10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

Or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-36516

IMPRIVATA, INC.

(Exact name of registrant as specified in its charter)

Delaware	04-3560178
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

10 Maguire Road

Lexington, Massachusetts 02421

(Address of principal executive offices, including zip code)

(781) 674-2700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

As of July 24, 2015, there were 24,405,382 shares of the registrant’s common stock outstanding.

Table of Contents

	PART I
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	4
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014	5
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2015 and 2014	6
	Condensed Consolidated Statement of Stockholders’ Equity as of June 30, 2015	7
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
	Overview	20
	Critical Accounting Estimates	22
	Results of Operations	23
	Liquidity and Capital Resources	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
	PART II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51

2

Special note regarding forward-looking statements and industry data

This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains, in addition to historical information, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

These forward-looking statements are based on our current expectations, assumptions, estimates and projections regarding our business and industry, and we do not undertake an obligation to update our forward-looking statements to reflect future events or circumstances. We may, in some cases, use words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

• the size and growth of the potential markets for our products and our ability to serve those markets;

• the rate and degree of market acceptance of our products;

• our expectations regarding our products’ performance;

• the accuracy of our estimates regarding expenses, revenues and capital requirements;

• regulatory developments in the United States and foreign countries;

• the success of our sales and marketing capabilities;

• the success of competing products that are or become available;

• our ability to obtain additional financing if needed;

• our ability to obtain and maintain intellectual property protection for our proprietary assets; and

• the loss of key technology or management personnel.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Part II, Item 1A. Risk factors” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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PART 1

Item 1. Financial Statements.

Imprivata, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	June 30,			December 31,
(in thousands, except share amounts)	2015			2014
Assets
Current assets:
Cash and cash equivalents	$	54,673		$	78,524
Accounts receivable, net of allowances		24,639			25,335
Prepaid expenses and other current assets		4,178			3,516
Total current assets		83,490			107,375
Property and equipment, net		7,367			7,640
Goodwill		14,766			1,560
Intangible assets, net		4,951			1,499
Other assets		668			105
Total assets	$	111,242		$	118,179
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	3,936		$	2,498
Accrued expenses and other current liabilities		7,693			10,565
Current portion of capital lease obligations and long-term debt		549			625
Current portion of other long-term liabilities		240			288
Current portion of deferred revenue		34,954			33,120
Current portion of contingent purchase price liability		374			152
Total current liabilities		47,746			47,248
Deferred revenue, net of current portion		4,737			4,021
Deferred tax liability		694			—
Capital lease obligations, long-term debt and royalty obligations, net of current portion		374			619
Other long-term liabilities, net of current portion		1,862			1,535
Contingent purchase price liability, net of current portion		308			480
Total liabilities		55,721			53,903
Commitments and contingencies (Note 9)
Stockholders’ equity:
Undesignated preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued at June 30, 2015 and December 31, 2014		—			—
Common stock, $0.001 par value, 250,000,000 shares authorized at June 30, 2015 and December 31, 2014; 24,289,159 and 23,742,467 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively		24			24
Additional paid-in capital		175,266			171,903
Accumulated other comprehensive loss		(93	)		(100	)
Accumulated deficit		(119,676	)		(107,551	)
Total stockholders’ equity		55,521			64,276
Total liabilities and stockholders’ equity	$	111,242		$	118,179

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Imprivata, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands, except per share data)	2015			2014			2015			2014
Revenue
Product	$	16,305		$	12,225		$	29,218		$	21,499
Maintenance and services		13,663			11,008			26,386			21,175
Total revenue		29,968			23,233			55,604			42,674
Cost of revenue
Product		4,088			2,475			7,511			4,635
Maintenance and services		5,296			4,400			10,223			8,593
Total cost of revenue		9,384			6,875			17,734			13,228
Gross profit		20,584			16,358			37,870			29,446
Operating expenses
Research and development		7,840			6,291			14,711			12,827
Sales and marketing		12,999			11,216			25,018			21,635
General and administrative		4,590			2,311			9,170			5,324
Total operating expenses		25,429			19,818			48,899			39,786
Loss from operations		(4,845	)		(3,460	)		(11,029	)		(10,340	)
Other income (expense)
Foreign currency exchange gain (loss)		150			4			(312	)		(127	)
Interest and other income (expense), net		(4	)		(35	)		(20	)		(65	)
Loss before income taxes		(4,699	)		(3,491	)		(11,361	)		(10,532	)
Income taxes		727			61			764			87
Net loss		(5,426	)		(3,552	)		(12,125	)		(10,619	)
Accretion of redeemable convertible preferred stock		—			(1,204	)		—			(2,442	)
Net loss attributable to common stockholders	$	(5,426	)	$	(4,756	)	$	(12,125	)	$	(13,061	)
Net loss per share attributable to common stockholders
Basic and diluted	$	(0.22	)	$	(1.08	)	$	(0.51	)	$	(3.25	)
Weighted average common shares outstanding used in computing net loss per share attributable to common stockholders
Basic and diluted		24,144			4,410			24,007			4,021

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Imprivata, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands)	2015			2014			2015			2014
Net loss	$	(5,426	)	$	(3,552	)	$	(12,125	)	$	(10,619	)
Other comprehensive income:
Foreign currency translation adjustments		51			2			7			146
Comprehensive loss	$	(5,375	)	$	(3,550	)	$	(12,118	)	$	(10,473	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Imprivata, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common stock							Accumulated
	par value					Additional		other
	$0.001					paid-in		comprehensive			Accumulated
(in thousands)	Shares		Amount			capital		income (loss)			deficit			Total
Balance - January 1, 2015		23,742	$	24		$	171,903	$	(100	)	$	(107,551	)	$	64,276
Exercise of common stock options		487		—			899					—			899
Stock-based compensation expense							1,781								1,781
Employee stock purchase plan		59		1			683								684
Common stock grants		1		(1	)										(1	)
Net loss												(12,125	)		(12,125	)
Other comprehensive income (loss)									7						7
Balance - June 30, 2015		24,289	$	24		$	175,266	$	(93	)	$	(119,676	)	$	55,521

