products in excess of their guaranteed amounts.


(b) Commitment. Buyer's commitment to purchase Products from Seller shall be limited to Purchase Orders released by Buyer and accepted by Seller pursuant to Section 5. Unless agreed otherwise in writing by the parties, Buyer shall not be responsible or in any way liable to Seller or any third party with respect to any material commitments or production arrangements in excess of the amounts or in advance of the times necessary to meet Buyer's delivery schedules set forth in its accepted Purchase Orders.


(c) Cancellation Charges. In the event of the cancellation of any Purchase Order by Buyer for products other than sensors, Seller has the right to charge a cancellation charge based on actual damages caused to Seller. The maximum amount of damage may not, however, exceed the following charges listed below. The cancellation charges are based on the number of days prior to the scheduled delivery date that written notice of cancellation is received by Seller, as outlined below:


> 8 weeks prior to acknowledged delivery [**]
6 - 8 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
4 weeks prior to acknowledged delivery [**]
3 - 4 weeks prior to acknowledged delivery [**]% of order value
2 - 3 weeks prior to acknowledged delivery [**]% of order value
1 - 2 weeks prior to acknowledged delivery [**]% of order value
< 1 week prior to acknowledged delivery [**]% of order value


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(d) Lead Times. Lead times for the Products are set forth in Attachment D. Notwithstanding the foregoing, it is Seller's intention to operate with lead times for BIS/EEG Module Kits and BISx Systems of less than four (4) weeks and lead times for BIS Sensors of less than three (3) business days.


4. PRICING


(a) Price Protection. The prices specified in Attachment D for Products (the "Prices") are firm for the Term and include all reasonable charges, packaging, date of manufacture and bar code labeling. In no event shall the Prices be increased by Seller without the express written consent of Buyer.


(b) Software/Firmware. The Price includes a perpetual, paid-up, worldwide, license to Buyer and its distributors, sub-distributors, field organization, channel partners and customers or users of the Products or Buyer's products containing Products to use, in the operation, of the Products, any software and/or firmware supplied by Seller to Buyer or incorporated into the Products. Seller hereby grants to Buyer all sublicense rights required to sell the Products in accordance with this Agreement. All rights granted hereunder shall survive any termination of this Agreement as long as the applicable party remains in compliance with the terms of use for such Products. Buyer shall not duplicate the software or any part thereof. Title to and ownership of any and all proprietary rights in or related to the software shall at all times remain with Seller or its licensor(s). Nothing in this Agreement shall be construed as a sale of any rights in the software. Buyer shall not disassemble, decompile or otherwise reverse engineer the software or any part thereof, except if Seller is required under applicable law to permit Buyer to reverse engineer any software. In such event, Buyer may reverse engineer the software but only to the extent Seller is required to permit such reverse engineering. Buyer shall retain and shall not alter or obscure any notices, markings or other insignia affixed to the software or any part thereof at the time it receives such software.


(c) NRE. Seller agrees to provide reasonable engineering support, including support for integration efforts of the Products into Buyer's other products, to Buyer free of charge. If Buyer requests engineering support for purposes of modifying a custom sensor, and for which Buyer's prior approval has been provided, Buyer shall pay for such engineering support at Seller's standard billing rates, which are currently US $[**] per hour. Seller shall have the right to change such rates charged to Buyer by no more than the average percentage change in the wage level of the engineering support staff, but not more than ten percent (10%) per year during the Term of this Agreement.


(d) Price Reductions. Seller represents to Buyer that the Prices are as low as the prices at which Seller is currently selling items similar to the Products in the same or similar quantities under substantially similar terms and conditions. If during the Term, Seller reduces the price of


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such similar items, Seller shall: (i) promptly notify Buyer in writing of such reduction; and (ii) apply an equivalent reduction in Price to all Products ordered by Buyer which have not been previously shipped and invoiced at the time of such reduction. The Prices shall thereafter be adjusted to reflect such reduction for as long as Seller sells such products at the reduced price or until the Prices are further reduced pursuant to this Agreement.


(e) Cost Reductions. Buyer and Seller shall undertake a program to achieve reductions in the cost of Products by utilizing cost-effective design, lower cost components, new technology, productivity improvements and automation of the manufacturing process. To assist each other in this joint program, Buyer and Seller shall meet periodically to discuss the feasibility and potential savings from alternative actions. Seller agrees to evaluate the impact of any cost reduction realized based on such program on future prices for Products sold after the term of this Agreement.


