<PAGE>

                                                                   EXHIBIT 10.10


                                   For Purchases and Leases Direct From Supplier
                                              Subject to Competitive Bid Process






                     CAPITAL EQUIPMENT SUPPLIER AGREEMENT

                                    between

                                 NOVATION, LLC

                                      and

                              NATUS MEDICAL INC.

Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [***]. A complete version of this exhibit
has been filed separately with the Securities and Exchange Commission.
<PAGE>

                               TABLE OF CONTENTS
                               -----------------

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>                                                                         <C>


1.   Introduction.........................................................    1
     a.   Purchasing and Leasing Opportunities for Members................    1
     b.   Supplier........................................................    1
     c.   Bid.............................................................    1

2.   Contract Award.......................................................    1
     a.   Letter of Award ................................................    1
     b.   Optional Purchasing or Leasing Arrangements.....................    2
     c.   Market Competitive Terms........................................    2
     d.   Changes in Award Prices.........................................    2
     e.   Notification of Changes in Pricing Terms........................    2
     f.   Underutilized Businesses........................................    2

3.   Term and Termination.................................................    3
     a.   Term............................................................    3
     b.   Termination by Novation.........................................    3
     c.   Termination by Supplier.........................................    3

4.   Product Supply.......................................................    3
     a.   Delivery and Invoicing..........................................    3
     b.   Supplies........................................................    4
     c.   Product Fill Rates; Confirmation and Delivery Times.............    4
     d.   Manuals/Schematics/Inspection Procedures........................    4
     e.   Bundled Terms...................................................    4
     f.   Discontinuation of Products; Changes in Packaging...............    4
     g.   Replacement or New Products.....................................    5
     h.   New Technology..................................................    5
     i.   Product Acceptance..............................................    5
     j.   Site Preparation................................................    6
     k.   Installation/Assembly...........................................    6
     l.   Installation/Environmental Issues...............................    6
     m.   Member Services.................................................    6
     n.   Training........................................................    6
     o.   Product Deletion................................................    7
     p.   Return of Products..............................................    7
     q.   Failure to Supply...............................................    7

5.   Product Quality......................................................    7
     a.   Free From Defects...............................................    7
     b.   Warranty Service................................................    8
     c.   Replacement Parts...............................................    8
     d.   Service Response Time...........................................    8
     e.   Uptime Guarantee................................................    8
</TABLE>


                                       -i-
<PAGE>


<TABLE>
 <S>                                                                        <C>
     f.   Preventive Maintenance..........................................    9
     g.   Upgrades........................................................    9
     h.   Customization Software..........................................    9
     i.   Operational Software............................................    9
     j.   Diagnostic Software.............................................   10
     k.   Data Conversion/Interfaces......................................   10
     l.   Service Contract Cancellation...................................   10
     m.   Product Compliance..............................................   10
     n.   Patent Infringement.............................................   11
     o.   Product Condition...............................................   11
     p.   Recall of Products..............................................   11
     q.   Shelf Life......................................................   11

6.   Century Compliance...................................................   11
     a.   Definitions.....................................................   11
     b.   Representations.................................................   12
     c.   Remedies........................................................   12
     d.   Noncompliance Notice............................................   12
     e.   Survival........................................................   13

7.   Reports and Other Information Requirements...........................   13
     a.   Report Content..................................................   13
     b.   Report Format and Delivery......................................   13
     c.   Other Information Requirements..................................   14

8.   Obligations of Novation..............................................   14
     a.   Information to Members..........................................   14
     b.   Marketing Services..............................................   14

9.   Marketing Fees.......................................................   14
     a.   Calculation.....................................................   14
     b.   Payment.........................................................   15

10.  Administrative Damages...............................................   15

11.  Nonpayment or Insolvency of a Member.................................   16

12.  Insurance............................................................   16
     a.   Policy Requirements.............................................   16
     b.   Self-Insurance..................................................   16
     c.   Amendments, Notices and Endorsements............................   17

13.  Compliance with Law and Government Program Participation.............   17
     a.   Compliance With Law.............................................   17
     b.   Government Program Participation................................   17

14.  Release and Indemnity................................................   17

15.  Books and Records; Facilities Inspections............................   18

16.  Use of Names, Etc....................................................   18
</TABLE>
                                          ii
<PAGE>

<TABLE>
<S>                                                                          <C>
17.  Confidential Information.............................................   18
     a.   Nondisclosure...................................................   18
     b.   Definition......................................................   19

18.  Miscellaneous........................................................   19
     a.   Choice of Law...................................................   19
     b.   Not Responsible.................................................   19
     c.   Third Party Beneficiaries.......................................   19
     d.   Notices.........................................................   19
     e.   No Assignment...................................................   20
     f.   Severability....................................................   20
     g.   Entire Agreement................................................   20
</TABLE>

                                      -iii-
<PAGE>

                            INDEX  OF DEFINED TERMS
                            -----------------------

<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
          <S>                                                              <C>
          Agreed Percentage...............................................   15
          Award Letter....................................................    1
          Award Prices....................................................    1
          Bid.............................................................    1
          Calendar-Related................................................   12
          Century Noncompliance...........................................   12
          Clients.........................................................    1
          Confidential Information........................................   19
          Effective Date..................................................    3
          Equipment.......................................................    1
          FDA.............................................................   17
          Federal health care program.....................................   17
          Forms...........................................................    1
          Gregorian calendar..............................................   12
          Guidebook.......................................................   14
          Indemnitees.....................................................   17
          Legal Requirements..............................................   17
          Marketing Fees..................................................   14
          Members.........................................................    1
          Non-Price Specifications........................................    1
          Novation........................................................    1
          Novation Database...............................................    1
          Products........................................................    1
          Reporting Month.................................................   13
          Services........................................................    1
          Special Conditions..............................................    1
          Supplier...................................................title page
          Supplies........................................................    1
          Systems.........................................................   12
          Term............................................................    3
          timely..........................................................   13
          Warranty Period.................................................    7
</TABLE>

                                     -iv-
<PAGE>

                                 NOVATION, LLC

                     CAPITAL EQUIPMENT SUPPLIER AGREEMENT

1. Introduction.

     a. Purchasing and Leasing Opportunities for Members. Novation, LLC
        ------------------------------------------------
("Novation") is engaged in providing purchasing and leasing 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 the equipment ("Equipment"),
        --------
and/or parts and supplies (collectively, "Supplies"), and/or the provider of
services ("Services"), all as listed on Exhibit A. (The Equipment, Supplies
and/or Services are collectively referred to herein as "Products").

     c. Bid. Supplier has responded to Novation's Invitation to Bid by
        ---
submitting its written offer ("Bid") to Novation consisting of this Agreement,
the listing of Products and the pricing, financing and/or lease terms therefor
(collectively, "Award Prices") attached hereto as Exhibit A, the other
specifications attached hereto as Exhibit B ("Non-Price Specifications"), the
Special Conditions attached hereto as Exhibit C ("Special Conditions"), and any
other materials required to be submitted in accordance with the Bid
Instructions.

2.      Contract Award.

     a. Letter of Award. By executing and delivering the Letter of Award
        ---------------
attached hereto as Exhibit D ("Award Letter") to Supplier, Novation will have
accepted the Bid, and Novation and Supplier therefore agree that Supplier will
make the Products available for purchase and/or lease by the Members at the
Award Prices in accordance with the terms of this Agreement and the forms of
purchase, lease, license, financing or servicing agreements, if any, attached
hereto as Exhibit E (collectively, "Forms"); provided, however, that Novation's
award of this Agreement to Supplier will not constitute a commitment by any
person to purchase or lease any of the Products. No obligations of Novation set
forth in this Agreement will be valid or enforceable against Novation unless and
until the Award Letter has been duly executed by Novation and attached as an
exhibit hereto. Supplier acknowledges that, in making its award to Supplier,
Novation has materially relied on all representations, warranties and agreements
made
<PAGE>

by Supplier as part of the Bid and that all such representations, warranties and
agreements will survive acceptance of the Bid.

     b. Optional Purchasing or Leasing Arrangements. Novation and Supplier agree
        -------------------------------------------
that each Member will have the option of purchasing or leasing the Products
under the terms of this Agreement and the Forms or under the terms of any other
purchasing, pricing, leasing, licensing or financing 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, pricing, leasing, licensing or
financing 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.

     c. Market Competitive Terms. Supplier agrees that the prices, quality,
        ------------------------
value and technology of all Products purchased or leased 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 or lease 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 Award
Prices or increase any discount applicable to the purchase or lease 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 Award Prices. Unless otherwise expressly agreed in any
        -----------------------
exhibit to this Agreement, the Award 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 Award
Prices or increase any discount applicable to the purchase or lease of the
Products at any time.

     e. Notification of Changes in Pricing Terms. Supplier will provide not less
        ----------------------------------------
than [***] prior written notice to Novation and not less than [***] 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

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                       -2-
<PAGE>

(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 the Award Letter ("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 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 ninety (90) days'
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 one hundred eighty (180) days thereafter.

     c. Termination by Supplier. Supplier may terminate this Agreement at any
        -----------------------
time for any reason whatsoever by delivering not less than one hundred eighty
(180) days' prior written notice thereof to Novation.

4.      Product Supply.

     a. Delivery and Invoicing. 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. Exhibit F attached
hereto sets forth a delivery schedule



                                       -3-
<PAGE>

constituting the minimum delivery lead times for the Equipment from the date of
a Member's purchase order. The actual delivery lead times may be increased by
the ordering Member based on its needs. Exhibit G attached hereto sets forth the
amount of liquidated damages payable by Supplier to the Member in the event of
Supplier's failure for any reason to comply with the agreed delivery schedule.
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 or leasing commitment on any Member as a
condition to the Member's purchase or lease of any Products pursuant to this
Agreement.

     b. Supplies. Supplies necessary for the operation of the Equipment will be
        --------
made available by Supplier to the Members at the prices or discounts listed on
Exhibit A. All warranties and guarantees will remain in force regardless of the
source from which the Member purchases Supplies.

     c. Product Fill Rates; Confirmation and Delivery Times. Supplier agrees to
        ---------------------------------------------------
provide product fill rates to the Members for Supplies of greater than ninety-
five percent (95%), calculated as line item orders. Supplier will provide
confirmation of orders Supplies from the 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
Supplies to the Members within ten (10) business days after placement of the
order.

     d. Manuals/Schematics/Inspection Procedures. Supplier will provide to the
        -----------------------------------------
Members two complete and unabridged sets of operator service manuals for each
model of Equipment purchased or leased, including all subassemblies and
peripheral devices (including those manufactured by others). The technical
service manuals furnished to the Members will be at least as complete and
comprehensive as those furnished to Supplier's technical service personnel and
at a minimum must include theory of operation (including software), electrical
and mechanical schematics, preventive maintenance procedure and schedules,
replacement parts lists, and troubleshooting documentation. All updates to such
manuals will be provided to the applicable Members within two (2) weeks after
the release of such updates.