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Imprivata, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
(in thousands)	2015			2014
Cash flows from operating activities:
Net loss	$	(12,125	)	$	(10,619	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		1,684			1,458
Provision for doubtful accounts		(19	)		13
Stock-based compensation		1,781			665
Loss on disposal of fixed assets		14			12
Change in value of contingent purchase price liability		50			(464	)
Deferred income taxes		694			—
Changes in operating assets and liabilities:
Accounts receivable		4,479			5,763
Prepaid expenses and other current assets		(616	)		(544	)
Deferred revenue		604			1,338
Accounts payable		1,028			(897	)
Accrued expenses and other current liabilities		(2,955	)		(1,549	)
Other liabilities		279			82
Net cash used in operating activities		(5,102	)		(4,742	)
Cash flows from investing activities:
Purchases of property and equipment		(644	)		(1,354	)
Purchases of intangible assets		(437	)		—
Acquisition of business		(18,886	)		—
Net cash used in investing activities		(19,967	)		(1,354	)
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts and commissions		—			80,213
Deferred offering costs		—			(1,748	)
Repayments for capital lease obligations, long-term debt and other		(322	)		(348	)
Proceeds from employee stock purchase plan		684			—
Proceeds from exercise of stock options		853			389
Net cash provided by financing activities		1,215			78,506
Effect of exchange rates on cash and cash equivalents		3			100
Net (decrease) increase in cash and cash equivalents		(23,851	)		72,510
Cash and cash equivalents, beginning of period		78,524			13,284
Cash and cash equivalents, end of period	$	54,673		$	85,794
Supplemental disclosures of non-cash investing and financing activities:
Equipment purchases under capital leases	$	—		$	690
Property and equipment purchases included in accounts payable and accrued expenses	$	445		$	224
Deferred offering costs included in accounts payable, accrued expenses, and other current liabilities	$	—		$	1,557
Conversion of preferred stock to common stock	$	—		$	94,049
Accretion of preferred stock	$	—		$	2,442

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Imprivata, Inc.

Notes to condensed consolidated financial statements

(Unaudited)

1. Organization and business

(a) Description of business

Imprivata, Inc. (the “Company”) is a leading provider of IT security and identity solutions to the healthcare industry that help providers securely and efficiently access, communicate and transact patient information. The Company’s security and identity solutions provide authentication management, fast access to patient information, secure communications and positive patient identification to address critical security and compliance challenges faced by hospitals and other healthcare organizations, while improving provider productivity and the patient experience. The Company believes that its solutions save clinicians significant time to focus on patient care, increase their productivity and satisfaction, and help healthcare organizations comply with complex privacy and security regulations.

The Company was incorporated in the State of Delaware in May 2001.

On June 30, 2014, the Company completed its initial public offering (“IPO”) and is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “IMPR.”

(b) Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and as required under the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2014. The consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on March 11, 2015. In the opinion of Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial position at June 30, 2015, the result of operations for the three and six months ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, for any other interim period or for any other future year.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Imprivata Securities Corporation and Imprivata International, Inc., and its wholly owned subsidiaries Imprivata UK Limited and Imprivata Australia Pty. Ltd., as well as two branch offices. All intercompany balances and transactions have been eliminated in consolidation. In the first quarter of 2015, the Company closed its Netherlands branch office.

Management believes the Company has sufficient cash and availability under its letter of credit to sustain operations through at least the next 12 months.

(c) Use of estimates

When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

(d) Foreign currency

The foreign subsidiaries and branches use the local currency as the functional currency. The Company translates the assets and liabilities of its foreign operations into U.S. dollars based on the rates of exchange in effect as of the balance sheet date. Revenues and expenses are translated into U.S. dollars using average exchange rates for each period. The resulting adjustments from the translation process are included in accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets.

9

Certain transactions of the Company are settled in foreign currency, and are thus translated to U.S. dollars at the rate of exchange in effect at the end of each month. Gains (losses) resulting from the translation are included in foreign exchange gains (losses) in the accompanying consolidated statements of operations.

2. Summary of significant accounting policies

The Company has not made any significant changes in the application of its significant accounting policies as described in Note 2 of its audited consolidated financial statements for the year ended December 31, 2014 included in its 2014 Annual Report on Form 10-K filed with the SEC on March 11, 2015. See Note 2 in the 2014 Annual Report on Form 10-K for information about these critical accounting policies as well as a description of the “Summary of significant accounting policies.”

Recent accounting guidance

Accounting standards or updates not yet effective

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. On July 9, 2015, the FASB voted to delay the effective date of this ASU to annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early adoption permitted as of the original effective date of periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on the Company’s Consolidated Financial Statements upon adoption.

In April 2015, the FASB issued an ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt, consistent with debt discounts. The accounting standard update will be effective for the Company for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years on a retrospective basis, with early adoption permitted. The accounting standard update is a change in balance sheet presentation only and is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its Consolidated Financial Statements.

3. Business combination

HT Systems, LLC Acquisition

On April 30, 2015, the Company acquired 100% of the equity of HT Systems, LLC. (“HT Systems”), a provider of palm-vein based biometric patient identification systems, to enter into the positive patient identification market for a purchase price of $19.1 million less $189,000 of working capital adjustments, for total cash consideration paid of $18.9 million.

The acquisition of HT Systems and its PatientSecure biometric patient identification technology supports the Company’s long-term vision to be the leading provider of healthcare IT security solutions that increase provider productivity, enable patient engagement, and improve patient safety.

The Company may pay up to $5.0 million of potential additional earn-out consideration to the selling equity-holders, which will be determined based upon the achievement of certain sales targets over the two-year period following the transaction, provided, that the selling equity-holder remains an employee of the Company when the earn-out consideration becomes payable. The earn-out consideration will be recognized in the Company’s Consolidated Financial Statements as compensation expense as earned. For the three and six month ended June 30, 2015, the Company has not recorded any compensation expense associated with the earn-out consideration.

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In addition, the Company will pay up to $1.9 million in retention-based payments to the selling equity-holders payable in cash two years from the closing date of April 30, 2015, contingent upon continued employment as of the payment date. Additional retention-based payments of $341,000, payable in cash, are payable to other employees 8 to 20 months following the date of acquisition, contingent upon their continued employment on the payment dates. The retention-based payments will be recognized in the Company’s Consolidated Statements of Operations as compensation expense over the employment period.

During the three and six months ended June 30, 2015, $546,000 and $709,000, respectively, of acquisition-related costs were incurred due to the HT Systems acquisition, which are included in general and administrative expenses in the Consolidated Statement of Operations.