(f) Sales Taxes And Duties. Prices are exclusive of all taxes or duties after delivery to the designated destination (other than taxes levied on Seller's income) that Seller may be required to collect or pay upon shipment of the Products. Any such taxes or duties must appear as a separate item on Seller's invoice. Buyer agrees to pay such taxes or duties unless Buyer is exempt from such taxes or duties. Where applicable, Buyer will provide Seller with an exemption resale certificate. If Seller is the importer of record in the country of receipt, Seller shall, upon Buyer's request, provide Buyer the document required by the customs authorities of the country of receipt to prove importation and to transfer duty drawback rights to Buyer.


(g) BIS Sensor Commission. During the term of this Agreement, for each BIS Sensor sold by Seller to Buyer's customers in the United States for use with Buyer BIS/EEG Modules and BISx Systems (regardless of whether such Products were sold under this Agreement or any of the Prior Agreements), Seller shall pay Buyer a commission equal to [**] percent ([**]%) of the sales revenue realized by Seller for such BIS Sensors. Seller shall pay such commissions to Buyer on a calendar quarterly basis. With such quarterly payments, Seller shall provide to Buyer a list of Buyer customers to which such sales were made, the number of BIS Sensors sold in that quarter, and the revenue realized from the sale of the BIS Sensors by Seller. All such information shall be treated as Seller Confidential Information in accordance with the terms of this Agreement. This quarterly payment shall be provided to Buyer no later than thirty (30) days following the end of each calendar quarter. In the event that Seller's standalone BIS monitors and/or the BIS modules of other manufacturers have also been installed at such sites in addition to Buyer BIS/EEG Modules and BISx Systems, Buyer will be entitled to a [**] percent ([**]%) commission only on BIS Sensor sales intended for use with Buyer BIS/EEG Modules and BISx Systems. The parties will agree upon a reasonable basis for estimating the number of BIS Sensor sales intended for use with Buyer BIS/EEG Modules and BISx Systems in such an event (e.g. a pro rata determination based on the total number of BIS units of different types installed at such locations during the period) and will calculate the total BIS Sensor commissions due to Buyer accordingly. To facilitate such calculations, Buyer will be responsible for providing Seller with


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documentation, on a quarterly basis, of the total number of Buyer BIS/EEG Modules and BISx Systems installed, the locations of such Buyer BIS/EEG Modules and BISx Systems, and the dates of installation. All such information shall be treated as Buyer Confidential Information in accordance with the terms of this Agreement.


(h) Audit. Seller shall keep full and accurate records and books of account containing all necessary information to calculate the commission due hereunder. Seller shall permit an independent certified public accountant to examine its records and books of account for the two (2) year period prior to the date of the audit to determine compliance with Section 4(g). Any examination shall be at the expense of Buyer, shall occur during regular business hours at Seller's offices and shall not interfere unreasonably with Seller's regular activities. Buyer shall give Seller at least thirty (30) days notice of the date of each such examination and the name of the accountant who will be conducting the examination. Seller agrees to pay Buyer any amounts owning as a result of Seller's non-compliance with the payment provisions of Section 4(g), and Buyer shall return any amounts overpaid by Seller, within fourteen (14) days of the date of the examination report, which details such non-compliance. In the event such amounts owed by Seller to Buyer during the audited period exceeds five percent (5%) of total commissions due, Seller shall pay the costs of such examination.


5. PURCHASE ORDER RELEASES


(a) Contents. A Purchase Order may consist of an electronic message pursuant to Section 15 or a written communication from Buyer to Seller that complies with the requirements of this Agreement. Purchase Orders released by Buyer shall reference this Agreement, identify the delivery date or dates and identify the quantities to be released for delivery within the lead times specified in Attachment D. REGARDLESS OF FORM, EVERY PURCHASE ORDER IS DEEMED TO INCLUDE THIS AGREEMENT, INCLUDING BUYER'S STANDARD TERMS AND CONDITIONS SET FORTH IN ATTACHMENT F.


(b) Acceptance. Seller shall accept Purchase Orders if they are placed by Buyer under agreed prices and other conditions of this Agreement. Seller may reject any Purchase Order of Buyer if the requested delivery time is shorter than the agreed upon lead time, the quantity ordered exceeds the Guaranteed Amounts or the Purchase Order is not otherwise in compliance with this Agreement.


(c) Order Acknowledgements. Purchase Orders shall be acknowledged by Seller within five (5) days after receipt of the Purchase Order, provided that the Purchase Order is technically correct and that the requested delivery time is within the agreed lead time and the Guaranteed Amounts. All other Purchase Order acknowledgements shall not be unreasonably withheld.


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(d) Changes. Buyer may change the quantities and delivery dates on individual Purchase Orders one time without penalty (provided that the delivery date(s) for the original quantity of ordered Products are rescheduled within three (3) months of the original delivery date and such Purchase Orders cannot be subsequently canceled).


