STOCK PURCHASE AGREEMENT

Exhibit 2.01

Final

 

STOCK PURCHASE AGREEMENT

by and between

Natus Medical Incorporated

and

Jay A. Jones and Mary J. Jones as Husband and Wife

Dated as of October 16, 2006

 

 

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STOCK PURCHASE AGREEMENT, dated as of October 16, 2006 (this “ Agreement ”), by and between Natus Medical Incorporated, a Delaware corporation (“ Natus ”) and Jay A. Jones and Mary J. Jones as husband and wife, (together, the “ Stockholders ”), who represent the only stockholders of Olympic Medical Corp., a Washington corporation (the “ Company ”).

A. The parties intend that, subject to the terms and conditions hereinafter set forth, Natus will purchase from Stockholders all of the outstanding shares of capital stock of the Company (the “ Transaction ”, and also sometimes referred to herein as the “ Stock Purchase ”).

B. Natus and the Stockholders desire to make certain representations, warranties, covenants and agreements in connection with the Transaction and to prescribe various conditions to the Transaction.

C. Concurrently with the execution of this Agreement and as a material inducement to the willingness of Natus to enter into this Agreement, Jay A. Jones is entering into an employment agreement and a non-competition and non-solicitation agreement with Natus (together, the “ Employment Agreement ”) substantially in the form of Exhibit A hereto, to become effective upon the Closing.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, Natus and Stockholders hereby agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01 Definitions .

(a) For purposes of this Agreement:

“ affiliate ” of a specified person means a person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified person.

“ beneficial owner ”, with respect to any Shares, has the meaning ascribed to such term under Rule 13d-3(a) of the Exchange Act.

“ business day ” means a day (a) other than Saturday or Sunday and (b) on which commercial banks are open for business in Seattle, Washington.

“ Company Balance Sheet ” means the Company’s unaudited balance sheet as of June 30, 2006 included in the Company Financial Statements.

“ Company Financial Statements ” means (A) the Company’s balance sheets dated December 31, 2003, December 31, 2004, December 31, 2005 and June 30, 2006, and (B) the Company’s statements of operations, statements of cash flows and statements of changes in shareholders’ equity for the year ended December 31, 2005 and for the 6-month period ended June 30, 2006, including any notes to the foregoing financial statements.

“ Company IT Systems ” means all IT Systems used in, intended to be used in, or held for use in connection with the business of the Company or any subsidiary.

“ control ” (including the terms “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, as trustee or executor, by contract or credit arrangement or otherwise.

“ Environmental Laws ” means any United States federal, state, local or non United States laws, statutes, ordinances, regulations, rules, codes, orders, other requirements of law and common law relating to (i) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances; (ii) exposure or alleged exposure to Hazardous Substances; (iii) the manufacture, handling, transport, recycling, reclamation, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (iv) pollution, natural resource damages or protection of the environment, health or safety.

“ ERISA Affiliate ” means any trade or business (whether or not incorporated) under common control with the Company or any subsidiary and which, together with the Company or any subsidiary, is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ GAAP ” means generally accepted accounting principles in the United States.

“ Hazardous Substances ” means (i) those substances defined in or regulated under the following United States federal statutes and their state and local counterparts, as each may be amended from time to time, and all regulations thereunder: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated biphenyls, asbestos, mold and radon; and (v) any other contaminant, substance, material or waste regulated by any Governmental Authority pursuant to any Environmental Law.

“ Healthcare Law ” means the following laws or regulations relating to the regulation of the healthcare industry (as such laws are currently enforced or as interpreted at the Closing by existing, publicly available judicial and administrative decisions and regulations): (i) Sections 1877, 1128, 1128A or 1128B of the Social Security Act (the “ SSA ”); (ii) the licensure, certification or registration requirements of healthcare facilities, services or equipment; (iii) any state certificate of need or similar law governing the establishment of healthcare facilities or services or the making of healthcare capital expenditures; (iv) any state law relating to fee-splitting or the corporate practice of medicine; (v) any state physician self-referral prohibition or state anti-kickback law; (vi) any criminal offense relating to the delivery of, or claim for payment for, a healthcare item or service under any federal or state healthcare program; and (vii) any federal or state law relating to the interference with or obstruction of any investigation into any criminal offense.