Purchase Price Allocation

Under the acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair value, which was determined by management using the best information available as of the date of the acquisition (Level 3 inputs). The allocation of the HT Systems purchase consideration to the identifiable assets acquired and liabilities assumed was as follows:

				Useful lives
(dollars in thousands)	Amount			(in years)
Assets:
Accounts receivable	$	4,328
Prepaid expenses and other current assets		33
Property and equipment		59		3
Intangible assets		3,291		4 to 7
Liabilities assumed:
Accrued expenses		(85	)
Deferred revenue		(1,946	)
Net assets acquired		5,680
Goodwill		13,206
Total fair value consideration	$	18,886

Methodologies used in valuing the intangible assets include, but are not limited to the relief from royalty method and multi-period excess earnings method. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill, which includes synergies expected from the expanded service capabilities and the value of the assembled work force in accordance with GAAP. The Company made an election under Internal Revenue Code section 338 to treat the acquisition of the stock as an asset purchase. As a result, the Company will be entitled to corporate level tax deductions associated with the fair market value of net tangible assets, intangible assets, and goodwill.

The fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations, and the Company’s estimates and assumptions for the acquisition are subject to change as the Company obtains additional information during the measurement periods, up to one year from the acquisition date. As of June 30, 2015, substantially all of the Company’s purchase accounting adjustments are preliminary and not yet finalized.

Pro Forma Results of Operations (unaudited)

The Consolidated Financial Statements include the operating results of HT Systems from the date of acquisition. The following unaudited pro forma results of operations have been presented as if the HT Systems acquisition occurred on January 1, 2014:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands, except per share data)	2015			2014			2015			2014
Pro forma revenue (1)	$	30,262		$	25,008		$	56,791		$	45,987
Pro forma operating expenses		25,967			20,636			50,394			41,420
Pro forma net loss		(5,734	)		(2,965	)		(12,668	)		(9,441	)
Pro forma net loss per share basic and diluted	$	(0.24	)	$	(0.95	)	$	(0.53	)	$	(2.96	)

(1) HT Systems defers all revenue related to a customer engagement until PatientSecure is fully implemented and in production. The revenue patterns can fluctuate between periods due to customers delaying the start of implementation. Consequently, comparisons between the interim periods may not be indicative of future revenue patterns.

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This information is based on historical results of operations, adjusted for the allocations of purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what the Company’s results would have been had it operated the businesses since January 1, 2014.

For the three and six months ended June 30, 2015, the Company’s consolidated revenues includes revenues from HT Systems of $171,000. Due to the continued integration of the combined business, it is impractical to determine the earnings of HT Systems beyond the measure of revenue.

4. Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

(a) Fair value hierarchy

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

(b) Assets and liabilities measured at fair value on a recurring basis

The Company’s cash equivalents primarily consist of money market funds recorded at cost, which approximates fair value based on quoted prices for assets traded in active markets. The contingent consideration liabilities are recorded at fair value determined using a probability weighted discounted cash flow model primarily based upon future revenue and sales projections.

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:

	Fair value measurements at June 30, 2015
(in thousands)	Level 1		Level 2		Level 3		Total carrying value
Assets
Cash equivalents:
Money market funds	$	10,189	$	—	$	—	$	10,189
Certificates of deposit		—		97		—		97
Liabilities
Contingent consideration		—		—		682		682

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	Fair value measurements at December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total carrying value
Assets
Cash equivalents:
Money market funds	$	33,184	$	—	$	—	$	33,184
Certificates of deposit		—		97		—		97
Liabilities
Contingent consideration		—		—		632		632

(c) Assets and liabilities measured on a non-recurring basis

There were no fair value measurements on a non-recurring basis as of December 31, 2014. During the six months ended June 30, 2015, the Company completed an acquisition of HT Systems. Under the Acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair values which are level 3 inputs. Refer to “Note 3. Business combination” for additional information.

(d) Level 3 fair value measurements

Contingent consideration

The contingent liability associated with the acquisition of Validus is based on an earn-out capped at $9.8 million, to be paid based on revenue generated using the respective purchased intellectual properties.

The Company re-measures the fair value of the contingent liability at each balance sheet date based on the present value of forecasted revenues through December 31, 2016. The changes in the fair value are primarily due to the difference in actual revenue earned to date versus the initial projections and revisions to the timing and amount of forecasted future revenues.

The resulting forecasted revenues are then discounted using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of a market participant assumption.

The following table presents a reconciliation of the contingent liability measured at fair value using significant unobservable inputs, and the revaluation amount recorded in the Company’s consolidated statements of operations as a result of the change in fair value:

	June 30,		December 31,
(in thousands)	2015		2014
Beginning balance	$	632	$	1,008
Revaluation recognized in general and administrative expenses in the corresponding statements of operations		50		(376	)
Ending balance	$	682	$	632

This following table presents the significant unobservable inputs used in the valuation of the contingent liability:

	June 30,			December 31,
	2015			2014
Discount Rate		17	%		17	%

(e) Other financial instruments

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents (which are comprised primarily of deposit accounts), accounts receivable, prepaid expenses, other current assets, accounts payable, and accrued expenses approximate fair value due to their short-term maturities.

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5. Purchased intangible assets

On April 30, 2015, the Company acquired the following intangible assets as a result of its acquisition of HT Systems:

(in thousands)	Amount		Useful lives (in years)
Technology	$	2,199	7
Trade name		252	4
Non-compete agreement		437	5
Customer contracts and relationships		403	7
	$	3,291

During the three and six months ended June 30, 2015, the Company recorded $87,000 of amortization expense, which is included in cost of sales in the Consolidated Statement of Operations.

The estimated future amortization of purchased intangible assets, acquired in the acquisition of HT Systems, as of June 30, 2015 are as follows:

(in thousands)	Amount
2015 (remaining 6 months)	$	261
2016		522
2017		522
2018		522
2019		480
Thereafter		897
	$	3,204

On June 3, 2015, the Company acquired three patents with an aggregate purchase price of $437,000, which includes $37,000 of legal fees and $36,364 of brokers fees associated with the procurement of the patents. The patents will be amortized on a straight-line basis over 9 years. During the three months ended June 30, 2015, the Company recorded $4,000 of amortization expense to general and administrative expenses in the Consolidated Statement of Operations.

The estimated future amortization of three patents purchased as of June 30, 2015 are as follows:

(in thousands)	Amount
2015 (remaining 6 months)	$	24
2016		49
2017		49
2018		49
2019		49
Thereafter		213
	$	433

6. Accrued expenses and other current liabilities

The following table presents the details of the Company’s accrued expenses and other current liabilities:

	June 30,		December 31,
(in thousands)	2015		2014
Accrued payroll and related	$	4,305	$	7,839
Accrued taxes (1)		979		1,144
Other accrued expenses		2,409		1,582
	$	7,693	$	10,565

(1) Accrued taxes consist of accruals for foreign and state taxes, sales and use taxes, value added taxes due in foreign jurisdictions and franchise taxes.