     e. Bundled Terms. Supplier agrees to give Novation prior written notice of
        -------------
any offer Supplier makes to any Member to sell or lease 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.

     f. 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 substantial change in
packaging for any Products at least ninety (90) days prior to the proposed
implementation of the discontinuation or change. Under no circumstances will
any Product discontinuation or substantial packaging changes be permitted
under this Agreement without Novation's agreement to the discontinuation or
substantial change. In the event Supplier implements such proposed
discontinuation or substantial change without Novation's agreement


                                       -4-
<PAGE>

thereto in writing, in addition to any other rights and remedies Novation or the
Members may have by reason of such discontinuation or substantial change, (i)
Novation will have the right to terminate any or all of the Product(s) subject
to such discontinuation or substantial change or to terminate this Agreement in
its entirety immediately upon becoming aware of the discontinuation or
substantial change or any time thereafter by delivering written notice thereof
to Supplier: (ii) the Members may purchase or lease products equivalent to the
discontinued or substantially changed Products from other sources and Supplier
will be liable to the Members for all reasonable costs in excess of the Award
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 substantial change plus any other damages
which they may incur.

     g. 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 sixty
(60) days 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.

     h. New Technology. During the Term, Supplier will disclose to Novation new
        --------------
technology developed by Supplier which provides the same function as the
Equipment or any component thereof. Upon introduction of the new technology by
Supplier, each Member will be provided the option to exchange any Equipment or
component purchased, leased or ordered hereunder for the new technology upon the
terms and conditions set forth in Exhibit H attached hereto.

     i. Product Acceptance. A period of sixty (60) days from the first
        ------------------
operational use will be given to the Members for the purpose of acceptance
testing of the Equipment. Upon completion of the installation, the Equipment
will meet or exceed the specifications set out in Exhibit B and the
specifications set forth in Supplier's published brochures. Acceptance testing
will include, but is not limited to, safety testing, calibration, performance
testing, documentation inspection and testing for adherence to specifications.
Formal acceptance and invoice payment will occur only after the results of the
foregoing tests have been verified by the Member with at least thirty (30) days
of operational use, but not later than sixty (60) days from the first
operational use, at the Member's discretion. A complete set of all test
documentation and procedures will be made available to the Member prior to final
acceptance. As a condition for the acceptance of the Equipment, the Equipment
must have achieved uptime of at least 98% over the thirty (30) day period
immediately preceding acceptance, with uptime calculated in accordance with
Subsection 5.e below. If the Equipment fails the acceptance testing, the Member
may, at its discretion, return the Equipment to the Supplier for a complete cash
refund/exchange. If the Equipment passes the acceptance testing, the Warranty
Period for the Equipment will begin sixty (60) days from the first operational
use.


                                      -5-
<PAGE>

     j. Site Preparation. A general description of the pre-installation and site
        ----------------
preparation services (including, but not limited to, drawings, specifications or
other materials necessary for site preparation) provided by Supplier together
with a general description of site preparation costs for which the Members will
be responsible is set forth in Exhibit I attached hereto. Supplier will provide
the Members with a more specific description of pre-installation planning and
site preparation services and site preparation costs at the time the Member
requests a quote from Supplier.

     k. Installation/Assembly. A general description of the installation and/or
        ---------------------
assembly requirements for the Equipment is set forth in Exhibit J attached
hereto, including an estimate of any additional costs involved. At the time the
Member requests a quote from Supplier, Supplier will provide a more detailed
description of the installation and/or assembly requirements, including, but not
limited to, electrical, mechanical (HVAC), structural (including seismic where
applicable), and plumbing requirements. Based on past installations and a review
of the Member's site, Supplier will provide an estimate of the cost that the
Member will bear for each component of the installation and/or assembly,
regardless if supplied by Supplier or the Member. The Member will specify
whether Supplier or the Member will be responsible for the installation and/or
assembly. If Supplier is specified as having responsibility for the installation
and/or assembly, Supplier will include estimated dates and times for
installation and/or assembly as part of the agreed delivery schedule referred to
in Subsection 4.a above. If the Member will be taking the responsibility for
installation and/or assembly, Supplier will contact the individual selected by
the Member that will be responsible for the installation and/or assembly of the
Equipment.

     l. Installation/Environmental Issues. Supplier will bear all costs
        ---------------------------------
associated with the removal of packaging, crating and other material associated
with the installation of the Equipment. Supplier, at the discretion of the
Member, will remove the retired equipment at Supplier's expense, including any
expenses associated with the proper disposal of hazardous or other wastes.

     m. 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 and, if applicable, service calls by service
representatives, to satisfy the needs of the Member. Supplier will promptly
respond to Members' reasonable requests for verification of purchase or leasing
history.

     n. Training. A description and schedule of the technical service training
        --------
offered by Supplier is attached hereto as Exhibit K. Supplier will, unless
otherwise provided in any exhibit hereto, at no cost for tuition, travel,
lodging or out of pocket expenses to the Member, allow a minimum of two (2) of
the Member's staff members to attend Supplier's technical service training
school. Supplier will also allow the Member to reproduce all training material
for use by the Member's personnel at the Member's facility. Failure to provide
the opportunity for at least two (2) of the Member's staff to complete
Supplier's technical service training school prior to the expiration of the
Warranty Period will cause the warranty to be extended until the end of a thirty
(30) day period after the training has been completed. In addition, Supplier
will provide

                                      -6-
<PAGE>


inservice training for both operators and technical service staff of the Member
at the Member's site at Supplier's own cost, unless otherwise provided in any
exhibit hereto, for the Equipment as requested by any Member prior to the
completion of the sixty (60) day acceptance period referenced in Subsection 4.i
above and will continue such inservice training for the period required by the
Member to complete training for the required personnel. Supplier will provide
follow-up inservice training as determined by the Member for the life of the
Equipment at no additional charge regardless of where the training is performed.


     o. 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 sixty (60)
days' prior written notice to Supplier.

     p. 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 received damaged, or is defective or
nonconforming: (3) the Product is one which a product manufacturer or supplier
specifically authorizes for return: or (4) the Product is recalled. In addition,
any Member, in addition to and not in limitation of any other rights and
remedies, will have the right to return Supplies to Supplier under any of the
following circumstances: (1) the Supplies are no longer needed by the Member due
to deletion from its standard supply list or changes in usage patterns, provided
the Supplies are returned at least six (6) months prior to their expiration date
and are in re-saleable condition: or (2) the Supplies are received outdated or
are otherwise unusable. Supplier agrees to accept the return of Products under
each of the foregoing circumstances without charge and for full credit.


     q. 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 or lease products equivalent to the Products from other sources and
Supplier will be liable to the Member for all reasonable costs in excess of the
Award 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, including, but not
        -----------------
limited to, all attachments, subsystems and components thereof, against defects
in material, workmanship, design and manufacturing for the warranty period set
forth in Exhibit L attached hereto ("Warranty Period"). 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 during the
Warranty Period, Supplier will, at the


                                      -7-
<PAGE>

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 even after the Warranty Period has ended,
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. Warranty Service. All warranty repairs will have [***] coverage at no
        ----------------
additional charge where the Member will be allowed to determine whether the
service response may be postponed until the following working day. During the
Warranty Period, in the event the Equipment is inoperable for any reason,
Supplier agrees to provide a loaner of the Equipment of identical (compatible
with the system the Member is using) or superior type to the Member at its
site at no additional charge during the term of this Agreement. The loaner
equipment will be available and delivered to the Member's site within [***] of
request at no charge to Member.

     c. Replacement Parts. Replacement parts supplied by Supplier at any time,
        -----------------
whether during or after the Warranty Period or the term of any service
agreement, will be newly manufactured parts or assemblies, unless the Member
agrees otherwise. In the case where new parts are not available, the service
representative may install rebuilt parts in order to make the unit operational.
Within thirty (30) days after the repair, the rebuilt parts must be replaced
with newly manufactured parts. The Member may retain parts removed from the
Equipment and all parts that are not eligible for or are not returned by the
Member for Supplier credit will remain the property of the Member. In all cases
where Supplier is permitted to charge the Member for parts, Supplier will only
replace and charge for parts necessary to bring the Equipment to operating
condition. Supplier will warrant replacement parts and labor associated with
such replacement parts for one (1) year, or the period of time set forth in
Supplier's standard warranty, whichever is longer.

     d. Service Response Time. Supplier guarantees a response time of one (1)
        ---------------------
hour by phone and [***] on-site for all warranty, contract or time and materials
service calls requested by any Member during the life of the Equipment. In the
event Supplier fails to comply with the provisions of this paragraph, Supplier
will pay to Member liquidated damages in the amount set forth in Exhibit G.

     e. Uptime Guarantee. For any calendar quarter during the Warranty Period
        ----------------
and the term of any service agreement, Supplier guarantees that the Equipment
will maintain a level of uptime equal to or better than [***]. Uptime will be
calculated using the following formula:

       uptime = (T - TNF) X 100
                 --------------
                             T

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

                                      -8-
<PAGE>

where `T" is the total number of hours that the Equipment is typically used per
quarter (determined by multiplying the number of hours per day that the
Equipment is typically used by the number of days per week that the Equipment is
typically used, and multiplying the result by 13 weeks in a quarter), and "TNF"
is the number of hours the Equipment or any component of the Equipment is not
functional during the quarter (the hours calculated will only include those
hours that the Equipment would typically be in use). If any portion of the total
functionality of the Equipment is unavailable for operational use, the Equipment
will be considered down. Downtime scheduled for preventive maintenance or any
other scheduled event, including those for the convenience of Member, will not
be included in the downtime calculation.

     Member will calculate uptime after each calendar quarter. If uptime is less
than [***], any lost revenue suffered by the Member for downtime beyond the
allowable [***] during the quarter will be paid by Supplier to the Member. Lost
revenue will be calculated by multiplying the number of procedures that would
have been performed or the number of times the Equipment would have been used
during any downtime times the Member's current charge rate per procedure or per
use. The Member will give written notice to Supplier of its failure to meet the
uptime requirement and the amount of lost revenues, and Supplier will pay such
amount to the Member within [***] after receipt of the notice. In addition,
Supplier will extend the Warranty Period or the service agreement without
charge by [***] for every [***] the Equipment or component thereof is not
operational beyond the allowable [***].

     f. Preventive Maintenance. During the Warranty Period, Supplier will
        -----------------------
perform preventive maintenance according to the manufacturer's recommendations
and the policies developed by the Member, at no charge to the Member. Supplier
will supply the Member with a written procedure that will be followed by
Supplier's representative during the preventative maintenance process.
Reasonable additional testing will be performed by Supplier at no charge to the
Member, upon request, to meet the requirements of procedures developed by the
Member. The frequency of preventive maintenance and tests performed will comply
with the manufacturer's recommendations, external codes (state, JCAHO, etc.),
and all internal policies developed by the Member. During the Warranty Period,
Supplier will provide preventive maintenance after hours at no additional charge
if requested by the Member.

     g. Upgrades. A list of optional software available from Supplier, including
        --------
costs for the software both during the Warranty Period and after the Warranty
Period, is attached hereto as Exhibit M. Each Member will be given all upgrades
to acquired software, including any software components of Equipment, from the
date of issuance of the purchase order through the expiration of the Warranty
Period, including penalty extensions, and thereafter during the term of any
service agreement, at no charge to the Member. Arrangements will be made to
install all software upgrades within two (2) weeks after the release of any
software upgrade.

     h. Customization Software. Pricing relating to the customization of
        ----------------------
software and additional charges that the Member will incur for annual
maintenance, training, documentation, backup, etc. is attached hereto as Exhibit
N.

     i. Operational Software. The form of software licensure agreements
        --------------------
available to the Members is attached hereto as Exhibit O. All software necessary
to operate the Equipment,

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.  Omitted portions
have been filed separately with the Commission.