 

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“ Intellectual Property ” means, collectively, all of the following worldwide legal rights, whether or not filed, perfected, registered or recorded, that may exist under the laws of any jurisdiction to and under all: (i) patents, patent applications, statutory invention registrations, patent rights, including all continuations, continuations-in-part, divisions, reissues, reexaminations or extensions thereof, whether now existing or hereafter filed, issues or acquired, and all inventions, whether or not patentable, (ii) trademarks, service marks, domain names, (including, but not limited to Internet domain names, Internet and World Wide Web URLs, and domain name registrations and pending applications therefore) trade dress, logos, trade names, corporate names, and other identifiers of source or goodwill, including registrations and applications for registration thereof, (iii) rights associated with works of authorship (including audiovisual works) including mask works and copyrights, including copyrights in Software, and registrations and applications for registration thereof, and (iv) rights relating to the protection of trade secrets, know-how, invention rights, and other confidential or proprietary technical, business and other information, including manufacturing and production processes and techniques, research and development information, technology, drawings, specifications, designs, plans, proposals, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans, customer and supplier lists and information, and all rights in any jurisdiction to limit the use or disclosure thereof.

“ IT Systems ” means computer systems, programs, networks, hardware, Software, databases, operating systems, Internet websites, website content and links and equipment used to process, store, maintain and operate data, information and functions.

“ knowledge of the Company ”, or other references to Company’s “knowledge”, mean the actual knowledge of any director or executive officer of the Company and such knowledge that any such individual would obtain after the exercise of reasonable investigation.

“ Licensed Intellectual Property ” means Intellectual Property licensed to the Company or any subsidiary pursuant to the Licenses.

“ Licenses ” means (i) licenses of Intellectual Property or IT Systems by the Company or any subsidiary to any third party, (ii) licenses of Intellectual Property or IT Systems by any third party to the Company or any subsidiary, (iii) agreements between the Company or any subsidiary and any third party relating to the development or use of Intellectual Property or IT Systems, the development or transmission of data, or the use, modification, framing, linking, advertisement, or other practices with respect to Internet web sites, and (iv) consents, settlements, decrees, orders, injunctions, judgments or rulings governing the use, validity or enforceability of Owned Intellectual Property or any other Intellectual Property used in, intended to be used in, or held for use in connection with the business of the Company or any subsidiary.

“ Liens ” means with respect to any property or asset of the Company or any subsidiary, all mortgages, pledges, liens, security interests, conditional and installment sale agreements, encumbrances, charges or other claims of third parties of any kind with respect to such property or asset, including, without limitation, any easement, right of way or other encumbrance to title, or any option, right of first refusal, or right of first offer, but excluding in all cases Permitted Encumbrances.

 

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“ Material Adverse Effect ” means, when used in connection with the Company or any subsidiary, any event, circumstance, change or effect that, individually or in the aggregate with any other events, circumstances, changes and effects, is or is reasonably likely to be or become materially adverse to (i) the business, condition (financial or otherwise), assets, liabilities or results of operations of the Company and the subsidiaries taken as a whole or (ii) the ability of the Company to consummate the Transaction.

“ Material Contract ” means any plan, contract or agreement required to be set forth on Schedule 3.10(a) or Schedule 3.16(a) of the Disclosure Schedule pursuant to Section 3.10(a) or Section 3.16(a) hereof.

“ Owned Intellectual Property ” means Intellectual Property owned by the Company or any subsidiary.