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7. Warranty obligations

The Company maintains an allowance for warranty obligations that may be incurred under its limited warranty. Factors that affect the Company’s allowance for warranty obligations include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and the cost per claim to satisfy the Company’s warranty obligation.

The following table presents the details of the Company’s allowance for warranty obligations:

	June 30,			December 31,
(in thousands)	2015			2014
Beginning balance	$	40		$	93
Provision for estimated claims		29			5
Adjustment to estimate		—			(51	)
Settlement of claims		(20	)		(7	)
Ending balance	$	49		$	40

The warranty obligations are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets presented.

8. Debt

Bank credit facility

The Company has a revolving credit facility with a bank pursuant to a Loan and Security Agreement dated January 30, 2009 (the “Revolving Credit Facility”). In February 2014, the Company modified the revolving credit agreement that had expired in October 2013 and extended the maturity date to February 2015. In February 2015, the Company amended its revolving credit facility to extend the maturity through April 2015. In April 2015, the Company further amended its revolving credit facility to extend the maturity through April 2016 and increased the borrowing limit from $10.0 million to $15.0 million based primarily on accounts receivable, and is subject to certain financial covenants requiring the Company to maintain minimum levels of liquidity. Outstanding borrowings accrue interest at the Wall Street Journal published prime rate plus 0.75%. Substantially all of the assets of the Company are pledged as collateral.

At June 30, 2015 and December 31, 2014, there was no outstanding balance under the revolving credit facility.

9. Commitments and contingencies

(a) Operating lease obligations

On January 16, 2015, the Company amended its lease agreement for its corporate headquarters in Lexington, Massachusetts to lease approximately 21,000 of additional square footage. The amendment increased the total square footage leased to approximately 93,000 and extended the term through December 2021. The additional rent expense is approximately $7.9 million and the landlord has agreed to contribute approximately $735,000 towards leasehold improvements.

On April 30, 2015, the Company assumed a lease for approximately 3,500 square feet with a term expiring on March 31, 2016 as a result of its acquisition of HT Systems. The leased property is located in Tampa, Florida and is between HT Systems and a separate entity owned by the selling equity-holders of HT Systems. The remaining lease payments are $45,000.

(b) Litigation

The Company is not presently a party to any litigation that it believes might have a material adverse effect on its business operations or financial statements.

(c) Indemnifications

As permitted under Delaware law, the Company’s Certificate of Incorporation and By Laws provide that the Company indemnify its stockholders, officers, directors, and partners, and each person controlling the stock held for certain events or occurrences that happen by reason of the relationship with or position held at the Company. The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third-party patents, copyrights, or trademarks, and indemnify against product liability matters.

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As of June 30, 2015 and December 31, 2014, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

10. Accumulated other comprehensive loss

The following table presents the changes in accumulated other comprehensive loss before taxes, as the tax effect is not material to the consolidated financial statements:

	Foreign
	Currency			Affected line item in the
	Translation			statement where net
(in thousands)	Adjustments			income is presented
Balance at January 1, 2014	$	(145	)
Other comprehensive loss		(100	)
Amounts reclassified from accumulated other comprehensive income:
Closure of foreign branch		145		Other income (expense)
Net current-period other comprehensive loss		45
Balance at December 31, 2014		(100	)
Other comprehensive loss		41
Amounts reclassified from accumulated other comprehensive income:
Closure of foreign branch		(34	)	Other income (expense)
Net current-period other comprehensive loss		7
Balance at June 30, 2015	$	(93	)

11. Stock award plans and stock based compensation

(a) Equity incentive plan

In May 2014, the Company’s 2014 Stock Option and Incentive Plan (“2014 Plan”), was adopted by the Company’s board of directors and approved by its stockholders and became effective in June 2014. The 2014 Plan replaces the Amended and Restated 2002 Stock Option and Incentive Plan (“2002 Plan”) as the Company’s board of directors has determined not to make additional awards under the 2002 Plan. The 2014 Plan allows the compensation committee to make equity-based incentive awards to the Company’s officers, employees, directors and other key persons (including consultants).

Stock options expire no later than 10 years from the date of grant and generally vest over a period of four years. At the discretion of the Board of Directors, certain option grants may be immediately exercisable but subject to a right to repurchase, at cost, pursuant to the vesting schedule of the individual grant.

During the six months ended June 30, 2015, the Company granted 1,610,356 options to purchase common stock at a weighted average exercise price of $13.68.

At June 30, 2015, there were 1,995,439 shares available for future grant under the 2014 Plan.

(b) Employee stock purchase plan

In May 2014, the Company’s board of directors adopted and its stockholders approved the Employee Stock Purchase Plan (“ESPP”). Each employee who is a participant in the ESPP may purchase shares by authorizing payroll deductions of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase ordinary shares on the last business day of the offering period at a price equal to 85% of the fair market value of the common stock on the first business day or the last business day of the offering period, whichever is lower. All offering periods will be for six months and begin on March 1^st and September 1^st of each year.

At February 27, 2015, the Company issued 58,793 shares of common stock at a purchase price of $11.64.

At June 30, 2015, there were 627,033 shares available for future grant under the ESPP.

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(c) Early exercise of stock options

The Company issues stock option agreements to Company executives and members of the Board of Directors, which may permit options to be exercised at any time. The Company may also include an early exercise provision for incentive stock option agreements at its discretion. The unvested shares of common stock exercised are subject to the Company’s right to repurchase at the original exercise price upon termination of employment or other relationship.

At June 30, 2015 and December 31, 2014, a total of 30,625 and 40,202 shares of unvested stock options exercised were subject to repurchase at an aggregate price of $142,000 and $184,000, respectively. These amounts are recorded as accrued and other current liabilities in the Company’s Consolidated Balance Sheets and will be reclassified to equity as the Company’s repurchase right lapses.

During the three months ended June 30, 2015 and 2014, 4,375 and 5,626 stock options associated with the early exercise vested, respectively. During the six months ended June 30, 2015 and 2014, 9,577 and 11,252 stock options associated with the early exercise vested, respectively.

(d) Valuation of share-based compensation

The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options awarded to employees and rights to acquire stock under the ESPP, which requires several key assumptions to be made.