                                      -9-
<PAGE>

unless otherwise provided in any exhibit hereto, will be licensed to the Member
upon acceptance of the Equipment pursuant to Subsection 4.i above. All new
operational software will be provided to the Member, unless otherwise provided
in Exhibit N, at no charge. throughout the Warranty Period and thereafter
throughout the term of any service agreement. New software will be installed
within (2) weeks after release.

     j. Diagnostic Software. All software necessary to troubleshoot and maintain
        -------------------
the Equipment will be supplied to the Member at no charge. The diagnostic
software will be identical to that used by Supplier's service representative.
Training for the use of diagnostic software will be included in the service
training provided by Supplier, and Supplier's telephone support will also
include assistance in diagnostic software operation. Training in the use of
diagnostic software and diagnostic software upgrades will be offered by Supplier
at no additional charge, unless otherwise provided in Exhibit N, to the Member
for the life of the Equipment within the Member's facility. Software updates
will be provided to the Member within two (2) weeks after the update release.

     k. Data Conversion/Interfaces. In the event that the Equipment requires
        --------------------------
conversion of data at the time of installation or assembly, Supplier agrees to
perform this conversion either manually or electronically at no charge to the
Member. A schedule of Supplier's pricing for performing data conversion
thereafter during the Warranty Period and after the warranty has expired is
included in Exhibit N attached hereto. The data conversion will include all data
requested by the Member in writing. Supplier will inform Member, in writing, of
the length of time required to perform the conversion prior to the issuance of
the purchase order and will perform the conversion within such time. Supplier
will also include all interfaces requested by the Member at no charge, unless
otherwise provided in Exhibit N, to connect the Equipment to other information
systems owned by the Member and its affiliates.

     l. Service Contract Cancellation. The Member reserves the right to cancel
        -----------------------------
any service agreement, without cause or penalty, with thirty (30) days prior
written notification to Supplier. Payment reimbursement will be prorated and
Supplier will separate costs for preventive maintenance and repair for the
purpose of allocating expenses. Supplier will be required to leave the Equipment
in certifiable condition as deemed by the Member. Supplier will not cancel the
contract without a minimum of sixty (60) days prior written notification to the
Member. Cancellation of the contract will not affect Supplier's response time
and quality of support nor result in other penalties if the Member elects to use
Supplier for time and materials repairs, perform the work in-house or obtain
service from others.

     m. 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, leased 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 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




                                     -10-
<PAGE>

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.

     n. Patent Infringement. Supplier represents and warrants that the sale,
        -------------------
lease 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, lease 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.

     o. 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. A description
of and pricing for demonstrators or refurbished Products is attached hereto as
Exhibit P.

     p. 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.

     q. Shelf Life. Sterile Products and other Supplies 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 [***] interval between (i) the date of delivery
by Supplier of the Supplies to the Member and (ii) the expiration date of the
Supplies.

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

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.  Omitted portions
have been filed separately with the Commission.

                                     -11-
<PAGE>

     Agreement, or any component part thereof, and any services 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 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 inter-faces, electronic interfaces, and date
     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,

                                     -12-
<PAGE>

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, 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 twenty (20) days 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 or leased and the amount of net
     sales and/or net lease revenues for each Product on a line item basis, and
     the sum of net sales and/or net lease revenues and the associated Marketing
     Fees for all Products purchased or leased 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. leasing, licensing, financing or pricing arrangements that may
     exist between the Member and Supplier;

        (3) the sum of the net sales and/or net lease revenues and the
     associated Marketing Fees for all Products sold or leased to all Members
     during the Reporting Month; and

        (4) such additional information as Novation may reasonably request
     from time to time.

     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:

                                     -13-
<PAGE>

     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 Q attached hereto. Supplier further agrees that, 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 issuing the Award Letter, Novation, in
        ----------------------
conjunction with the Clients, will deliver a summary of the purchasing and/or
leasing 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 or lease of the Products.

     b. Marketing Services. Novation, in conjunction with the Clients, will
        ------------------
market the purchasing and/or leasing 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 and net lease revenues 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, leasing, licensing,
financing 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,
lease or distribution of the Products, and will include, but not be limited to,
charges for the sale or lease of products, the provision of installation,
training and maintenance services, and the provision of


                                     -14-
<PAGE>

any other services listed on Exhibit A. The "Agreed Percentage" will be defined
in the Award Letter.

     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 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

Please send a copy of the check to:

     Shirlene Inmon
     Analyst-Women's Health
     Novation
     125 John Carpenter Freeway
     Irving, Tx 75062-2324

10.  Administrative Damages. Novation and Supplier [***] that [***] would [***]
     if Supplier [***] of [***] in [***] as required in [***] above, [***] to
     [***] as required in [***] above, or [***] as required in [***] above, in
     each case within the time and manner required by this Agreement. Novation
     and Supplier [***] that the [***] by [***] by reason of [***] to Supplier
     is [***] and they therefore [***] that the [***] of [***] a reasonable
     [***] and were [***] according to the [***]:

[***]

[***] in accordance with this Section is [***] to any [***] or the [***] may
have by reason of [***] or [***] within the time and manner required by this
Agreement.

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.  Omitted portions
have been filed separately with the Commission.

                                      -15-
<PAGE>

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 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 or leased 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 [***] 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 in its Bid
and thereafter within [***] 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 in its Bid and thereafter within
fifteen (15) days after Novation's request: (1) the self-insurance policy; (2)
the name of

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.  Omitted portions
have been filed separately with the Commission.

                                      -16-
<PAGE>

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 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. (S)
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 OR IN THE BID; (2) THE CONDITION OF ANY PRODUCT, INCLUDING A DEFECT IN
MATERIAL, WORKMANSHIP, DESIGN OR MANUFACTURING; OR (3) THE WARNINGS AND

                                      -17-
<PAGE>

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 INDEMNITIES; 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 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 award or
the 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;



                                      -18-
<PAGE>

          (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.

     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 wilt 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:

                                      -19-
<PAGE>

If to Supplier:

     To the address set forth by Supplier in the Bid

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
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
and/or lease order and/or other applicable Form will constitute the entire
agreement between each Member and Supplier. In the event of any inconsistency
between this Agreement and a Member's purchase and/or lease order and/or other
applicable Form, the terms of this Agreement will control, except that the
Member's purchase and/or lease order and/or other applicable Form 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

                                      -20-
<PAGE>

Exhibit C   Special Conditions

Exhibit D   Award Letter

Exhibit E   Forms of Purchase, Lease, License, Financing and/or Service
            Agreements

Exhibit F   Minimum Delivery Schedule

Exhibit G   Liquidated Damages

Exhibit H   Terms and Conditions for New Technology Exchange

Exhibit I   Site Preparation

Exhibit J   Installation/Assembly

Exhibit K   Description and Schedule of Technical Service Training

Exhibit L   Warranty

Exhibit M   Optional Software

Exhibit N   Pricing Relating to Customization of Software, Operational or
            Diagnostic Software and/or Data Conversion/Interfaces

Exhibit O   Form of Software License Agreement

Exhibit P   Other Information Requirements

Exhibit Q   Agreement Exception Form


SUPPLIER:         Natus Medical Inc.
                  ------------------

ADDRESS:          1501 Industrial Road
                  --------------------
                  San Carlos, CA 94070
                  --------------------

SIGNATURE:        /s/ June M. Fallon
                  --------------------------

TITLE:            Vice President-Field Operations       Date: 6-25-99
                  -------------------------------             -------

                                      -21-
<PAGE>

                                   EXHIBIT A

                  PRODUCT AND SERVICE DESCRIPTION AND PRICING


Newborn Hearing Screening Equipment
Types:
     Automated Auditory Brainstem Response Equipment
     Automated Otocoustic Emission Equipment
     Combination ABR and OAE Equipment

Desired abilities:
        Screening decibels of 70 dB & 40 dB
        Able to descend in 10dB steps and 20dB steps
        Able to construct customized protocols

Product typically regularly updated to best, most appropriate model of computer
                                   available.
            Current product specifications and descriptions attached.
<PAGE>

ALGO                                                                    NATUS(R)
Newborn Hearing Screener
Model 2e Color

                                 1999 Novation
                               Hardware Pricing

<TABLE>
<CAPTION>
                                           Negotiated
                                            Novation       Committed      Super Committed
       Product           List Price       Member Price      Pricing*     Pricing** (1,2,3)
-------------------------------------------------------------------------------------------
<S>                      <C>              <C>             <C>            <C>
ALGO(TM) Model 2e Color
  Newborn Hearing        $17,500.00           [***]          [***]            [***]
     Screener

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

ALGO(TM) Portable
Newborn Hearing          $10,900.00           [***]          [***]            [***]
     Screener
---------------------------------------------------------------------------------------
C-Stat End Tidal
 Breath Analyzer         $19,500.00           [***]          [***]            [***]
------------------------------------------------------------------------------------------
</TABLE>

*Committed Pricing:        1. Hospital commits to screening [***] of all births
                              with ALGO(TM) products

**Super Committed Pricing: 1. Hospital commits to screening [***] of all births
                              with ALGO(TM) products
                           2. One (1) Natus hardware device purchased for every
                              [***] births
                           3. Minimum of [***] Natus hardware devices purchased


__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

                                 1999 Novation
                         Combination Hardware Pricing*

<TABLE>
<CAPTION>
                                                                               Special Combination
               Natus                                        List Price               Pricing
--------------------------------------------------------------------------------------------------------
<S>                                                         <C>                <C>
     ALGO(TM) Model 2e Color Newborn Hearing Screener       $17,500.00
                         and                                   and                    [***]
          CO-Stat(TM) End Tidal Breath Analyzer             $19,500.00

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

     ALGO(TM) Portable Newborn Hearing Screener             $10,900.00
                         and                                   and                    [***]
        CO-Stat(TM) End Tidal Breath Analyzer               $19,500.00

--------------------------------------------------------------------------------------------------------
</TABLE>

* Applies to product on single purchase order or products purchased within 3
month time frame.

Note: CO-Stat as available. May be upgraded configuration.