“ Permitted Encumbrances ” means (A) liens for current Taxes and assessments not yet past due, (B) inchoate mechanics’ and materialmen’s liens for construction in progress, (C) workmen’s, repairmen’s, warehousemen’s and carriers’ liens arising in the ordinary course of business of the Company or such subsidiary consistent with past practice, and (D) all matters of record, liens and other imperfections of title and encumbrances that, would not, individually or in the aggregate, have a material adverse effect on the Company’s or any subsidiary’s, as the case may be, ability to occupy and utilize such property.

“ person ” means an individual, corporation, partnership, limited partnership, limited liability company, syndicate, person (including a “person” as defined in Section 13(d)(3) of the Exchange Act), trust, association or entity or government, political subdivision, agency or instrumentality of a government.

“ Software ” means computer software, programs and databases in any form, including Internet web sites, web content and links, all versions, updates, corrections, enhancements, and modifications thereof, and all related documentation.

“ subsidiary ” or “ subsidiaries ” of the Company, Natus or any other person means an affiliate controlled by such person, directly or indirectly, through one or more intermediaries.

“ Taxes ” shall mean any and all taxes, fees, levies, duties, tariffs, imposts and other similar charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or taxing authority, including, without limitation: taxes or other charges on or with respect to income, franchise, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and customers’ duties, tariffs and similar charges.

 

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“ Tax Return ” means any return, report, declaration, estimate, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

(b) The following terms have the meaning set forth in the Sections set forth below:

 

 

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ARTICLE II

THE STOCK PURCHASE

SECTION 2.01 The Transaction .

(a) Subject to the terms and conditions of this Agreement, Stockholders will sell to Natus, and Natus will purchase from Stockholders, 25,000 shares of Common Stock of the Company, par value $1 per share (the “ Shares ”), which Shares represent all of the issued and outstanding shares of capital stock of the Company.

(b) The purchase price for the Shares shall consist of (i) a cash payment at Closing of $16,556,378.12 (less the Escrow Cash), and (ii) additional cash payments, if any, payable to Stockholders as further provided in subsection (c) below.

(c) Natus shall pay to the Stockholders, collectively and in the aggregate, the amounts set forth below as determined by future Cool Cap Revenue in the respective calendar years listed below:

(i) 2007 . For each full dollar of Cool Cap Revenue in 2007 in excess of $500,000, Natus shall pay Stockholders $0.63456, provided that the maximum amount that Natus shall pay Stockholders for Cool Cap Revenue in 2007 shall be $507,648, regardless of the Cool Cap Revenue for such year.

(ii) 2008 . For each full dollar of Cool Cap Revenue in 2008 in excess of $1,000,000, Natus shall pay Stockholders $0.52881, provided that the maximum amount that Natus shall pay Stockholders for Cool Cap Revenue in 2008 shall be $846,080, regardless of the Cool Cap Revenue for such year.

(iii) 2009 . For each full dollar of Cool Cap Revenue in 2009 in excess of $2,000,000, Natus shall pay Stockholders $0.39661, provided that the maximum amount that Natus shall pay Stockholders for Cool Cap Revenue in 2008 shall be $1,269,120, regardless of the Cool Cap Revenue for such year.

Any payment due pursuant to subsection (i) above shall be made on, or at the discretion of Natus before, March 21, 2008, pursuant to subsection (ii) above shall be made on, or at the discretion of Natus before, March 23, 2009, and pursuant to subsection (iii) above shall be made on, or at the discretion of Natus before, March 22, 2010. Such payment(s), if any, shall be made by wire transfer to an account designated in advance by Stockholders, and shall be accompanied by a certificate of the chief financial officer or controller of Natus certifying on behalf of Natus as to the amount of Cool Cap Revenue for the respective year. On at least thirty (30) days’ prior written notice from Stockholders to Natus given within ninety (90) days after Stockholders’ receipt of any such payments, Stockholders shall have a right to audit the books and records of Natus to verify Cool Cap Revenue for the latest calendar year end. The parties intend the

 

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payments (set forth in subsections (i) through (iii) above) to qualify for installment sale reporting under § 453 of the Code. Such payments shall be treated as imputed interest to the extent required by the Code.

