International Distribution Agreement

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


INTERNATIONAL DISTRIBUTION AGREEMENT


THIS AGREEMENT is made and entered into as of January 21, 1998, by and between ASPECT MEDICAL SYSTEMS, INC. ("Aspect"), a Delaware, U.S.A. corporation having offices at 2 Vision Drive, Natick, Massachusetts 01760-2059, U.S.A., Attention: J. Breckenridge Eagle, Telecopy No.: 1-508-647-2059, and NIHON KOHDEN CORPORATION ("NK"), a Japanese company having offices at 31-4 Nishiochiai, 1-chome, Shinjuku-ku, Tokyo 161 Japan, Attention: Yuzuru Nagamitsu, Telecopy No.: 81-3-5996-8101.


WITNESSETH:


In consideration of the mutual covenants and conditions herein contained, and intending to be legally bound hereby, Aspect and NK (the "Parties") mutually agree as follows:


1. PRODUCTS AND TERRITORY


(a) Aspect hereby appoints NK on an exclusive basis (except as provided in (i) below) as its sole distributor in Japan (the "Territory") for the products listed on Exhibit A hereto (the "Products") during the term of this Agreement; PROVIDED, HOWEVER, that: (i) NK acknowledges that Aspect has an existing bispectral index ("BIS") module license and sensor distribution arrangement with SpaceLabs Medical, Inc. ("SMI"); and (ii) if any non-Japanese patient monitoring companies other than SMI develop a bispectral index ("BIS") module for the Japanese market, NK shall supply BIS sensors (as described in Exhibit A hereto) to such companies' distributors (including such companies' branches and Affiliates) in the Territory at a reasonable price. If such non-Japanese patient monitoring companies' distributor in the Territory prefers to purchase BIS sensors from such non-Japanese patient monitoring companies out of Japan, they may do so, provided, however, that Aspect shall not directly sell BIS sensors to such companies' distributors in Japan.


(b) NK shall not solicit orders for any Product from any prospective purchaser outside the Territory. If NK receives an order for any Product from a prospective purchaser outside the Territory, NK shall immediately refer that order to Aspect. NK shall not accept any such orders. NK may not deliver or tender (or cause to be delivered or tendered) any Product outside of the Territory. NK shall not sell any Product to a purchaser in the Territory if NK knows or has reason to believe that such purchaser intends to remove that Product from the Territory. If Aspect receives any order or inquiry for any Product from a prospective purchaser in the Territory, Aspect shall immediately refer such order or inquiry to NK.


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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[**], except that, effective the first day of second April after the introduction of the A-2000 in the Territory, Aspect reserves the right to increase the transfer price of the A-1050 by up to[**], after consulting with NK; and (iii) no price


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


(g) DELIVERY TIMES AND PAYMENT FOR PRODUCTS


(i) Within fifteen (15) days after the MHW Approval Date, but in no event later than July 1, 1998 (unless through no fault of NK, the MHW Approval Date has been delayed), NK shall pay Aspect US[**] as pre-payment for the first[**] A-1050 monitors to be purchased by NK pursuant to this Agreement. Within 90 days after making such payment, NK will deliver a purchase order to Aspect for[**] monitors at a price of US[**]. Aspect agrees to deliver those monitors FCA (FREE CARRIER) Natick, Massachusetts, U.S.A. to NK in accordance with a delivery schedule to be agreed upon by the Parties, such that all of the [**] prepaid monitors are delivered to NK within six months after the MHW Approval Date. In the event Aspect is unable to deliver those [**] monitors pursuant to such schedule, Aspect agrees to refund to NK the prepayments for those monitors it is unable to deliver, until such time as those monitors are delivered.


(ii) NK shall pay Aspect an additional US[**] as pre-payment for the second group of 50 A-1050 and/or A-2000 monitors to be purchased by NK pursuant to this Agreement. Such additional pre-payment shall be paid to Aspect on the earlier of: (A) the date on which the first [**] monitors have been resold by NK; or (B) the end of the first (1st) Contract Year. NK shall deliver a purchase order to Aspect for these second[**] monitors at price of US[**] at such time. Aspect agrees to deliver those monitors FCA (FREE CARRIER) Natick, Massachusetts, U.S.A. to NK in accordance with a delivery schedule to be agreed upon by the Parties, such that all of the second [**] prepaid monitors are delivered to NK within six months after receiving this purchase order. In the event Aspect is unable to deliver that second group of [**] monitors pursuant to such schedule, Aspect agrees to refund to NK the prepayments for those monitors it is unable to deliver, until such time as the monitors are delivered.


(iii) For all other purchase orders of Products, Aspect agrees to deliver such Products within 90 days after accepting such orders. A purchase order placed by NK shall be deemed accepted by Aspect, unless notified in writing to the contrary within ten (10) days after Aspect receives it.