__________
[***] Confidential treatment requested puruant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

                                1999 Novation
                               ALGO-COLORADO PAK
                          Quantity Discount Schedule

Screens per year     Number of       Volume       Cost per    Cost per
  per facility         Boxes        Discount        Box        Screen
----------------------------------------------------------------------

1-252                1-7           list price     $351.00       $9.75

253-540              8-15             [***]        [***]       [***]

541-1,692            16-47            [***]        [***]       [***]

1,693-3,168          48-88            [***]        [***]       [***]

3,169-3,456          89-96            [***]        [***]       [***]

3,457-10,000         97-278           [***]        [***]       [***]

10,001-16,000        279-445          [***]        [***]       [***]

16,001-25,000        446-695          [***]        [***]       [***]

25,001-35,000        696-973          [***]        [***]       [***]

35,001-100,000       974-2,778        [***]        [***]       [***]

100,001-125,000      2,779-3,472      [***]        [***]       [***]

125,001-150,000      3,473-4,167      [***]        [***]       [***]

150,001+             4,168+           [***]        [***]       [***]

Note:
1 box contains 36 screens

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.  Omitted portions
have been filed separately with the Commission.
<PAGE>

                                 1999 Novation
                           CO-Stat Nasal Sampler Pak
                          Quantity Discount Schedule

                     Number of       Volume       Cost per    Cost per
 Tests per year        Boxes        Discount        Box        Screen
----------------------------------------------------------------------

1-252                1-7           list price     $504.00      $14.00

253-540              8-15             [***]        [***]       [***]

541-1,692            16-47            [***]        [***]       [***]

1,693-3,168          48-88            [***]        [***]       [***]

3,169-3,456          89-96            [***]        [***]       [***]

3,457-10,000         97-278           [***]        [***]       [***]

10,001-16,000        279-445          [***]        [***]       [***]

16,001-25,000        446-695          [***]        [***]       [***]

25,001-35,000        696-973          [***]        [***]       [***]

35,001-100,000       974-2,778        [***]        [***]       [***]

100,001-125,000      2,779-3,472      [***]        [***]       [***]

125,001-150,000      3,473-4,167      [***]        [***]       [***]

150,001+             4,168+           [***]        [***]       [***]

Note: 1 box contains 36 screens

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission.  Omitted portions
have been filed separately with the Commission.
<PAGE>

                                 1999 Novation
                     MiniMuffs Neonatal Noise Attentuators
                          Quantity Discount Schedule

        Pairs        Number          Volume       Cost per    Cost per
      Per Year      of Boxes        Discount        Box         Pair
----------------------------------------------------------------------

1-252                1-7           list price     $180.00      $5.00

253-540              8-15             [***]        [***]       [***]

541-1,692            16-47            [***]        [***]       [***]

1,693-3,168          48-88            [***]        [***]       [***]

3,169-3,456          89-96            [***]        [***]       [***]

3,457-10,000         97-278           [***]        [***]       [***]

10,001-16,000        279-445          [***]        [***]       [***]

16,001-25,000        446-695          [***]        [***]       [***]

25,001-35,000        696-973          [***]        [***]       [***]

35,001-100,000       974-2,778        [***]        [***]       [***]

100,001-125,000      2,779-3,472      [***]        [***]       [***]

125,001-150,000      3,473-4,167      [***]        [***]       [***]

150,001+             4,168+           [***]        [***]       [***]

Note: 1 box contains 36 pairs

__________
[***] Confidential treatment requested puruant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

Newborn
Hearing
Screener

[GRAPHIC OMITTED]


AABR(TM) AUTOMATED AUDITORY BRAINSTEM RESPONSE TECHNOLOGY: SPECIFICALLY
CONCEIVED FOR NEWBORN HEARING SCREENING

     Natus patented AABR technology is based upon the "Gold Standard" auditory
brainstem response (ABR) test, used for diagnostic assessment of hearing
impairment for over twenty years. AABR technology results from a fundamental
consideration of the challenges of newborn hearing screening.

     . Accuracy: sensitivity and specificity are essential.
     . Objectivity: pass/refer results, no professional interpretation.
     . Ease of use: fast, cost-effective screening.

     Natus' AABR technology screens the entire hearing pathway, from the ear to
the brainstem - the most complete approach available to detect hearing
impairment.

     The ALGO screener is the only device which has been designed and clinically
tested specifically to screen newborns for hearing impairment, and has been
clinically proven to be both highly sensitive and specific.

EASY TO USE AND COST-EFFECTIVE

     The ALGO Model 2e Color screener incorporates a graphical user interface
with provides simple, step-by-step instructions. There are three basic steps:
preparation, screening and recording of results. Its also features an on-line
video tutorial program and help menus which can be easily accessed at any time.
Both ears can be screened simultaneously at the touch of a button, providing
final results in minutes.

CONVENIENT DATA MANAGEMENT

     The ALGO(TM) Model 2e Color newborn hearing screener automatically stores
screening results and an expanded set of relevant patient information. The
information stored by the screener can be customized to ensure key parameters
are retained for each newborn screened. The expanded patient information
contains the standard high risk indicators that are recommended by the American
Academy of Pediatrics.

     The ALGO DataBook(R) NHS Data Tracking Software included with the screener,
automatically retrieves the results of every screen, allowing for convenient
tracking of patient outcomes.

NATUS: THE INDUSTRY LEADER

     Clinicians have relied on ALGO screeners for over a decade and they are
currently used in successful newborn hearing screening programs in over 22
countries. ALGO screeners are accurate, objective and easy to use - the most
clinically appropriate, cost effective tools for newborn hearing screening.
<PAGE>

       SPECIFICATIONS: ALGO(TM) MODEL 2E COLOR NEWBORN HEARING SCREENER

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

Product:          ALGO(TM) Model 2e Color Newborn Hearing Screener

Warranty:         1 year parts and labor.

Manufacturer:     Natus Medical Incorporated
                  1501 Industrial Road
                  San Carlos, CA 94070-4111
                  (650) 802-0400
                  (800) 255-3901
                  Fax: (650) 802-0401
                  Customer_Service@natusmed.com

Newborn Hearing Screener includes:

                  Detachable screening module with laptop computer
                  Natus screening station (cart with built-in storage)
                  Screening station cover
                  Fully integrated ALGO DataBook(R) NHS data tracking system
                  software
                  Label printer
                  Patient cable assembly (PCA) and pre-amplifier cable
                  Laptop lock
                  Acoustic transducer assembly cable
                  Acoustic check kit
                  Starter kit of supplies
                  Power cord
                  User Manual

Supporting Clinical Education Supplies and Services included with the
instrument:
(These services are typically available, but may be updated)
                  Clinical Education inservice training
                  Newborn Hearing Screening Program Book
                  Inservice packet
                  Press kit materials
                  Inservice training video
                  Parent education video

The ALGO is the only screener that uses patented AABR(TM) Automated Auditory
Brainstem Response technology to evaluate the ABR response with a clinically
proven algorithm. The theoretical sensitivity of the instrument is 99.96%.

                                   Page 1 of 3
<PAGE>

         SPECIFICATIONS: ALGO(TM) MODEL 2E COLOR NEWBORN HEARING SCREENER

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

Instruments Requirements
------------------------

 .    Instrument must provide Pass/Refer results which are objective, easily
     understood and do not require interpretation.

 .    Results must be available immediately after screen, before time of patient
     discharge.

 .    Results must be automatically stored in an integrated data management
     system.

 .    Instrument must provide screen of complete hearing pathway from ear to
     brainstem.

 .    Instrument must be simple to use, requiring minimal training to reach
     proficiency.

 .    Instrument must be non-invasive, requiring nothing be inserted into the
     ear.

Technical Specifications
------------------------

Instrument shall have:

 .    AABR Automated Auditory Brainstem Response technology, for automatic
     waveform template matching and recognition at 35 dB nHL. Optional template
     matching at 40 and 70 dB nHL.

 .    Preamp and Amplifier: Gain in 105 dB; the Output Voltage is + 12 VDC with a
     CMRR of more than 80 dB; Notch Filer is -12 dB @ 60 Hz, -12 dB @ 50 Hz;
     Bandpass Filter between the ranges of 0.05-1.5 kHz, 6 dB/octave high pass,
     24 dB/octave low pass; Input Noise is 0.8 V rms @ 0.05-1.5 kHz.

 .    Dual Artifact Rejection System: Myogenic noise rejection filter of 2 (mu)V
     rms @ 275 Hz and Ambient noise rejection filter of 50 dB SPL @ 2 kHz. The
     instrument must also display a visual warning if either the myogenic or
     ambient noise rejection system has been employed.

 .    On screen display, and automatic printout of objective Pass/Refer result.

 .    On screen display of appropriate impedance measurements.

 .    Ability to screen ears simultaneously at 35 dB nHL.

 .    Stimulator with click duration of 100 (mu)sec, intensity of 35 dB nHL, with
     alternating polarity. The acoustic frequency spectrum must be 700-5000 hz
     (+ 10dB). Optional screening feature with click intensity of 40 and 70 dB
     nHL.

 .    Sweep rate of 37 pulses/sec. For the right ear and 34 pulses/sec for the
     left ear (simultaneous test). Sweep count of 15,000 maximum.

 .    Line operated power supply.

 .    On screen user instructions.

                                  Page 2 of 3
<PAGE>

       SPECIFICATIONS: ALGO(TM) MODEL 2E COLOR NEWBORN HEARING SCREENER

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

Technical Specifications (continued)
------------------------------------

 .    Patient demographic filed for automatic transfer of entered information
     into data tracking system. Fields to include high risk indicators for
     hearing impairment.

 .    Data management system output in standard ASCII format via floppy diskette.

 .    On screen "HELP" instructions.

 .    Built-in printer which automatically prints the screening results onto
     labels.

 .    Compatible with patented, single-use Ear Couplers(R) ear phones for ambient
     noise attenuation.

 .    Compatible with single-use Jelly Button(R) sensors for maximum conductivity
     and minimum neonatal skin irritation.

 .    Display a visual warning to the user if the electrode impedance drifts
     above acceptable range during a test.

 .    Screening station cart for mobility and convenient supply storage.

 .    Extended Warranty shall be available upon expiration of the Warranty
     period.

Physical Characteristics
------------------------

 .    Dimensions:

     Detachable screening module:    Laptop Open:   13.5" high x 13.5" wide x
                                                    16.5" deep
                                     Laptop Closed: 5.5" high x 13.5" wide x
                                                    16.5" deep

                                     Weight: 21 pounds (9.55 kg).

     Screening station:              34.5" high x 18" wide x 18" deep

                                     Weight: 40 pounds (18.2 kg)

 .    Certified to comply with UL 544, CSA 601, and EN60601-1-2 (pending)

                                  Page 3 of 3
<PAGE>

[LOGO]                                  NATUS
Newborn Hearing Screener

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

Newborn Hearing Screener

[GRAPHIC OMITTED]


AABR(TM) AUTOMATED AUDITORY BRAINSTEM RESPONSE TECHNOLOGY: SPECIFICALLY
CONCEIVED FOR NEWBORN HEARING SCREENING

     Natus patented AABR technology is based upon the "Gold Standard" auditory
brainstem response (ABR) test, used for diagnostic assessment of hearing
impairment for over twenty years. AABR technology results from fundamental
consideration of the challenges of newborn hearing screening.