If the maximum payment in respect of Cool Cap Revenue is not earned in either of 2007 or 2008, such unearned amount shall not in any way increase the amount of payment in respect of Cool Cap Revenue in any subsequent year. By way of example, if Cool Cap Revenue is $1,000,000 in 2007 and $3,000,000 in 2008, then Natus shall pay Stockholders $317,280 in respect of Cool Cap Revenue in 2007 and $846,080 in respect of Cool Cap Revenue in 2008.

Natus shall use reasonable and good faith business efforts to obtain all governmental approvals for the sale of the Cool Cap Product and thereafter to promote, manufacture, market and sell the Cool Cap Product. In the event that Natus sells to a third party the Cool Cap Product, whether directly or by way of sale of a subsidiary that owns the right to produce and sell the Cool Cap Product, then within thirty days following such sale, Natus shall pay to Stockholders the full amount of any additional cash payments that Stockholders may be eligible to receive under this subsection (c) in respect of sales occurring in years that have not yet been completed as of the date of such sale.

For purposes of this Agreement, “ Cool Cap Revenue ” for any year shall be the amount of revenue recognized by Natus in its audited annual financial statements for the respective fiscal year from the sales of the Cool Cap Product in such year by Natus or any subsidiary of Natus. For purposes of this Agreement, “ Cool Cap Product ” shall mean a device developed by the Company for treating hypoxic ischemic encephalopathy in term newborns, FDA reference number P040025, including any design changes, or new models and improvements effecting either hardware or software, or derivative products that may be developed based solely on the Cool-Cap® or any other intended uses of the Cool-Cap® and its derivative products that may be approved by the FDA in the future. Natus hereby covenants to Stockholders that the revenue set forth in Natus’ audited annual financial statements for 2007, 2008 and 2009 shall be reported in accordance with GAAP consistently applied over the periods presented. Cool Cap revenue for any fiscal year shall also include the amount of revenue from the sale of the Cool Cap Product recognized in such year by any person who has licensed from Natus or one of its subsidiaries the right to sell the Cool Cap Product, and for this purpose the amount of such revenue reported by such licensee to Natus, or one of its subsidiaries, shall be deemed to be the amount of such revenue recognized by such licensee; provided that if the amount of such revenue is subsequently adjusted pursuant to any audit right, correction-of-mistake or other provision of any agreement between Natus, or one of its subsidiaries, and any such licensee, then the amount of revenue as so adjusted shall be deemed to be the amount of revenue recognized by such licensee, and Natus shall pay to Stockholders any additional amount due if such adjustment increases the amount of such revenue and Stockholders shall repay to Natus any amount of overpayment that was made if such adjustment decreases the amount of such revenue.

SECTION 2.02 Closing .

The closing (“ Closing ”) of the Transaction shall take place simultaneously with the execution of this Agreement on October 16, 2006 at the offices of Fenwick & West LLP, 801 California Street, Mountain View, California, or at such other time and place as the parties shall

 

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mutually agree in writing (the date on which the Closing occurs being defined herein as the “ Closing Date ”). At the Closing, Stockholders shall deliver to Natus stock certificates duly endorsed for transfer to Natus representing the Shares, and Natus shall deliver to Stockholders by wire transfer to an account previously designated by Stockholders the sum of $15,056,378.12 and shall deliver by wire transfer to the Escrow Agent, the Escrow Cash, which deliveries shall be in addition to the other documents or items to be delivered in accordance with the covenants and closing conditions contained herein.

SECTION 2.03 Escrow .