(iv) For any Product not pre-paid in accordance with Section 2(g)(i) and (ii) above, all amounts due and payable with respect to such Product delivered by Aspect in accordance with Section 2(f) hereof shall be paid in full within 30 days after the date of Aspect's invoice therefor. All such amounts shall be paid in U.S. Dollars by wire transfer, to such bank or account as Aspect may from time to time designate in writing. All costs incurred in connection with such wire transfer shall be the


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responsibility of NK. Whenever any amount hereunder is due on a day which is not a day on which banks in Natick, Massachusetts, U.S.A. are open for business (a "Business Day"), such amount shall be paid on the next such Business Day. Amounts hereunder shall be considered to be paid as of the day on which funds are received by Aspect's bank. No part of any amount payable to Aspect hereunder may be reduced due to any counterclaim, set-off, adjustment or other right which NK might have or assert against Aspect, any other party or otherwise.


(h) All amounts due and owing to Aspect hereunder but not paid by NK on the due date thereof shall bear interest (in U.S. Dollars) at the rate 18 per cent per annum. Such interest shall accrue on the balance of unpaid amounts from time to time outstanding from the date on which portions of such amounts become due and owing until payment thereof in full.


(i) In the event of any discrepancy between any purchase order accepted by Aspect and this Agreement, the terms of this Agreement shall govern.


3. NK'S OTHER OBLIGATIONS


(a) NK covenants that all of its activities under or pursuant to this Agreement shall comply with all applicable laws, rules and regulations. NK shall be responsible for obtaining all licenses, permits and approvals which are necessary or advisable for the importation and sale of the Products in the Territory and for the performance of its duties hereunder; PROVIDED, HOWEVER, that NK shall not be responsible for obtaining, and shall not obtain, an Import Approval (I.E., Yunyu Shonin) for any Product. For each Product for which the approval of the MHW is required (I.E., for which a Shonin is necessary), Aspect shall obtain a Foreign Manufacturing Approval (I.E., Gaikoku Seizo Shonin) and NK shall be Aspect's In-Country Caretaker (I.E., Kokunai Kanrinin, as this term is defined in 19-2 of Japan's Pharmaceutical Affairs Law). NK shall develop and submit to the MHW (in Aspect's name and on Aspect's behalf) the application dossier which is necessary for Aspect to obtain each such Foreign Manufacturing Approval. NK shall use its best efforts to ensure that each such application is submitted to and approved by the MHW at the earliest possible time. Except as specifically provided for in Article 4 hereof, NK shall be responsible for all costs and expenses related to the development, submission and approval of all such applications.


(b) NK shall pay all of its expense, including without limitation all travel, lodging and entertainment expenses, incurred in connection with its activities hereunder, except as otherwise provided herein and/or agreed between the Parties. Aspect shall not reimburse NK for any of those expenses.


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


(c) NK shall translate, at its own expense, all user and technical manuals and advertising and marketing information with respect to the Products into Japanese and provide Aspect with copies of all such materials. NK and Aspect shall jointly own all copyrights in all translations. Aspect shall not be liable for translation errors made by NK or at NK's direction or for the non-conformance of such translations with the laws and regulations in force from time to time in the Territory. NK shall indemnify and hold Aspect harmless to the extent that a third party brings claims against Aspect based on such errors or non-conformance.


(d) NK shall provide Aspect with written quarterly reports, which shall include business trends, production planning of NK's primary customers, market forecasts and other reports requested by Aspect.


(e) NK shall promptly give Aspect written notice of the MHW Approval Date.


(f) NK confirms [**]. NK confirms [**]. Until the [**] anniversary of the termination or expiration of this Agreement, as the case may be, [**]; PROVIDED, HOWEVER, that: [**] at any time, [**] at any time, [**] after the expiration or termination of this Agreement [**]. Specifically, it will [**, subject to the terms and conditions of this Section 3(f).


(g) NK agrees that any publicity or advertising which shall be released by it in which Aspect is identified in connection with the Products shall be in accordance with the terms of this Agreement and with any information or data which Aspect has furnished in connection with this Agreement. Copies of all such publicity and advertising shall be forwarded promptly to Aspect.


(h) NK may not customize, modify or have customized or modified any Product unless it obtains the prior written consent of Aspect, which consent may be withheld in the sole discretion of Aspect. Any unauthorized customizing or modification of any Product by NK or any third party shall relieve Aspect from any obligation it would otherwise have had with respect to such Product under the warranties described in Exhibit C attached hereto and made a part hereof.


(i) NK shall engage in the market development activities described in its proposal dated July 1997 (a copy of which is attached as Exhibit D hereto), including without limitation participation in trade shows, advertising, sponsorship of BIS lectures, establishing dedicated marketing/sales/and clinical specialists, supporting BIS clinical investigators in Japan, and paying for the translation of sales materials and users manu ...