     . Accuracy, sensitivity and specificity are essential.

     . Objectivity; pass/refer results, no professional interpretation.

     . Ease of use; fast, cost-effective screening.

     Natus' AABR technology screens the entire hearing pathway, from the ear to
the brainstem - the most complete approach available to detect hearing
impairment.

     The ALGO screener is the only device which has been designed and clinically
tested specifically to screen newborns for hearing impairment, and has been
clinically proven to be both highly sensitive and specific.

IDEALLY PACKAGED FOR A RANGE OF SCREENING SETTINGS

     Weighing less than five pounds, the ALGO Portable screener's compact size
makes it an ideal screening tool where portability is desired.

     Whether the baby is in the newborn nursery, the doctor's office, clinic or
even at home, the battery-operated ALGO Portable screener provides the
flexibility to screen newborns in a variety of settings.

NATUS: THE INDUSTRY LEADER

     Clinicians have relied on ALGO screeners for over a decade, and they are
currently used in successful newborn hearing screening programs in over 22
countries. ALGO screeners are accurate, objective and easy to use - the most
clinically appropriate, cost effective tools for newborn hearing screening.
<PAGE>

          SPECIFICATIONS: ALGO(TM) Portable Newborn Hearing Screener

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

Product:          ALGO(TM) Portable Newborn Hearing Screener

Warranty:         1 year parts and labor.

Manufacturer:     Natus Medical Incorporated
                  1501 Industrial Road
                  San Carlos, CA 94070-4111
                  (650) 802-0400
                  (800) 255-3901
                  Fax: (650) 802-0401
                  Customer_Service@natusmed.com

Newborn Hearing Screener includes:

                  Thermal Paper Printer
                  Battery Pack
                  Battery Charger
                  Patient cable assembly (PCA) and pre-amplifier cable
                  Carrying case
                  Acoustic transducer assembly cable
                  Acoustic check kit
                  Starter kit of supplies
                  User Manual

Supporting Clinical Education Supplies and Services included with the
instrument: (These services are typically available, but may be updated)
                  Clinical Education inservice training
                  Newborn Hearing Screening Program Book
                  Inservice packet
                  Press kit materials
                  Inservice training video
                  Parent education video

The ALGO is the only screener that uses patented AABR(TM) Automated Auditory
Brainstem Response technology to evaluate the ABR response with a clinically
proven algorithm. The theoretical sensitivity of the instrument is 99.96%

Instrument Requirements
-----------------------

 .    Instrument must provide Pass/Refer results which are objective, easily
     understood and do not require interpretation.

 .    Results must be available immediately after screen, before time of patient
     discharge.

 .    Instrument must provide screen of complete hearing pathway from ear to
     brainstem.

 .    Instrument must be simple to use, requiring minimal training to reach
     proficiency.

 .    Instrument must be non-invasive, requiring nothing be inserted into the
     ear.

                                  Page 1 of 3
<PAGE>

          SPECIFICATIONS: ALGO(TM) PORTABLE NEWBORN HEARING SCREENER

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

Technical Specifications
------------------------

Instrument shall have:

 .    AABR Automated Auditory Brainstem Response technology, for automatic
     waveform template matching and recognition at 35 dB nHL.

 .    Preamp and Amplifier: Gain in 105 dB; the Output Voltage is + 12 VDC with a
     CMRR of more than 80 dB; Notch Filer is -12 dB @ 60 Hz, -12 dB @ 50 Hz;
     Bandpass Filter between the ranges of 0.05-1.5 kHz, 6 dB/octave high pass,
     24 dB/octave low pass; Input Noise is 0.8V rms @ 0.05-1.5 kHz.

 .    Dual Artifact Rejection System: Myogenic noise rejection filter of 2 (mu)V
     rms @ 275 Hz and Ambient noise rejection filter of 50 dB SPL @ 2 kHz. The
     instrument must also display a visual warning if either the myogenic or
     ambient noise rejection system has been employed.

 .    Display, and automatic printout, of objective Pass/Refer result: likelihood
     ration (LR) and the number of sweeps (SWP) required for both the left and
     right ear separately.

 .    Display of appropriate impedance measurements.

 .    Ability to screen ears sequentially.

 .    Stimulator with click duration of 100 (mu)sec, intensity of 35 dB nHL, with
     alternating polarity. The acoustic frequency spectrum must be 700-5000 Hz
     (+/- 10 dB).

 .    Sweep rate of 37.3 pulses/sec. Sweep count of 15,000 maximum.

 .    Battery pack used as power supply.

 .    Thermal paper printer which automatically prints the results. Printer
     output includes Pass or Refer, LR, and number of sweeps.

 .    Compatible with patented patient-dedicated disposable Ear Couplers(R) ear
     phones for ambient noise attenuation.

 .    Compatible with Jelly Buttons(R) sensors for maximum conductivity and
     minimum neonatal skin irritation.

 .    Display a visual warning to the user if the electrode impedance drift above
     acceptable range during a test.

 .    Carrying case for mobility of testing.

 .    Extended Warranty shall be available upon expirations of the Warranty
     period.

                                  Page 2 of 3
<PAGE>

          SPECIFICATIONS: ALGO(TM) PORTABLE NEWBORN HEARING SCREENER

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

Physical Characteristics
------------------------

 .    Dimensions (screener):   8.0 x 9.2 x 2.6 inches (H x W x D)
                              20.2 x 23.2 x 6.6 cm

 .    Weight (with battery):   4.25 lbs. (1.93 kg)

                                  Page 3 of 3
<PAGE>

Co-stat(TM)
End Tidal Breath Analyzer

                                                                           NATUS

[GRAPHIC OMMITTED]


Revealing More About Neonatal Jaundice Than Ever Before

IDENTIFYING HEMOLYSIS - A CRITICAL COMPONENT IN THE MANAGEMENT OF NEONATAL
JAUNDICE.

     The CO-Stat end Tidal Breath Analyzer is the only device available for use
in the neonatal nursery to non-invasively detect the presence of hemolysis,
assisting in the rapid identification of those at risk for hyperbilirubinemia or
other hemolytic disease. The ability to accurately identify the presence or
absence of hemolysis provides one of the most clinically significant pieces of
information necessary for the effective management of neonates with jaundice and
hyperbilirubinemia. Early detection of at-risk patients aids in different
diagnosis and more appropriate follow-up, allowing for cost-effective care and
optimal patient outcomes.

BILIRUBIN PRODUCTION - A MORE DIRECT MEASURE OF HEMOLYSIS.

     Neonates are commonly evaluated with a series of laboratory tests to
identify those infants with jaundice caused by hemolytic disease, since they are
at higher risk of bilirubin toxicity and require more aggressive treatment.*
However, due to their lack of sensitivity and specificity, currently available
laboratory tests make the diagnosis of hemolysis, or its exclusion, elusive.*
Because heme degradation yields equimolar concentrations of carbon monoxide (CO)
and bilirubin, end tidal carbon monoxide (ETCO) provides an estimation of the
rate of bilirubin production and a more direct measure of hemolytic rate.*
<PAGE>

                                   EXHIBIT B

                           NON-PRICE SPECIFICATIONS

Please include in this Exhibit information on what assistance your company will
offer our hospitals in the development, implementation and maintenance of their
universal infant hearing screening programs.


                                 See attached


Term of Contract -- February 1, 2000 through January 31, 2003, with two optional
one-year extensions.

Novation marketing fee -- [***]

For "Super Committed" participation level, an additional [***] fee will be
added for the hardware sales.

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

CLINICAL EDUCATION              NATUS

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

SUCCESSFUL SCREENING PROGRAMS REQUIRE NOT ONLY ADVANCE TECHNOLOGY, BUT
COMPREHENSIVE TRAINING AND SUPPORT.

     More than just a developer of the most advanced medical equipment, Natus is
committed to supporting every aspect of a newborn hearing screening program.
Highly qualified clinical educators provide every customer with comprehensive,
hands-on training. Our customers receive educational tools designed for a
diverse screening staff, from neonatologists to volunteers, and support
materials for program follow-up.

     With every ALGOTM Newborn Hearing Screener, you receive the best equipment
available, as well as comprehensive training materials, including educational
videos and handbooks with examples of successful ALGO screening programs
nationwide.

     The ALGO screener's standardized technology combined with the expertise of
our clinical educators allows you to focus on patient care. Natus is the only
company with the capacity an experience required to implement universal newborn
screening at any level, in hospital or state-based programs.

     Helping you meet the standard of care in your hospital community, and
state. That's Natus.

NATUS MEDICAL CLINICAL EDUCATION INCLUDES:

 .    On-Site Inservice training

 .    Newborn Hearing Screening Program Handbook

 .    Inservice and Parent Educational Videos

 .    Clinical References

 .    Ongoing Customer and Technical Support

 .    Ongoing Program Support


[GRAPHIC OMITTED]

Natus Medical Inc.
1501 Industrial Road
San Carlos, CA  94070-4111
650-802-0400
800-255-3901
Fax: 650-802-0401
Customer_Service@natusmed.com
www.natus.com
<PAGE>

                                   EXHIBIT C

                              SPECIAL CONDITIONS




                   This page was intentionally left blank.
<PAGE>



                           [LETTERHEAD OF NOVATION]

                                   EXHIBIT D
                                   ---------

                                 Award Letter



December 15, 1999

Ms. June Fallon
Vice President - Worldwide Sales
Natus Medical Inc.
1501 Industrial Road
San Carlos, CA 94070-4111

Subject: Acceptance of Bid (Supplier Agreement # CE 90270)

Dear Ms. Fallon:

Novation, LLC ("Novation"), acting in its capacity as agent for VHA, UHC, and
HPPI, respectively (and not collectively) and certain of their respective
subsidiaries and affiliates, accepts our sole-sourced proposal for universal
infant hearing screening equipment in response to our Invitation To Bid dated
May 7, 1999, which was signed and dated by you on June 25, 1999. Attached to
this letter is Exhibit Q of CE90270.

The "Agreed Percentage" for the Marketing Fee will be [***] and for the "Super
Committed Hardware" pricing tier the Marketing Fee will be [***].

The Effective Date of this Agreement will be February 1, 2000.

Novation looks forward to a successful implementation of this Agreement.


Sincerely,


/s/ Eldon Petersen

Eldon Petersen
Group Senior Vice President
Novation, LLC

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.

<PAGE>


                                   EXHIBIT E

                 FORMS OF PURCHASE, LEASE, LICENSE, FINANCING
                           AND/OR SERVICE AGREEMENTS

  Financing: Natus agrees to cooperate with Member's request for alternative
  financing which may be offered through third parties upon Natus' review and
                        acceptance of any such program.
<PAGE>

                                   EXHIBIT F

                           MINIMUM DELIVERY SCHEDULE



                         Delivery of Hardware: [***]
                         Delivery of Supplies: [***]

   These terms are part of our standard terms noted on all quotations. Terms
  are also confirmed with the customer via fax and/or phone when the order is
                                   received.