On or prior to the Closing, Natus, Stockholders and Wells Fargo Bank, N.A., who shall be appointed as the escrow agent for the Transaction (“ Escrow Agent ”), shall enter into an Escrow Agreement substantially in the form of Exhibit B hereto. On the day of the Closing, Natus shall deposit $1,500,000 (and together with any interest earned thereon, the “ Escrow Cash ”) with the Escrow Agent. Any interest paid on the Escrow Cash shall be treated for tax purposes as owned by Stockholders.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS

As an inducement to Natus to enter into this Agreement, and subject to the disclosures set forth in the disclosure schedule prepared by Stockholders and delivered by Stockholders to Natus prior to the execution and delivery of this Agreement (the “ Disclosure Schedule ”) (each of which disclosures, in order to be effective, shall clearly indicate the Section and, if applicable, the Subsection of this Article III to which it relates (unless and only to the extent the relevance to other representations and warranties is readily apparent from the actual text of the disclosures), and each of which disclosures shall also be deemed to be representations and warranties made by the Stockholders to Natus under this Article III ), Stockholders hereby represents and warrants to Natus that:

SECTION 3.01 Organization and Qualification; Subsidiaries .

(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has the requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted, except where the failure to be so organized, existing or in good standing or to have such power, authority and governmental approvals would not prevent or materially delay consummation of the Transaction and would not have a material effect on the Company. The Company is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so qualified or licensed and in good standing that would not prevent or materially delay consummation of the Transaction and would not have a material effect on the Company.

(b) The Company does not have any subsidiaries and does not directly or indirectly own any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.

 

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SECTION 3.02 Articles of Incorporation and By-laws .

The Company has heretofore made available to Natus a complete and correct copy of the Articles of Incorporation and the By-laws of the Company. Such Articles of Incorporation and By-laws are in full force and effect. The Company is not in violation of any of the provisions of its Articles of Incorporation or By-laws.

SECTION 3.03 Capitalization .

(a) The authorized capital stock of the Company consists solely of 50,000 shares of $1 par value common stock. The Shares are the only issued and outstanding shares of capital stock of the Company and all of the Shares are validly issued, fully paid and nonassessable. There are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or obligating the Company to issue or sell any shares of capital stock of, or other equity interests in, the Company. There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any Shares or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any subsidiary or any other person. The Shares have been issued in compliance with all applicable securities laws and other applicable Laws. Stockholders are the record and beneficial owner of the Shares, free and clear of any charge, claim, community property interest, condition, equitable interest, Lien, option, pledge, security interest, right of first refusal or restriction of any kind, including any restriction on use, voting or transfer (any of the foregoing being an “ Encumbrance ”), and upon consummation of the Transaction in accordance with the terms hereof Natus will acquire title to the Shares free of any Encumbrance (other than any Encumbrance that may have been independently created by Natus).

SECTION 3.04 Authority Relative to This Agreement .

No corporate proceedings on the part of the Company are necessary for Stockholders’ execution of this Agreement or consummation of the Transaction. This Agreement has been duly and validly executed and delivered by the Stockholders and, assuming the due authorization, execution and delivery by Natus, constitutes the legal, valid and binding obligation of Stockholders, enforceable against Stockholders in accordance with its terms.

SECTION 3.05 No Conflict; Required Filings and Consents .

(a) The execution and delivery of this Agreement by Stockholders do not, and the performance of this Agreement by Stockholders will not, (i) conflict with or violate the Articles of Incorporation, By-laws of the Company, (ii) conflict with or violate any United States or non-United States national, state, provincial, municipal or local statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order (“ Law ”) applicable to Stockholders or the Company or by which any property or asset of Stockholders or the Company is bound or affected, or (iii) result in any breach of or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any right of

 

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termination, amendment, acceleration or cancellation of, or result in the creation of a Lien or other encumbrance on any property or asset of Stockholders or the Company pursuant to, any material note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Stockholders or the Company is a party or by which Stockholders or the Company or any material property or asset of Stockholders or the Company is bound or affected.

(b) The execution and delivery of this Agreement by Stockholders does not, and the performance of this Agreement by Stockholders will not, require any consent, approval, authorization or permit of, or filing with or notification to, any United States or non-United States national, state, provincial, municipal or local government, governmental, regulatory or administrative authority, agency, instrumentality or commission or any court, tribunal, or judicial or arbitral body (a “ Governmental Authority ”).

