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Aspect Medical Systems, Inc. (ASPM)

4/25/2006 Proxy Information

Product Development and Distribution Agreement with Boston Scientific Corporation

On May 23, 2005, we entered into the Product Development and Distribution Agreement, which we refer to as the 2005 product development and distribution agreement, with Boston Scientific Corporation, which owned approximately 27% of our outstanding common stock at March 1, 2006. The 2005 product development and distribution agreement provides for the development of products that incorporate EEG analysis technology for the diagnosis of neurological, psychiatric or pain disorders or screening or monitoring patient response to treatment options for such disorders, which are referred to in the 2005 product development and distribution agreement as BIS-Screen Products. In accordance with the 2005 product development and distribution agreement, Boston Scientific Corporation has agreed to provide $25,000,000 in development funding in five annual installments of $5,000,000. The first installment of the development payments was made in May 2005. Up to $2,500,000 of the development payments may be accelerated for a subsequent payment year with the approval of Boston Scientific Corporation. In no event will Boston Scientific Corporation be obligated to make total payments that exceed $25,000,000. In exchange, we agreed to appoint Boston Scientific Corporation as our exclusive, worldwide distributor of any BIS-Screen Products in the Boston Scientific Field, as defined in the 2005 product development and distribution agreement. The Boston Scientific Field does not include our products designed for the early detection, diagnosis and management of patients with dementia caused by a neurological condition such as Alzheimer’s disease, or with cognitive impairment that is likely a precursor to Alzheimer’s disease, which products are referred to in the 2005 product development and distribution agreement as the Aspect Field. Additionally, we have the option to manufacture BIS-Screen products developed pursuant to the agreement for Boston Scientific Corporation, or any other distributor. We must exercise this option no later than six months prior to the reasonably estimated product completion date. In the event that we do not exercise this manufacturing option, Boston Scientific Corporation has the right to exercise the manufacturing option.

In accordance with the 2005 product development and distribution agreement, we are required to use at least 80% of the Boston Scientific Corporation development payments to fund our fully-burdened product development costs in any disease state in which the development of BIS-Screen Products has been approved by the joint steering committee for our alliance with Boston Scientific Corporation. Additionally, we may use up to 20% of the Boston Scientific Corporation development payments to fund our fully-burdened product development costs relating to the development of BIS-Screen Products in the Aspect Field or in any disease states in which the development of BIS-Screen Products have not been approved by the steering committee. In addition, we and Boston Scientific Corporation will share in any profits from the sale of BIS-Screen Products for a period of twelve years after first product launch.

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.