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

                                   EXHIBIT G

                              LIQUIDATED DAMAGES



                              Not applicable-None
<PAGE>

                                   EXHIBIT H

               TERMS AND CONDITIONS FOR NEW TECHNOLOGY EXCHANGE

  As offered and available, upgrades and trade-ins allowances will be offered
to Novation Members at a level at or exceeding best price or discounts offered
to other like customers who purchase at a similar volume or commitment
level.


<PAGE>

                                   EXHIBIT I

                               SITE PREPARATION



                                Not applicable
<PAGE>

                                   EXHIBIT J

                             INSTALLATION/ASSEMBLY



                                Not applicable
<PAGE>

                                   EXHIBIT K

                    SCHEDULE OF TECHNICAL SERVICE TRAINING



                                Not applicable
<PAGE>

                                   EXHIBIT L

                                   WARRANTY


Warranty is valid for one year from the date of purchase.
<PAGE>

================================================================================

WARRANTY - ALGO(TM) NEWBORN HEARING SCREENER

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

Standard Warranty

Natus Medical Inc. warrants to the initial Purchaser that each new "Warranted
Product" purchased hereunder will be free from defects in workmanship and
materials for a specified period of one year ("Warranty Period") from the date
of its initial shipment to Purchaser. "WARRANTED Products" consist solely of (a)
each product which expressly states that the product includes a warranty for a
specified time period (the Warranty Period for that product), and (b) those
other Natus products for which express warranties are given and Warranty Periods
are stated in the user manuals or package inserts for such products. Repair or
replacement of Products under this warranty does not extend the Warranty Period.

Natus' only obligations under this warranty are (1) to repair or replace any
Warranted Product (or part thereof) that Natus reasonably determines to be
covered by this warranty and to be defective in workmanship or materials and (2)
to provide loaner equipment in the circumstances stated below.

To request repair or replacement under this warranty, Purchaser should contact
Natus at 1501 industrial Road, San Carlos, California 94070, 1-800-255-3901 or
650-802-0400. If, on the basis of the information provided by Purchaser, Natus
reasonably believes that the defect is covered by this warranty, Natus will
authorize Purchaser to return the Warranted Product (or part thereof) to Natus.
If the Warranted Product is to be repaired rather than replaced, Natus will
promptly ship a comparable loaner product for use by Purchaser during the period
that the Warranted Product or part is at the Natus facility for service. Natus
shall determine whether to repair or replace products and parts covered by this
warranty and all Products or parts replaced shall become property of Natus. In
the course of warranty service, Natus may, but shall not be required to, make
engineering improvements to the Warranted product or part thereof.

Loaner Policy

Purchaser is responsible for any damage to or loss of any loaner equipment while
it is at Purchaser's location. Purchaser must return loaner equipment within 14
days after receiving the repaired or replaced product or receiving notice from
Natus that the Product returned by Purchaser is not covered by warranty. If
Purchaser does not return loaner equipment within 14 days after the return due
date, then Purchaser agrees to pay Natus reasonable value of the loaner
equipment or a reasonable daily rental fee, whichever Natus selects.

================================================================================
<PAGE>

Shipping Procedures

If Natus reasonably determined that a repair or replacement is covered by the
warranty, Natus shall bear the costs of shipping the loaner Product and 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 suitably packaged to
protect the Product. If Purchaser ships a product to Natus in unsuitable
packaging, any physical damage present in the Product on receipt and inspection
by Natus (and not previously reported) will be presumed to have occurred in
transit and will be the responsibility of Purchaser.

Exclusions

This warranty does not extend to any Warranted Products or parts thereof: that
have been subject to misuse, neglect or accident; that have been damaged by
causes external to the Warranted Product, including by but not limited to
failure of or faulty electrical power; that have been used in violation of
Natus' 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 Natus; or that have been disassembled,
serviced or reassembled by anyone other than Natus, unless authorized prior to
such service by Natus. ALGO(TM) Newborn Hearing Screener calibration is not
covered under standard warranty service.

Natus makes no warranty (a) with respect to ALGO(TM) Newborn Hearing Screeners,
any other disposable products or any other products that are not Warranted
Products, (b) with respect to any products purchased from a person other than
Natus or a Natus-authorized distributor or (c) with respect to any product sold
under a brand name other than Natus.

THIS WARRANTY, TOGETHER WITH ANY OTHER EXPRESS WRITTEN WARRANTY THAT MAY BE
ISSUED BY NATUS, IS THE SOLE AND EXCLUSIVE WARRANTY AS TO NATUS' PRODUCTS,
EXTENDS ONLY TO THE PURCHASER AND IS EXPRESSLY IN LIEU OF ANY OTHER ORAL OR
IMPLIED WARRANTIES INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NATUS SHALL NOT BE LIABLE
FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL LOSS, DAMAGE OR EXPENSE (INCLUDING,
WITHOUT LIMITATION, LOST PROFITS) DIRECTLY ARISING FROM THE SALE, INABILITY TO
SELL, USE OR LOSS OF USE OF ANY PRODUCT.

Extended Warranty

Extended warranties are available to cover the ALGO(TM) Newborn Hearing
Screener. An extended warranty covers all items listed under the standard
warranty agreement above and is valid for one year. The extended warranty also
covers ONE annual calibration. To inquire about pricing, please contact Natus
Technical Service.
<PAGE>

                                    EXHIBIT M

                                OPTIONAL SOFTWARE
                                 (if applicable)




                                 Not applicable
<PAGE>

                                    EXHIBIT N

                               PRICING RELATING TO
                            CUSTOMIZATION OF SOFTWARE
                                 (if applicable)




                                 Not applicable
<PAGE>

                                    EXHIBIT O

                       FORM OF SOFTWARE LICENSE AGREEMENT
                                 (if applicable)




                                  See attached

           Other third party commercial licenses available on request.
                             (i.e. NT, McAfee, etc.)
<PAGE>

NATUS SOFTWARE LICENSE AGREEMENT

IMPORTANT - READ CAREFULLY: This Natus Software License Agreement (NSLA) is a
legal agreement between you (either an individual or a single entity) and Natus
Medical Incorporated (Natus) for the software included with the ALGO(TM) Newborn
Hearing Screening System (ALGO System) and any software options or upgrades
supplied therewith, which includes computer software and associated media,
printed materials, and "online" or electronic documentation ("SOFTWARE
PRODUCT"). By installing or otherwise using the SOFTWARE PRODUCT, you agree to
be bound by the terms of this NSLA. If you do not agree to the terms of this
NSLA, do not install or use the SOFTWARE PRODUCT; you may, however, return it
and the rest of the ALGO System to the company or authorized distributor from
which you purchased it for a full refund by following the procedure for
authorized product returns set forth in the materials supplied with the product.

SOFTWARE PRODUCT LICENSE

The SOFTWARE PRODUCT is protected by copyright laws and international copyright
treasures, as well as other intellectual property laws and treaties. The
SOFTWARE PRODUCT is part of a medical device and may not be modified in any way.
The SOFTWARE PRODUCT is licensed, not sold.

1.     GRANT OF LICENSE.  This NSLA grants you the following rights:

1.1    License. You may install and use one copy of the SOFTWARE PRODUCT on the
ALGO System with which it was supplied.

1.2    Limitations on Modification, Reverse Engineering, Decompilation, And
Disassembly. You may not nor may you allow or encourage any third party to,
modify, reverse engineer, decompile, or disassemble the SOFTWARE PRODUCT, except
and only to the extent that such activity is expressly permitted by applicable
law notwithstanding this limitation.

1.3    Separation of Components. The SOFTWARE PRODUCT is licensed as a single
product. Its component parts may not be separated for use on more than one
computer.

1.4    Rental. You may not rent, lease, or lend the SOFTWARE PRODUCT.

1.5    Software Transfer. You may not sell, lend, lease, or otherwise transfer
the SOFTWARE PRODUCT to any third party without Natus' prior written consent
which Natus may withhold at its sole discretion.

1.6    Termination. Without prejudice to any other rights, Natus may terminate
this NSLA if you fail to comply with the terms and conditions of this NSLA. In
such event, you may not use the SOFTWARE PRODUCT or any of its component parts
in any way.

2.     COPYRIGHT. All title and copyrights in and to the SOFTWARE PRODUCT
(including but not limited to any images, photographs, animations, video, audio,
music, text, and "applets" incorporated into the SOFTWARE PRODUCT), the
accompanying printed materials, and any copies of the SOFTWARE PRODUCT are owned
by Natus or its suppliers. The SOFTWARE PRODUCT is protected by copyright laws
and international treaty provisions. Therefore, you must treat the SOFTWARE
PRODUCT like any other copyrighted material except that you may install the
SOFTWARE PRODUCT on the ALGO System with which it was supplied. You may not copy
the printed materials accompanying the SOFTWARE PRODUCT.

3.     U.S. GOVERNMENT RESTRICTED RIGHTS. If you are acquiring the SOFTWARE
PRODUCT on behalf of any part of the United States Government, the following
provisions apply. The SOFTWARE PRODUCT and accompanying documentation are deemed
to be "commercial
<PAGE>

computer software" and "commercial computer software documentation" respectively
pursuant to DFAR Section 227 7202 and FAR 12.212(b), as applicable. Any use,
modification, reproduction, release, performance, display, or disclosure of the
SOFTWARE PRODUCT and/or the accompanying documentation by the U.S. Government or
any of its agencies shall be governed solely by the terms of this NSLA and shall
be prohibited except to the extent expressly permitted by the terms of this
NSLA. Any technical data provided that is not covered by the above provisions is
deemed to be "technical data-commercial items" pursuant to DFAR Section
227.7015(a). Any use, modification, reproduction, release, performance, display,
or disclosure of such technical data shall be governed by the terms of DFAR
Section 227.7015(b).

4.     MISCELLANEOUS

4.1    Governing Law. This NSLA is governed by the laws of the State of
California (without regard to its conflict of law rules).

4.2    Severability. In the event that any court of competent jurisdiction
declares any portion of this NSLA invalid or otherwise unenforceable, the
remainder of this NSLA shall remain in force and shall be unaffected by such
invalidity or unenforceability.

4.3    Entire Agreement. This NSLA constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations, and understandings, oral or written.

5.     LIMITED WARRANTY

5.1    Warranty. The SOFTWARE PRODUCT is warranted as part of the ALGO System.
The warranty for the product is set forth in the documentation for the product.

5.2    Disclaimer. NATUS DOES NOT WARRANT THAT THE SOFTWARE PRODUCT WILL BE
ERROR FREE OR THAT ITS USE WILL BE UNINTERRUPTED. THE WARRANTY SPECIFIED IN
PARAGRAPH 5.1 IS THE SOLE WARRANTY APPLICABLE TO THE SOFTWARE PRODUCT AND NATUS
HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
AND NONINFRINGEMENT.