SECTION 3.06 Permits; Compliance .

(a) Section 3.06 of the Disclosure Schedule contains a complete and accurate list of all material franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Authority necessary for the Company to own, lease and operate its properties or to carry on its business as it is now being conducted (the “ Permits ”). The Company is in possession of all Permits. No suspension or cancellation of any of the Permits is pending or, to the knowledge of the Company, threatened. The Company is not, in any material respect, in conflict with, or in default, breach or violation of, (a) any Law applicable to the Company or by which any property or asset of the Company is bound or affected, including, without limitation, with respect to design, labeling, testing and inspection of the Company’s products, and any Law of the United States Food and Drug Administration, or (b) any note, bond, mortgage, indenture, contract, agreement, lease, license, Permit, franchise or other instrument or obligation to which the Company is a party or by which the Company or any property or asset of the Company is bound.

(b) Except as set forth in Section 3.06 of the Disclosure Schedule, (i) the Company has not received, at any time since January 1, 2001, any formal notice or other formal communication from any Governmental Authority or any other person regarding (A) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Permit, or (B) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any Permit, and (ii) all applications required to have been filed for the renewal of any Permit have been duly filed on a timely basis with the appropriate Governmental Authority, and all other filings required to have been made with respect to any such Permit have been duly made on a timely basis with the appropriate Governmental Authority.

SECTION 3.07 Financial Statements .

(a) Section 3.07 of the Disclosure Schedule includes the Company Financial Statements. Except as otherwise disclosed on Section 3.07 of the Disclosure Schedule, the Company Financial Statements: (a) are derived from and are in accordance with the books and records of the Company; (b) fairly present the financial condition of the Company at the dates

 

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therein indicated and the results of operations and cash flows of the Company for the periods therein specified (subject, in the case of interim period financial statements, to normal recurring year-end audit adjustments, none of which individually or in the aggregate will be material in amount); (c) complied as to form in all material respects with applicable accounting requirements with respect thereto as of their respective dates, and (d) have been prepared in accordance with GAAP applied on a basis consistent with prior periods (except that the interim period financial statements do not have notes thereto).

(b) Except as and to the extent set forth on the Company Balance Sheet, the Company has no material liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except for liabilities and obligations, incurred in the ordinary course of business consistent with past practice since June 30, 2006. Without limiting the foregoing, the Company has no liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) to Stockholders, any other officer or director of the Company or any family member of Stockholders or any other officer or director of the Company.

(c) All accounts receivable of the Company reflected on the Company Balance Sheet or arising thereafter have arisen from bona fide transactions in the ordinary course of business consistent with past practices and are reflected in accordance with GAAP applied on a consistent basis and are not subject to valid defenses, setoffs or counterclaims.

SECTION 3.08 Absence of Certain Changes or Events .

Since December 31, 2005, except as set forth in Section 3.08 of the Disclosure Schedule, or as expressly contemplated by this Agreement, (a) the Company has conducted its businesses only in the ordinary course and in a manner consistent with past practice, and (b) there has not been any Material Adverse Effect.

SECTION 3.09 Absence of Litigation .

Except as set forth in Section 3.09 of the Disclosure Schedule, there is no private or governmental litigation, suit, claim, action, proceeding or investigation (an “ Action ”) pending or, to the knowledge of the Company, threatened against the Company (or any of its respective directors, officers or employees (in their capacities as such or relating to their employment, services or relationship with the Company)), or any property or asset of the Company, before any Governmental Authority nor is there any Action that seeks to materially delay or prevent the consummation of the Transaction. Neither the Company nor any property or asset of the Company is subject to any continuing order of, consent decree, settlement agreement or similar written agreement with, or, to the knowledge of the Company, continuing investigation by, any Governmental Authority, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority. The Company has no action, suit, proceeding, claim, mediation, arbitration or investigation pending against any other Person.