Weighted average assumptions related to stock options used to apply this model were as follows:

	Three Months ended						Six Months ended
	June 30,						June 30,
	2015			2014			2015			2014
Risk-free interest rate(1)		1.77	%		1.93	%		1.77	%		1.91	%
Expected life (years)(2)		6.02			6.03			6.02			6.04
Expected dividend yield(3)		—	%		—	%		—	%		—	%
Expected volatility of underlying stock(4)		47	%		55	%		47	%		55	%

The assumptions used to estimate the fair value of the rights to acquire stock under the ESPP during the initial offering period ending on February 28, 2015 were as follows:

Risk-free interest rate(1)	0.08	%
Expected life (years)(2)	0.68
Expected dividend yield(3)	—	%
Expected volatility of underlying stock(4)	40	%

The assumptions used to estimate the fair value of the rights to acquire stock under the ESPP during the offering beginning on March 1, 2015 were as follows:

Risk-free interest rate(1)	0.07	%
Expected life (years)(2)	0.50
Expected dividend yield(3)	—	%
Expected volatility of underlying stock(4)	55	%

(1) Risk-free interest rate—the yield on zero-coupon U.S. Treasury securities with maturities similar to the expected term of the award being valued is used as the risk-free interest rate.

(2) Expected term—the expected term for stock options granted based on a review of the period that the Company’s stock option awards are expected to be outstanding and is calculated using the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period of the options. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term.

(3) Expected dividend yield—the expected dividend yield was not considered in the option pricing formula since the Company has not declared dividends and does not expect to pay dividends in the foreseeable future.

(4) Expected volatility—the Company is responsible for estimating volatility. The Company has limited trading history as a public company and does not have relevant historical data to develop its volatility assumptions. Therefore, the Company used a weighted average of its volatility and analyzed the volatility of several public peer companies to support the assumptions used in its calculations for the three and six months ended June 30, 2015. The Company analyzed the volatility of several public peer companies to support the assumptions used in its calculations for the three and six months ended June 30, 2014.

(e) Summary of share-based compensation expense

The Company uses the straight-line attribution method to recognize expense for stock-based awards such that the expense associated with awards is evenly recognized throughout the period.

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Stock-based compensation included in costs and operating expenses related to the awards of stock options and the employee stock purchase plan are as follows:

	Three Months ended				Six Months ended
	June 30,				June 30,
(in thousands)	2015		2014		2015		2014
Cost of maintenance and professional services	$	102	$	29	$	162	$	51
Research and development		326		114		549		206
Sales and marketing		253		119		468		208
General and administrative		399		105		602		200
Total	$	1,080	$	367	$	1,781	$	665

12. Income taxes

The Company operates in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which it conducts business. Earnings from its activities outside of the United States are subject to local country income tax and may be subject to U.S. income tax. To date, the Company has incurred cumulative net losses and maintain a full valuation allowance on its net deferred tax assets. Therefore, the Company has not recorded any U.S. federal tax provisions for its earnings to date and its effective tax rate differs from statutory rates. The Company’s tax expense for earnings primarily relates to foreign income taxes, mainly from its international operations, and to a lesser extent, state income tax provisions.

As of December 31, 2014, the Company’s valuation allowance related to income taxes was approximately $27.5 million. The Company is in a three year cumulative loss position in the United States. As a result, the Company maintains a full valuation allowance to reduce the carrying value of the related deferred tax assets to zero. The Company will continue to maintain a full valuation allowance for such tax assets until sustainable future levels of profitability are evident. The Company does not consider deferred tax liabilities related to indefinite lived assets to be sources of income, which can support the realizability of deferred tax assets, and has provided for tax expense and a corresponding deferred tax liability associated with these naked credits.

Income tax expense related to the fair value of contingent consideration

During the preparation of the Company’s financial statements for the three months ended June 30, 2015, the Company identified an error in its accounting for deferred income taxes in prior periods related to the Company’s deferred income tax accounting for its 2011 acquisition of Validus. Specifically, the Company should have, but did not, record deferred income tax expense in connection with post acquisition adjustments made to the contingent consideration recorded in connection with the acquisition. The Company has corrected this error by recording an out of period adjustment for the cumulative amount of deferred tax expense associated with these adjustments totaling $535,000, in its quarter ended June 30, 2015 financial statements. Had these tax amounts been recorded timely the Company would have recorded a reduction of tax expense of $5,700 and $13,500 in the three and six month interim periods ended June 30, 2015.

Income tax expense related to tax-deductible goodwill

During the three months ended June 30, 2015, the Company recorded U.S. tax expense of $173,000 which is primarily related to the tax expense associated with indefinite lived deferred tax liabilities related to tax basis in acquired goodwill. The Company does not consider deferred tax liabilities related to indefinite lived assets to be sources of income which can support the realizability of deferred tax assets, and has provided for tax expense and a corresponding deferred tax liability associated with these indefinite lived deferred tax liabilities.

As of June 30, 2015 and December 31, 2014, the Company had no uncertain positions or unrecorded liabilities for uncertain tax positions.

Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statements of operations. As of June 30, 2015 and December 31, 2014, the Company had no accrued interest or penalties related to uncertain tax positions.

13. Computation of net loss per share

The Company calculates basic and diluted net loss per common share by dividing the net loss adjusted for the accretion on the redeemable convertible preferred stock by the weighted average number of common shares outstanding during the period. The Company has excluded all potentially dilutive shares, which include redeemable convertible preferred stock, warrant for common stock, common stock subject to repurchase and outstanding common stock options, from the weighted average number of common

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shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses. The Company’s redeemable convertible preferred stock are participating securities as defined under the authoritative guidance, but are excluded from the earnings per share calculation as they do not have an obligation to share or fund in the Company’s net losses.

The components of net loss per share are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net loss	$	(5,426	)	$	(3,552	)	$	(12,125	)	$	(10,619	)
Accretion of preferred stock		—			(1,204	)		—			(2,442	)
Net loss attributable to common stockholders	$	(5,426	)	$	(4,756	)	$	(12,125	)	$	(13,061	)
Denominator:
Weighted average common shares outstanding used in computing basic and diluted net loss per common share		24,144			4,410			24,007			4,021
Net loss per share, basic and diluted	$	(0.22	)	$	(1.08	)	$	(0.51	)	$	(3.25	)

The following common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders because they had an antidilutive impact:

	Three and Six Months Ended June 30,
(in thousands)	2015		2014
Options to purchase common stock		4,757		3,651
Common stock subject to repurchase		31		51
Total		4,788		3,702

14. Concentration of risk and off-balance sheet risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains substantially all of its cash and cash equivalents in institutional money market mutual funds. The fund provides daily liquidity and invests in a portfolio of short-term money market instruments. To manage accounts receivable credit risk, the Company continuously evaluates the creditworthiness of its customers and resellers and maintains allowances for potential credit losses.