6.     INDEMNIFICATION OF NATUS. You hereby indemnify Natus, its officers,
directors, and employees, and agree to defend and hold them harmless from and
against any and all fines, liability, damage, loss, or expense (including
reasonable attorneys fees) arising from any third party claim, demand, action,
or proceeding based upon (a) any operation or failure of the ALGO System caused
by any improper maintenance of, modification of, or tampering with the SOFTWARE
PRODUCT or any other portion of the ALGO System by you or any third party, (b)
any operation or failure of the ALGO System caused by your failure to install
any updated or corrected software provided to you directly or indirectly by
Natus, or incurred in the settlement or avoidance of any such claim, provided,
however, that Natus shall give prompt notice to you of the assertion of any such
claims and provided further that you shall have the right to select counsel and
participate (at your own expense) in the defense thereof.

7.     CONFLICT WITH REGULATORY REQUIREMENTS. In the event of any conflict
between the terms of this NSLA and any law, or federal or state medical device
regulations, such law or regulations shall prevail and the conflicting
provisions of this NSLA shall be deemed inoperative.
<PAGE>

                                   EXHIBIT P

                        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.   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.

     b.   Third Party Service Providers. Documents will 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 patty 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.

     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.
     -------------

     a.   Verification. Upon proper receipt of any Document, the receiving party
          ------------
will promptly and properly transmit a functional acknowledgment in return,
unless otherwise specified in the Guidebook.

     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
<PAGE>

the party initially transmitting such Document has properly received in return
an Acceptance Document (as specified in the Guidebook).

     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.


     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.

     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")

Company       Van Name        Address                    Telephone
-------       --------        -------                    ---------
                              Number
                              ------

Novation     AT&T             12976 Hollander Drive      800/624-5672
                              Bridgeton, MO 63044

                                      -2-
<PAGE>

            NOVATION ELECTRONIC COMMUNICATION REQUIREMENTS SCHEDULE

This form is being completed by: June Fallon        Date: 11-17-99
                                 -----------------        -------------
                                   (Your Name)

Your Company Name: Natus Medical Inc.          Your Title: VP - Field Operations
                   --------------------------              ---------------------

Phone: (800) 255-3901     E-mail: jfallon@natus.com    Fax: (650) 802-6620
       -----------------          -------------------       -------------------

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
NOVATION REQUIREMENT                                    NOVATION EXPECTATION                         REQUIREMENT (MM/DD/YY)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                                         <C>
Requirement 1:   New Contract Launch               This only applies to new contracts          Your Novation product manager will
                                                   unless your company never provided          address this as new contacts are
                 See Section 4.2                   this information.  If needed, your          negotiated
                                                   Novation product manager will contact
                                                   you.
                                                   Due at Contract Signing
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 2:   Ongoing Contract Maintenance      Novation must receive contract item         Date: 11/17/99
                                                   and pricing updates as prices change,
                 See Section 4.3                   and when items are added or deleted         Will send information via (check one)
                                                   form contract.                                  (   )    EDI 832
                                                   Due 60 days prior to the effective              ( X )    Novation Interim
                                                   date of the line item add/delete/change                  File Format
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 3A   Summary Sales Reporting           Current paper reports must be                Date: 11/17/99
                                                   converted to electronic reporting
                 See Section 4.4.2                 immediately.  This will not be needed        You will report sales by
                                                   once your company can report line item          (  ) LIC or (  ) HIN (x) Zip code
                                                   sales.  See Requirement 3B.                  One or the other MUST BE USED
                                                   Due at the first contract reporting
                                                   period.
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 3B:  Detailed Line Item Sales          Instead of monthly summary reports,          Date: 11/17/99
                 Reporting                         detailed line item reports will be           You will report sales by
                                                   sent electronically.  Plan for a             ( ) LIC Number or ( ) HIN Zip Code
                 See Section 4.4.3                 90-day testing period before
                                                   stopping Requirement 3A.                     (x) Interim file or (  )EDI 867
                                                   Begin testing within 120 days of             If using interim file, proposed
                                                   contract effective date                      date for converting to EDI
                                                                                                Date: unknown
                                                                                                One of the other MUST BE USED
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 4:   Membership                        You must be able to receive and              Date: 11/17/99
                                                   process periodic membership updates
                 See Section 4.5                   Due immediately                                e-mail
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 5:   Commitment Forms                  Details which members have and have          Date: 11/17/99
                                                   not signed your contract enrollment
                                                   forms, if needed.
                 See section 4.6                   Due immediately, if applicable                 e-mail
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 6:   Sales Representative Contract     Able to update Sales Representative          Date: 11/17/99
                 Information                       information from a Business Partner
                                                   Repository System download.                    e-mail
                 See Section 4.7                   Due within 30 days of contract signing.
-----------------------------------------------------------------------------------------------------------------------------------
Requirement 7:   Product Cross-referencing         Able to update the items on contract         Date: 11/17/99
                                                   with competitive cross-reference
                                                   information.
                 See Section 4.8                   Due within 90 days of contract signing         e-mail
-----------------------------------------------------------------------------------------------------------------------------------
Business Partner Repository System (BPRS) Access   Able to connect to Novation BPRS via         Date: 11/17/99
                                                   the VHAseCURE.net(TM).                       How many of our company employees
                 See Section 3.0                   Due within 60 days of contract signing.      need access to your Novation BPRS
                                                                                                site? 5
-----------------------------------------------------------------------------------------------------------------------------------
                                                     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-mailbking@novationco.com
</TABLE>
                                      -3-
<PAGE>

                                   EXHIBIT Q
                           AGREEMENT EXCEPTION FORM

Supplier Name: Natus Medical Inc.
               ------------------

Printed Name:  June Fallon
               -----------

Authorized
Signature:     /s/  W. H. Lawrenson
               ---------------------
               W. H. LAWRENSON, CFO

Title:         Vice President-Field Operations                   Date: 11/23/99
               -------------------------------                         --------

The agreement is hereby amended by the following items:

Page 1. Section 1a. Introduction - Purchasing and Leasing Opportunities for
        Members. End of section.

        -Add "Not withstanding the above, Member will not include any Supplier
         customer that, at the time of placing an order, declares themselves to
         be a member of a different buying group, or who maintains they are not
         a member of Novation. Supplier will keep Novation apprised of apparent
         differences in memberships.

Page 2. Section 2c. Contract Award - Market Competitive Terms. 2nd sentence. -
        After second reference to "supplier" add "to other similar sized Group
        Purchasing Organizations"

Page 2. Section 2c. Contract Award - Market Competitive Terms. 4th sentence.
        -Change sentence to read, "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 (30) business days for Novation's private label Products
         and within (30) business days for all other Products, advise Novation
         in writing of and parties will mutually agree that all adjustments will
         be made."
        -Add "The parties shall exercise good faith efforts to reach such
         agreement."

Page 2. Section 2e. Contract Award - Notification of Changes of Pricing and
        Terms. 1st sentence.
        -Change [***]
        -Delete "not less than [***] to [***].
        -Change "change" to "increase"

Page 2. Section 2e. Contract Award - Notification of Changes of Pricing and
        Terms. 2nd sentence.
        -Delete sentence.

Page 3. Section 2f. Contract Award - Underutilized Businesses. 2nd sentence.
        -After 2nd reference to "Novation" add "commercially reasonable"
        -After the word "programs" add "of which Member informs Novation in
         writing"

Page 3. Section 2f. Contract Award - Underutilized Businesses. End of section.
        -Add to end of section. "Information will be supplied to Novation as is
         routinely available from Supplier."

Page 3. Section 3b. Terms and Termination - Termination by Novation. Subsection
        (1).

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>


         -After "Agreement" add "after being given 30 days prior written notice
          of breach and opportunity to cure, except for a breach of either
          Section 9 or Section 13, for which there shall be no cure period."

Page 3. Section 3b. Term and Termination - Termination by Novation. Last
sentence.
         -The number "one hundred eighty (180)" is changed to "thirty (30)".

Page 3. Section 3c. Termination by Supplier.
         -Add to end of sentence "and may terminate immediately if Novation
          is in breach of Section 13."

Page 3. Section 4a. Product Supply - Delivery and Invoicing. 1st sentence.
         -Change "destination" to "FOB origin".

Page 3. Section 4a. Product Supply - Delivery and Invoicing 2nd sentence.
         -Change "absorb" to "add".

Page 4. Section 4a. Product Supply - Delivery and Invoicing. 4th sentence.
         -After the word "needs" add "and when mutually agreed to at the time
          of order."

Page 4. Section 4a. Product Supply - Delivery and Invoicing. Last sentence.
         -After last reference to "Agreement" add "unless otherwise agreed to
          by Member."

Page 4. Section 4b. Product Supply - Supplies. Second sentence.
         -After the "All" add "reasonable".
         -After the word "Supplies" add "as long as all Product recommendations
          and Directions for use are in full compliance."

Page 4. Section 4c. Product Supply - Product Fill Rates; Confirmation and
Delivery Times. 2nd sentence.
         -After the word "via" add "either hard copy or by"
         -Change "two (2)" to "five (5)"
         -Delete all words after the 2nd reference to the word "within"
         -After the 2nd reference to the word "within" add "specified and
          usual delivery terms."

Page 4. Section 4d. Product Supply - Manuals/Schematics/Inspection Procedures.
2nd sentence.
         -After the word "manuals" add "for user maintained items in accordance
          with Supplier's Product warranty and guidelines"

Page 4. Section 4d. Product Supply - Manuals/Schematics/Inspection Procedures.
Last sentence.
         -Change "two (2) to "four (4)"

Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes is
Packaging. 1st sentence.
         -After "unilateral right" add "unless implemented on a national basis
          to all customers"

Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 2nd sentence.
         -Change "ninety (90)" to "sixty (60)"

Page 4. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 3rd sentence.
         -After "Novation's agreement" add "which agreement will not be
          unreasonably withheld,"

Page 5. Section 4f. Product Supply - Discontinuation of Products; Changes in
Packaging. 4th sentence Part (ii).
         -Add "for one hundred twenty days (120) after delivering written
          notice"


Page 5. Section 4f. Product Supply - Discontinuation of Products, Changes in
Packaging. 4th sentence Part (iii).
         -Add "for one hundred twenty days (120) after delivering written
          notice"


<PAGE>


Page 5. Section 4h. Product Supply - New Technology. 1st sentence.
        -After "thereof" and "when such technology is ready for the market."


Page 5. Section 4i. Product Supply - Product Acceptance. Entire Section.
        -Delete in its entirety.
        -Replace with "At the reasonable request of the Member, Supplier will
         furnish Member with an evaluation unit and a box of screening supplies
         at no charge to the Member for the purpose of evaluating the
         performance of the Product for a period not to exceed thirty (30) days.
         Member will promptly return equipment at the end of the evaluation
         period."

Page 6. Section 4j. Product Supply - Site Preparation.
        -Delete in its entirety as section is not applicable.

Page 6. Section 4k. Product Supply - Installation/Assembly.
        -Delete in its entirety as section is not applicable.