SECTION 3.10 Employee Benefit Plans .

(a) Section 3.10(a) of the Disclosure Schedule lists (i) all employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) (including any self-insured arrangements that are clearly identified as such, and any

 

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stop-loss insurance policies issued in connection with such self-insured arrangements), and all incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, whether legally enforceable or not, to which the Company is a party, with respect to which the Company has any obligation or which are maintained, contributed to or sponsored by the Company for the benefit of any current or former employee, officer or director of, or any current or former consultant to, the Company, (ii) each employee benefit plan for which the Company could incur liability under Section 4069 of ERISA in the event such plan has been or were to be terminated, (iii) any plan in respect of which the Company could incur liability under Section 4212(c) of ERISA, and (iv) any contracts (including loan agreements), arrangements or understandings between the Company and any employee of the Company including, without limitation, any contracts, arrangements or understandings relating in any way to a sale of the Company (collectively, the “ Plans ”). Each Plan is in writing and the Company has furnished to Natus a true and complete copy of each Plan and has delivered to Natus a true and complete copy of each material document, if any, prepared in connection with each such Plan, including, without limitation, (i) a copy of each trust or other funding arrangement, (ii) each summary plan description and summary of material modifications, (iii) the three most recently filed Internal Revenue Service (the “ IRS ”) Form 5500s, (iv) the most recently received determination letter from the IRS for each such Plan, (v) the most recently prepared actuarial report and financial statement in connection with each such Plan and (vi) any stop-loss insurance policies pertaining to an employee welfare benefit plan (as defined in Section 3(1) of ERISA) that is self-insured. The Company has no express or implied commitment, whether legally enforceable or not, (i) to create, incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (ii) to enter into any contract or agreement to provide compensation or benefits to any individual, or (iii) to modify, change or terminate any Plan, other than with respect to a modification, change or termination required by ERISA or the Internal Revenue Code of 1986, as amended (the “ Code ”).

(b) Except for the Company’s severance plan (“ Severance Plan ”) that provides that the Company will pay to any employee (with exceptions noted in Section 3.10(b) of the Disclosure Schedule) whose employment is terminated without cause within 12 months of the Closing a severance payment equal to one week of the employee’s then current salary or wages for each full year of employment with the Company, all as more fully described in Section 3.10(b) of the Disclosure Schedule, none of the Plans (i) provides for the payment of separation, severance, termination or similar-type benefits to any person, (ii) obligates the Company to pay separation, severance, termination or similar-type benefits solely or partially as a result of any transaction contemplated by this Agreement, or (iii) obligates the Company to make any payment or provide any benefit as a result of a “change in control”, within the meaning of such term under Section 280G of the Code. None of the Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company. Each of the Plans is subject only to the Laws of the United States or a political subdivision thereof. Section 3.10(b) of the Disclosure Schedule sets forth the amount that would be payable under the Severance Plan to each current employee of the Company if each such employee were terminated following the Closing Date on January 1, 2007.

(c) Each Plan is now and always has been operated in all material respects in accordance with its terms and the requirements of all applicable Laws including, without

 

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limitation, ERISA and the Code. The Company has performed all obligations required to be performed by it under, are not in any respect in default under or in violation of, and has no knowledge of any default or violation by any party to, any Plan. No Action is pending or, to the knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and no fact or event exists that could reasonably be expected to give rise to any such Action.

(d) Each Plan that is intended to be qualified under Section 401(a) of the Code or Section 401(k) of the Code has timely received a favorable determination letter from the IRS covering all of the provisions applicable to the Plan for which determination letters are currently available that the Plan is so qualified and each trust established in connection with any Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt, and no fact or event has occurred since the date of such determination letter or letters from the IRS to adversely affect the qualified status of any such Plan or the exempt status of any such trust.