No customers or resellers accounted for 10% or more of revenues for the three and six months ended June 30, 2015 and 2014, respectively.

No customers or resellers accounted for 10% or more of accounts receivable at June 30, 2015 and December 31, 2014, respectively.

The Company does not have any off-balance sheet arrangements and did not have any such arrangements during the six months ended June 30, 2015 and the year ended December 31, 2014.

15. Related Party Transactions

The Company completed its acquisition of HT Systems on April 30, 2015. The Company may pay up to $5.0 million of potential additional earn-out consideration to the selling equity-holders, which will be determined based upon the achievement of certain sales targets over the two-year period following the transaction. The earn-out consideration will be paid to each of the selling equity-holders of HT Systems, based on their equity ownership of HT Systems prior to the acquisition, provided that such selling equity-holder remains an employee of the Company at the time the earn-out becomes payable. Each of the selling equity-holder has become employees of the Company effective upon close of the acquisition. One selling equity-holder is a member of the Company’s executive management team, but is not a director, executive officer or five percent holder of the Company’s equity securities. No payments associated with the earn-out have been made during the three and six months ended June 30, 2015.

The Company leases office space, located in Florida, under an operating lease agreement with a separate entity owned by the selling equity-holders of HT Systems. The lease is at a market rate with a one year term expiring on March 31, 2016. The Company made rental payments totaling $10,000 during the three and six month ended June 30, 2015.

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Item 2. Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report, and in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 11, 2015. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Part II, Item 1A. Risk factors” section of this Quarterly Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. We do not undertake, and specifically disclaim, any obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements except as required by law.

Overview

We are a leading provider of IT security and identity solutions to the healthcare industry that help providers securely and efficiently access, communicate and transact patient information. Our security and identity solutions provide authentication management, fast access to patient information, secure communications and positive patient identification to address critical security and compliance challenges faced by hospitals and other healthcare organizations, while improving provider productivity and the patient experience. We believe our solutions save clinicians significant time to focus on patient care, increase their productivity and satisfaction, and help healthcare organizations comply with complex privacy and security regulations. Our solutions can be installed on workstations and other application access points throughout a healthcare organization and once deployed become a critical part of the customer’s security and identity infrastructure. As a result, we believe that our security and identity products are some of the most widely-used technology solutions by our customers’ physicians, nurses, and other clinicians.

With the widespread adoption of healthcare information technology systems and increasing security and privacy regulations, demand for our solutions has grown, which has driven growth in our revenue. Our revenue growth is derived from both sales to new customers as well as add-on sales to our existing customer base. Consistent with our healthcare focused strategy, our healthcare customers, including large integrated healthcare systems, academic medical centers and small- and medium-sized independent healthcare facilities, accounted for the growth in sales to new customers. Many of our customers continue to add licensed users and purchase additional products and services from us after the initial sale.

Many other industries face security and productivity challenges similar to those in healthcare. Although healthcare is our primary focus, we sell to non-healthcare organizations, including financial services, the public sector and other industries. Sales to non-healthcare customers may vary on a quarterly basis as a result of our focus on healthcare customers, however, we believe changes in non-healthcare sales are not an indication of any trend.

We have focused on growing our business to pursue the significant market opportunity we see for our products and services, and we plan to continue to invest in building for growth. As a result, we expect to incur significant operating costs relating to our research and development initiatives for our new and existing solutions and products, and for expansion of our sales and marketing operations as we add additional sales personnel, increase our marketing efforts and expand into new geographical markets. We also expect to increase our general and administrative expenses to support our growth.

Initial Public Offering

On June 30, 2014, we completed our IPO, in which we sold 5,750,000 shares of common stock, including 750,000 shares sold pursuant to the underwriters’ option to purchase additional shares, at an offering price of $15.00 per share. All outstanding shares of redeemable convertible preferred stock converted to 13,970,934 shares of common stock at the closing of the IPO. Our shares are traded on the NYSE under the symbol “IMPR.” We received proceeds from the IPO of $80.2 million, net of underwriting discounts and commissions, but before offering expenses of approximately $3.4 million. These offering expenses have been recorded as a reduction of the proceeds received.

Shelf Registration

On July 1, 2015, we filed an S-3 registration statement as part of a “shelf” registration process. Under this shelf registration process, certain of our stockholders, who we refer to as the selling stockholders, may, from time to time, offer and sell up to 13,395,230 shares of our common stock that were issued and outstanding prior to the date of the registration statement. The selling stockholders are former holders of the Company’s preferred stock originally acquired through several private placements prior to its initial public offering. All of such shares of preferred stock were converted into shares of our common stock in connection with our initial public offering. The Company will not receive any of the proceeds from the sale of the shares.

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Acquisition of HT Systems

On April 30, 2015, we acquired 100% of the equity of HT Systems, a provider of palm-vein based biometric patient identification systems, to enter into the positive patient identification market for a purchase price of $19.1 million net of $189,000 of working capital adjustments, for total cash consideration of $18.9 million, plus up to $5.0 million based on achieving certain sales targets over the two-year period following the transaction.

During the three and six months ended June 30, 2015, $546,000 and $709,000, respectively, of acquisition-related costs were incurred due to the HT Systems acquisition, which are included in general and administrative expenses.

Adjusted EBITDA

We believe that the presentation of Adjusted EBITDA, a non-GAAP financial measure, provides investors with additional information about our financial results. Adjusted EBITDA is an important supplemental measure used by our board of directors and management to evaluate our operating performance from period to period on a consistent basis and as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations.

We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization adjusted for foreign currency gains (losses), stock based-compensation, as well as adjustments such as acquisition costs, shelf registration costs and the impact of the fair value revaluation on our contingent liability.

Adjusted EBITDA is not in accordance with, or an alternative to, measures prepared in accordance with U.S. GAAP. In addition, this non-GAAP measure is not based on any comprehensive set of accounting rules or principles. As a non-GAAP measure, Adjusted EBITDA has limitations in that it does not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP. In particular:

• Adjusted EBITDA does not reflect the amounts we paid in taxes or other components of our tax provision;

• Adjusted EBITDA does not include depreciation expense from fixed assets or amortization expense from acquired intangible assets;

• Adjusted EBITDA does not reflect other (expense) income which include interest income we earn on cash and cash equivalents; interest expense, or the cash requirements necessary to service interest or principal payments, on our debt and capital leases; and the gains or losses on foreign currency transactions;

• Adjusted EBITDA does not include the impact of stock-based compensation;

• Adjusted EBITDA does not include the change in value of our contingent liability related to the acquisition of assets from Validus Medical Systems, as described in the Notes to consolidated financial statements;

• Adjusted EBITDA does not include shelf registration costs;

• Adjusted EBITDA does not include transaction costs associated with business acquisitions; and

• Others may calculate Adjusted EBITDA differently than we do and these calculations may not be comparable to our Adjusted EBITDA metric. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income (loss) and our financial results presented in accordance with U.S. GAAP.