Page 6. Section 4l. Product Supply - Installation/Environmental Issues. 1st
sentence.

        -"Supplier" is changed to "Member".

Page 6. Section 4m. Product Supply - Member Services. 2nd sentence.
        -After the word "and" add ", if applicable,".
        -After first reference to "representatives" delete remainder of
         sentence.

Page 6. Section 4n. Product Supply - Training. 1st through 4th sentences.
        -Delete in their entirety.

Pages 6 and 7. Section 4n. Product Supply - Training. 5th sentence.
        -Delete "In addition,".
        -After the word "provide" add "reasonable, mutually agreeable".
        -Change "sixty (60)" to "thirty (30)".
        -Change "for the period required" to "for a reasonable period as
         required"

Page 7. Section 4n. Product Supply - Training. Last sentence.
        -Change "Member" to "Member (original owner)".
        -Change "the life" to "the reasonable life".

        -Change "no additional charge" to "a cost to be determined".
        -Delete "regardless of where training is performed".

Page 7. Section 4o. Product Supply - Product Deletion.
        -Delete entire Section.

Page 7. Section 4p. Product Supply - Return of Products. 1st sentence.
Subsection (1).
        -Delete "ordered or"

Page 7. Section 4p. Product Supply - Return of Products. 1st sentence.
Subsection (2).
        -After "nonconforming" add "through no act or omission of the Member;"

Page 7. Section 4p. Product Supply - Return of Products. 2nd sentence.
        -Delete "under any of the following circumstances: (1) the Supplies are
         no longer needed by the Member due to deletion from its standard supply
         list or changes in use patterns, provided the Supplies are returned
         at least (6) months prior to their expiration date and are in re-
         saleable condition; or (2)"
         -After "Supplier" add "if"

Page 7. Section 4q. Product Supply - Failure to Supply. 1st sentence.


<PAGE>

         -After the word "sources" add ", as may be specified in the Product
          Documentation and labeling from time to time.

Page 7. Section 4q. Product Supply - Failure to Supply. End of section.
         -Add "Nonperformance of any party shall be excused to the extent that
          performance is rendered impossible by strike, fire, earthquake, flood,
          governmental acts or orders or restrictions.
         Limitation of liability in no event shall either party have any
         liability for any indirect, incidental, special or consequential
         damages, however caused and on any theory of liability, whether for
         breach of contract, tort, (including negligence) or otherwise, arising
         out of or related to this agreement including but not limited to loss
         of anticipated profits, even if such party has been advised of the
         possibility of such damages. These limitations shall apply
         notwithstanding any failure of essential purpose of any limited remedy.
         The party claiming such excuse from performance shall have used its
         best efforts to minimize the effects of the force majoure and resume
         performance. If such event occurs unabated for a period of thirty (30)
         days or longer, the party not claiming the excuse may terminate this
         Agreement upon five (5) days written notice to the other party."

Page 8. Section 5a. Product Quality - Free From Defects. 3rd sentence
         -After "will" add "substantially".

Page 8. Section 5a. Product Quality - Free From Defects. 7th sentence.
         -Change "widespread failure" to read "a general recall".
         -Delete "credit or".
         -Delete "at its option".

Page 8. Section 5a. Product Quality - Free From Defects. Last sentence.
         -End of sentence add "elsewhere under this Agreement".

Page 8. Section 5b. Product Quality - Warranty Service. 2nd sentence.
         -After "reason" add "due to the fault of the Supplier".

Page 8. Section 5b. Product Quality - Warranty Service. Last sentence.
         -After the last "Member" add "per Supplier's Technical Services
          Terms and Conditions".

Page 8. Section 5c. Product Quality - Replacement Parts. 1st sentence.
         -After "assembles", add "if available".

Page 8. Section 5c. Product Quality - Replacement Parts. 4th sentence.
         -Delete entire sentence.

Page 8. Section 5c. Product Quality - Replacement Parts. Last sentence.
         -After the word "longer" add "for parts it manufactures, or its
          third party vendor's standard warranty for parts it purchases."

Page 8. Section 5d. Product Quality - Service Response Time. 1st sentence.
         -Delete "guarantees".
         -After "Supplier" add "will make best efforts to provide"
         -Change "one (1)" to [***].
         -After the word "phone" delete [***]
         -Delete "service".
         -After the word "equipment" add "; on-site service is not appropriate
          or not available."

Page 9.  Section 5e. Product Quality - Up Time Guarantee. 2nd paragraph.
Sentences 2, 3, 4.
          -Delete [***].

Page 9.  Section 5e. Product Quality - Up Time Guarantee. 2nd paragraph.
Sentence 5.

          -Delete "In addition,".

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

          -After [***] add "as is supported by continuous auditable written
           records of such up time"

Page 9.  Section 5g. Product Quality-Upgrades. 2nd sentence.
          -Change "given" to "offered".
          -Change "no charge to the Member" to "mutually agreed upon pricing
           offered at time any such upgrade becomes available".

Page 9.  Section 5g. Product Quality-Upgrades. 3rd sentence.
          -Delete in its entirety

Page 9.  Section 5g. Product Quality - Upgrades. End of section.
          -Add "Documentation will be made available to assist users in the
           installation".

Page 9.  Section 5h. Product Quality - Customization Software.
          -Delete in its entirety.

Page 10. Section 5i. Product Quality-Operation Software. 3rd sentence.
          -After "software" add "proprietary to Supplier and commercially
           available".
          -After "Member" add "only to the extent licensed by the Supplier"

Page 10. Section 5i. Product Quality-Operation Software. 2nd sentence
          -After "Member" add only to the extent licensable by Supplier"

Page 10. Section 5i. Product Quality-Operation Software. 3rd sentence
          -After "software" add "and commercially available"

Page 10. Section 5i. Product Quality-Operation Software. Last sentence.
          -Change "be installed within two (2) weeks after release" to "be
           user installable".

Page 10. Section 5j. Product Quality-Diagnostic Software. Entire Section.
          -Delete in its entirety

Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 1st sentence.
          -Change "perform" to "support".
          -After 2nd reference to "conversion", add "by providing information
           normally provided by Supplier which may be useful in the Member's
           data conversion".

Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 2nd sentence.
          -Delete in its entirety.

Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 3rd sentence.
          -After "requested" add "and publicly available as requested".

Page 10. Section 5k. Product Quality-Data Conversion/Interfaces. 5th sentence.
          -Delete in its entirety.

Page 10. Section 51. Service Contract Cancellation.
         -Delete entire section.

Page 10. Section 5(m). Product Compliance.
         -After each reference to Products add "manufactured by or under the
          direction of Supplier".

Page 11. Section 5n. Product Quality - Patent Infringement. 1st sentence.
         -After "warrants" insert "to the best of its knowledge and belief".


__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>

Page 11. Section 5n. Product Quality - Patent Infringement. End of section.
         -Add "Uses Excluded from Patent Indemnity. (i) the use of the Product
          modified or altered in any way except as expressly modified,
          authorized or specified by Supplier; (ii) the combination, operation,
          or use of the Products with any equipment not supplied by Supplier or
          expressly authorized or specified by Supplier; or (iii) any alteration
          of the Products made by any person other than Supplier except as
          expressly authorized or specified by Supplier.".

Page 11. Section 5p. Product Quality - Recall of Products. 1st sentence.
         -After "Member" replace "any cost" with "actual and reasonable costs".


Page 11. Section 5q. Product Quality-Shelf Life. 2nd sentence.
         -Change [***] to [***].

Page 13. Section 7a. Reports and Other Information Requirements - Report
         Content. Subsection (4).
         -After "Novation" add "and Supplier".
         -Change "request" to "agree upon".

Page 14. Section 7c. Reports and Other Information Requirements-Other
         Information Requirements. End of section.
         -Add "Electronic commerce will be provided when available, in
          accordance with industry guidelines".

Page 14. Section 8b. Obligations of Novation. Marketing Services. End of
         section.
         -Add " Novation will support Supplier access to neonatology and
         pediatric physician meetings."

Page 14. Section 9a. Marketing Fees-Calculation. 1st sentence.
         -After "net lease revenues" and ", including [***] and [***],".

Page 15. Section 9b. Marketing Fees-Payment.
         -Delete [***].
         -Add "[***] will pay [***] on [***], as determined in [***], for the
          [***] by the [***]."

Page 15. Section 9b. Marketing Fee - Payment. Third paragraph.
         -After "check" add "and monthly report"

Page 16. Section 10. Administrative Damages.
         -Delete [***].

Page 16. Section 11. Nonpayment or Insolvency of a Member. First sentence.
         -Delete "prior".

Page 16. Section 12a. Insurance-Policy Requirements. 2nd sentence.
         -Change [***] to [***].
         -Delete [***].

Page 16. Section 12a. Insurance-Policy Requirements. 3rd sentence.
         -Change [***] to [***].

Page 17. Section 14. Release and Indemnity. 1st sentence.
         -Delete "INCLUDING CLAIMS ASSERTING STRICT LIABILITY,".

__________
[***] Confidential treatment requested pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission. Omitted portions
have been filed separately with the Commission.
<PAGE>


Page 18. Section 14. Release and Indemnity. 2nd sentence.
         -Delete "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 THE INDEMNITIES;"
         -Change "WHERE" to "TO THE EXTENT";
         -Delete "SOLELY".

Page 18. Section 15. Books and Records; Facilities Inspections. 2nd sentence.
         -After "audit by" add "an independent CPA designated by".
         -Delete "representatives".

Page 18. Section 15. Books and Records; Facilities Inspections. 3rd sentence.
         -Delete "subject to Novation's right to conduct special audits whenever
          it deems it to be necessary to carry out the purposes of this
          agreement".

Page 18. Section 15. Books and Records; Facilities Inspections. 4th sentence.
         -After "will" add "reasonably".

Page 18. Section 17a. Nondisclosure. 1st sentence.
         -Change "Supplier agrees that it will:" to "Novation and Supplier agree
          to:"

Page 18. Section 17a. Nondisclosure. Subsection (1).
         -Change "Novation, the Clients, and the Members;" to "the parties;".

Page 18. Section 17a. Nondisclosure. Subsection (2).
         -Delete "Novation" add "the other;".

Page 19. Section 17a. Nondisclosure. Subsection (3).
         -Delete "Novation" add "the other".

Page 19. Section 17a. Nondisclosure. Subsection (4).
         -Change "return to Novation, the Client, or the Member, as the case may
          be, the" to read "both Will destroy or return to the other pertinent".

Page 19. Section 17c. Nondisclosure. Addition of Section.
         -Add "Novation shall instruct the Members to keep confidential
          information related to prices."

Page 20. Section 18e. Miscellaneous - No Assignment. 1st sentence.
         - End of sentence, add "upon prior written notice."

Exhibit P. Other Information Requirements. End of First Paragraph.
         - Add "Electronic commerce transactions will be conducted according to
           industry standards, when available.
         - Remainder of Exhibit P is deleted in its entirety.