6. DOCUMENTATION


(a) Seller agrees to provide Buyer with such product literature, operations and maintenance manuals, and other information and training as is mutually agreed, to enable Buyer to properly sell and maintain Products, provided that in no event shall the source code for source listings of any software of Seller be required to be disclosed or provided by Seller to Buyer and provided that Buyer shall be responsible for providing Seller with product literature and operations and maintenance manuals for the Custom Sensors. Seller hereby grants to Buyer the right to use or reproduce its user documentation for incorporation into Buyer's documentation (excluding source code or source listings as previously mentioned) without charge. Such documentation shall be provided in electronic format. Seller shall be given the opportunity to review and approve Buyer documentation that incorporates Seller documentation prior to publication. Unless agreed otherwise in writing by Buyer, each Product that is a sensor shall include instructions for use. If any change in the Product (other than the Custom Sensor) requires a change in the documentation, Seller shall promptly notify Buyer of the change and provide a revised reproducible master copy without charge. Seller shall promptly revise and update any such documentation for agency or regulatory requirements.


7. TRAINING


Service Training. Seller agrees to provide periodic (annually at a minimum) ongoing training for existing and new Buyer service personnel.


8. SPARE PART TESTING AND CONTINUING AVAILABILITY


(a) Testing. Seller shall test all repaired Products and spare parts using the test plan or procedure set forth on Attachment B or, if not specified on Attachment B, then the highest quality test plan or procedure used by Seller to test products similar to the Products.


(b) Duration. Seller guarantees that either compatible spare parts or compatible replacement products will be available on reasonable commercial terms for a period of at least seven (7) years from the delivery by Seller of the Product in question.


(c) Last Time Buy. Seller acknowledges its obligation to manufacture, supply and support the Products without interruption for the Term. If, however, Seller plans to remove any of the Products (including spare parts and components) from its product line, it shall notify Buyer about the intended removal in writing at least six (6) months in advance. Before the


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expiration of the six (6) months notice period, Buyer shall have the right to place a final order for the applicable Products (including spare parts and components) required by Buyer. Seller shall use its reasonable efforts to deliver the Products so ordered, however the delivery times regarding such final order shall be agreed separately between the parties.


9. COMMERCIAL TERMS


Provisions concerning delivery, transportation, packaging, freight insurance, risk of loss, title, and other commercial terms are contained in Buyer's Standard Terms and Conditions set forth in Attachment F.


10. INVOICES/PAYMENT


(a) Content of Invoice. Seller's invoices shall contain the Purchase Order release number, item number on such release, Buyer's part number, invoice quantity, unit of measure, unit price, total invoice amount, name of Seller, phone number, address to which remittance should be sent, and such other information as may reasonably be required by Buyer.


(b) Payment. Unless otherwise agreed in writing, and except for disputed amounts, payment for all Products shall be made by Buyer in the currency specified in Attachment D by SWIFT transfer within sixty (60) days from shipment date of the Products to Buyer's premises or such other destination as may have been specified in the Purchase Order, provided that the quantity and quality of the Products delivered conforms to this Agreement and the respective Purchase Order. Any late payments shall bear interest at one percent (1%) per month.


11. WARRANTY/REPAIR


(a) Terms. The terms of the warranties of Seller with respect to Products are stated in Attachment F. Seller additionally represents and warrants that the Products (excluding the Custom Sensor) have received the 510(k) certifications and CE mark. Seller's warranties set forth in the warranty section of Attachment F for Products other than BIS Sensors and Custom Sensors shall be for the lesser of: (a) [**] months following the date such Product is received by the end user or (b) [**] months after the date such Product is received by Buyer, and for BIS Sensors and Custom Sensors shall be [**] months from the date of manufacture. Seller agrees that the date of shipment for BIS Sensors and Custom Sensors shall be less than three (3) months from the date of manufacture.


(b) Return of Non-conforming or Defective Product. Buyer may return to Seller without prior authorization any Product that does not conform or perform in accordance with the warranties contained herein. Any such Product shall be returned to Seller's facility or authorized service center, with all transportation charges paid by Seller and the risk of loss


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passing to Seller when the Product is delivered to the carrier of Seller's choice. Seller will return the replacement or repaired Products as soon as possible but in no event later than thirty (30) days after receipt of the non-conforming or defective Product. The warranty on such returned Products shall be the greater of the remainder of the original warranty period or [**] months from the date such returned Product is received by the Buyer, unless a shorter warranty is provided in Attachment D.


(c) Credit. To the extent a defective Product is not promptly repaired or replaced by Seller pursuant to the terms of this Agreement, Seller shall promptly refund or credit Buyer for any payment Buyer made with respect ...