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The following table provides a reconciliation of net loss to Adjusted EBITDA for each of the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2015			2014			2015			2014
GAAP net loss	$	(5,426	)	$	(3,552	)	$	(12,125	)	$	(10,619	)
Adjustments to reconcile to Adjusted EBITDA:
Income tax expense		727			61			764			87
Depreciation and amortization		905			763			1,684			1,458
Other expense (income), net		(146	)		31			332			192
Stock-based compensation		1,080			367			1,781			665
Change in fair value of contingent liability		29			(509	)		50			(464	)
Acquisition costs		546			—			709			—
Shelf registration costs		57			—			57			—
Adjusted EBITDA	$	(2,228	)	$	(2,839	)	$	(6,748	)	$	(8,681	)

Backlog

Our backlog consists of the total future value of our committed customer purchases, whether billed or unbilled. Backlog includes products, software maintenance and professional services which we have billed or been paid for in advance, and are included in deferred revenue on our balance sheet, as well as committed customer purchases where we have not invoiced or fulfilled the order as of the last day of the applicable period and which are not reflected on our balance sheet. We generally complete the unfulfilled committed customer product purchases by shipment in the next fiscal quarter and recognize revenue upon such shipment. We recognize any maintenance and services revenue related to unfulfilled committed customer purchases in subsequent periods in accordance with our revenue recognition policies. As of June 30, 2015 and December 31, 2014, we had backlog of $42.9 million and $39.3 million, respectively. Of the $42.9 million in backlog as of June 30, 2015, approximately $26.8 million, which includes approximately $17.5 million of maintenance, is expected to be recognized as revenue during the remainder of the year ended December 31, 2015. Additionally, $11.0 million of maintenance revenue is expected to be recognized over the five year period subsequent to the year ended December 31, 2015. Revenue in any period is a function of new purchases during the period, the timing of fulfillment of customer orders, maintenance renewals and revenue recognized from backlog. Therefore, backlog viewed in isolation may not be indicative of future performance. Our presentation of backlog may differ from that of other companies in our industry.

Critical accounting estimates

Our financial statements are prepared in conformity with U.S. GAAP. We will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. To the extent that there are material differences between our estimates and our actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. See Note 2 of our audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on March 11, 2015 for information about these critical accounting policies as well as a description of the “Summary of significant accounting policies.”

Recent accounting guidance

Accounting standards or updates not yet effective

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. On July 9, 2015, the FASB voted to delay the effective date of this ASU to annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early adoption permitted as of the original effective date of periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on the Company’s Consolidated Financial Statements upon adoption.

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In April 2015, the FASB issued an ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt, consistent with debt discounts. The accounting standard update will be effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years on a retrospective basis, with early adoption permitted. The accounting standard update is a change in balance sheet presentation only and is not expected to have a material impact on our Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. We anticipate that the adoption of this ASU will not have a material impact on our Consolidated Financial Statements.

Results of operations

The following table sets forth our consolidated statements of operations data for each of the periods presented.

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2015			2014			2015			2014
Revenue
Product	$	16,305		$	12,225		$	29,218		$	21,499
Maintenance and services		13,663			11,008			26,386			21,175
Total revenue		29,968			23,233			55,604			42,674
Cost of revenue
Product		4,088			2,475			7,511			4,635
Maintenance and services		5,296			4,400			10,223			8,593
Total cost of revenue		9,384			6,875			17,734			13,228
Gross profit		20,584			16,358			37,870			29,446
Operating expenses
Research and development		7,840			6,291			14,711			12,827
Sales and marketing		12,999			11,216			25,018			21,635
General and administrative		4,590			2,311			9,170			5,324
Total operating expenses		25,429			19,818			48,899			39,786
Loss from operations		(4,845	)		(3,460	)		(11,029	)		(10,340	)
Other income (expense)
Foreign currency exchange loss		150			4			(312	)		(127	)
Interest and other income expense (net)		(4	)		(35	)		(20	)		(65	)
Loss before income taxes		(4,699	)		(3,491	)		(11,361	)		(10,532	)
Income taxes		727			61			764			87
Net loss	$	(5,426	)	$	(3,552	)	$	(12,125	)	$	(10,619	)

Revenue

Product revenue is generally recognized upon shipment of the software license key or hardware. Software, subscription and maintenance revenues are recognized ratably over their respective subscription and maintenance period. Revenue from our professional service arrangements is recognized as the services are performed. Training revenue is recognized when the training is completed. See our audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC for “Summary of significant accounting policies—Revenue recognition” for more information.

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The following table sets forth our revenues for each of the periods presented.

	Three Months Ended June 30,						Period-to-Period					Six Months Ended June 30,						Period-to-Period
	2015			2014			Change					2015			2014			Change
(dollars in thousands)	Amount			Amount			$		%			Amount			Amount			$		%
Revenue
Product revenue	$	16,305		$	12,225		$	4,080		33.4	%	$	29,218		$	21,499		$	7,719		35.9	%
Percentage of revenue		54.4	%		52.6	%							52.5	%		50.4	%
Maintenance and service revenue		13,663			11,008			2,655		24.1	%		26,386			21,175			5,211		24.6	%
Percentage of revenue		45.6	%		47.4	%							47.5	%		49.6	%
Total Revenue	$	29,968		$	23,233		$	6,735		29.0	%	$	55,604		$	42,674		$	12,930		30.3	%

Product revenue

We derive our product revenue from the sales of both software and hardware. We derive substantially all of our software revenue from the sale of perpetual licenses for our Imprivata OneSign solution. Our license sales are generally priced on a per user basis, but are sometimes licensed on an enterprise-wide basis with an unlimited number of users. From time to time, we also derive software revenue from licenses sold on a term license basis. The software is delivered pre-loaded on a hardware server or as a software only solution that provides the same functionality as the software delivered on the pre-loaded server. Hardware sales also include the sale of devices such as proximity card and fingerprint readers. Following our acquisition of HT Systems, we expect that hardware sales will also include the sale of palm vein biometric readers associated with our Imprivata PatientSecure solution.