(e) There has not been any prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code) with respect to any Plan. None of the Plans is subject to Title IV of ERISA and the Company has not incurred, or could reasonably be expected to incur, any liability under, arising out of or by operation of Title IV of ERISA.

(f) All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. All such contributions have been fully deducted for income tax purposes and no such deduction has been challenged or disallowed by any Governmental Authority and no fact or event exists which could give rise to any such challenge or disallowance.

(g) All directors, officers, management employees, and technical and professional employees of the Company and the subsidiaries are under written obligation to the Company to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment and to assign to the Company all inventions made by them within the scope of their employment during such employment and for a reasonable period thereafter.

(h) Except as set forth in Section 3.10(h) of the Disclosure Schedule, no benefit payable or that may become payable by the Company pursuant to any agreement or arrangement or as a result of, in connection with or arising under this Agreement shall constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code) that is subject to the imposition of an excise tax under Section 4999 of the Code or that would not be deductible by reason of Section 280G of the Code. Unless otherwise indicated in Section 3.10(h) of the Disclosure Schedule, the Company is not a party to any: (i) contract agreement or arrangement with any person (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company in the nature of the Stock Purchase or any of the other transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee, or (C) providing severance benefits or other benefits after the termination of employment of such employee regardless of the reason for such termination of employment; or (ii) benefit plan or arrangement, any of the benefits of which shall be increased, or the vesting of benefits of which shall be accelerated, by the occurrence of the Stock Purchase

 

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or any of the other transactions contemplated by this Agreement, or any event subsequent to the Stock Purchase such as the termination of employment of any person, or the value of any of the benefits of which shall be calculated on the basis of any of the transactions contemplated by this Agreement. Neither the Company nor any of its subsidiaries has any obligation to pay any material amount or provide any material benefit to any former employee or officer.

(i) The Company has no benefit plan which constitutes, or has since the enactment of ERISA, constituted, (i) a “multiemployer plan” as defined in Section 3(37) of ERISA, (ii) a “multiple employer plan” as defined in ERISA or Code Section 413(c), or (iii) a “funded welfare plan” within the meaning of Code Section 419. No pension plan of the Company is subject to Title IV of ERISA.

(j) All claims incurred as of the Closing Date under any “employee welfare benefit plan” as defined in Section 3(1) of ERISA that is self-insured will be paid by the Company no later than the Closing Date.

SECTION 3.11 Labor and Employment Matters .

(a) Except as set forth in Section 3.11(a) of the Disclosure Schedule, (i) there are no controversies pending or, to the knowledge of the Company, threatened between the Company and any of their respective employees and (ii) the Company is not a party to any collective bargaining agreement or other labor union contract applicable to persons employed by the Company, nor, to the knowledge of the Company, are there any activities or proceedings of any labor union to organize any such employees.

(b) The Company is in compliance with all applicable laws relating to the employment of labor, including those related to wages, hours, immigration and naturalization, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Authority and has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Company and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing. The Company has paid in full to all employees or adequately accrued for in accordance with GAAP consistently applied all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees and there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or threatened before any Governmental Authority with respect to any persons currently or formerly employed by the Company. The Company is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees or employment practices. Except as disclosed in Section 3.11(b) of the Disclosure Schedule: (i) there is no charge or proceeding with respect to a violation of any occupational safety or health standards that has been asserted or is now pending or to the knowledge of the Company threatened with respect to the Company; (ii) there is no charge of discrimination in employment or employment practices, for any reason, including, without limitation, age, gender, race, religion or other legally protected category, which has been asserted or is now pending or to the knowledge of the Company threatened before the United States Equal Employment Opportunity Commission, or any other Governmental Authority in any jurisdiction in which the Company has employed, employs or has been alleged to employ any person.

 

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(c) To the knowledge of the Company no employee or consultant of the Company or any subsidiary is in material violation of (i) any contract or agreement or (ii) any restrictive covenant relating to the right of any such employee or consultant to be employed by the Company or to use trade secrets or proprietar