Comparison of three months ended June 30, 2015 and 2014

Product revenue increased by $4.1 million, or 33%, during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase was driven primarily by an increase of $5.5 million in sales of additional products into our existing customer base, $5.6 million of which relate to healthcare customers. This increase was offset by a minimal decrease in sales to existing non-healthcare customers. Sales to new customers decreased by approximately $1.4 million over the same period. Sales to new healthcare customers decreased by $2.5 million during the three months ended June 30, 2015 as compared to the three months ended June 30, 2014, which was offset by a $1.1 million increase in sales to new non-healthcare customers. Although our sales to new non-healthcare customers increased during the three months ended June 30, 2015, we believe the composition of non-healthcare customers may vary on a quarterly basis and is not indicative of any trend.

Comparison of six months ended June 30, 2015 and 2014

Product revenue increased by $7.7 million, or 36%, during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was driven primarily by an increase of $6.8 million in sales of additional products into our existing customer base, $7.1 million of which relate to healthcare customers, which was offset by a $250,000 decrease in sales to non-healthcare customers. Sales to new customers increased by approximately $950,000 over the same period. Sales to new healthcare customers increased by $150,000 during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. Sales to new non-healthcare customers increased $800,000 for the same period. We believe the composition of non-healthcare customers may vary on a quarterly basis and is not indicative of any trend.

Maintenance and service revenue

Maintenance and services revenue is generated from maintenance and technical support associated with our software as well as professional services, which include implementation and training. Maintenance is typically invoiced annually in advance, recorded as deferred revenue and recognized ratably over the maintenance period. Professional services revenue consists primarily of fees associated with the implementation of our software and training services, and represented between 9% and 12% of our revenues for the three and six month ended June 30, 2015 and 2014. Our professional service arrangements are generally billed on a time and materials basis and revenue is recognized as the services are performed. Training is generally billed as a fixed fee and revenue is recognized when the training is completed.

Comparison of three months ended June 30, 2015 and 2014

Maintenance and service revenue increased by $2.7 million, or 24%, during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase was driven by increased maintenance revenue of $1.9 million resulting from our larger installed base of users. In addition, professional services increased by $800,000 over the same period due to the increased sales of our products, which resulted in new professional services related to implementation and training.

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Comparison of six months ended June 30, 2015 and 2014

Maintenance and service revenue increased by $5.2 million, or 25%, during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was driven by increased maintenance revenue of $3.7 million resulting from our larger installed base of users. In addition, professional services increased by $1.5 million over the same period due to the increased sales of our products, which resulted in new professional services related to implementation and training.

Cost of revenue

The following table sets forth our cost of revenues for each of the periods presented.

	Three Months Ended June 30,						Period-to-Period					Six Months Ended June 30,						Period-to-Period
	2015			2014			Change					2015			2014			Change
(dollars in thousands)	Amount			Amount			$ / #		%			Amount			Amount			$ / #		%
Cost of revenue
Product	$	4,088		$	2,475		$	1,613		65.2	%	$	7,511		$	4,635		$	2,876		62.0	%
Product gross margin		74.9	%		79.8	%							74.3	%		78.4	%
Maintenance and services		5,296			4,400			896		20.4	%		10,223			8,593			1,630		19.0	%
Maintenance and service gross margin		61.2	%		60.0	%							61.3	%		59.4	%
Total cost of revenue	$	9,384		$	6,875		$	2,509		36.5	%	$	17,734		$	13,228		$	4,506		34.1	%
Total gross margin		68.7	%		70.4	%							68.1	%		69.0	%
Headcount		105			77			28		36.4	%		105			77			28		36.4	%

Cost of product revenue

Cost of product consists primarily of costs of physical appliances and proximity card and fingerprint readers. Additional product costs include third party software license costs, duties and freight and amortization expense related to intangible assets acquired. In future periods, as a result of the acquisition of HT Systems, we expect that cost of product will also include the cost of palm vein biometric readers.

Comparison of three months ended June 30, 2015 and 2014

Cost of product revenue increased by $1.6 million, or 65%, during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase is primarily attributable to the significant growth in sales of devices during the three months ended June 30, 2015. Product gross margin decreased due to unfavorable changes in the mix between higher-margin software and device sales. Device sales have lower margins than software sales. Device revenues as a percentage of total product revenues can fluctuate and, as a result, we expect product gross margins to vary depending on the mix of device revenues to total product revenues.

Comparison of six months ended June 30, 2015 and 2014

Cost of product revenue increased by $2.9 million, or 62%, during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was primarily attributable to the increase in sales of proximity cards and fingerprint devices. Product gross margin decreased due to unfavorable changes in the mix between higher-margin software and device sales. Device sales have lower margins than software sales and device sales increased as a percentage of total product revenue during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014 which resulted in the decrease in product gross margin. Device revenues as a percentage of total product revenues can fluctuate and, as a result, we expect product gross margins to vary depending on the mix of device revenues to total product revenues.

Cost of maintenance and service revenue

Cost of maintenance and services consists primarily of costs related to our support and professional services personnel, including employee wages and benefits, bonuses, stock compensation and travel expense. These costs also include depreciation and overhead related to facilities and information technology used to provide these services.

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Comparison of three months ended June 30, 2015 and 2014

Cost of maintenance and services revenue increased by $896,000, or 20%, during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase was primarily due to increase of $957,000 in payroll and related costs as a result of the increase in the number of employees. The timing for new hires may vary on a quarterly basis and is not indicative of any trend. The increase in the number of employees also caused an increase in travel and related costs of $132,000. These increases were partially offset by a decrease in consulting expenses of $208,000, as a result of our reduction in the use of consultants, as we increase our support and services personnel.

Comparison of six months ended June 30, 2015 and 2014

Cost of maintenance and services revenue increased by $1.6 million, or 19%, during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was primarily attributable to an increase of $1.8 million in payroll and related costs as a result of our increased investment in our support and services. In addition, the increase in the number of employees hired also caused an increase in travel-related costs of $298,000. These increases were partially offset by a $506,000 decrease in consulting expense as we reduce our use of third party consultants for support and services. The timing for new hires may vary on a quarterly basis and is not indicative of any trend.

Operating expenses

Our operating expenses consist primarily of personnel costs, including salaries, commissions, bonuses, share-based compensation and related benefits and taxes, costs related to the design and development of new products and enhancement of existing products, marketing programs, consulting, travel, and depreciation expenses. Personnel costs are our largest expense, representing $16.0 million, or 63%, and $12.7 million, or 64%, of our total operating expenses for the three months ended June 30, 2015 and 2014, respectively. During the six months ended June 30, 2015 and 2014, personnel costs were $30.7 million, or 63%, and $24.9 million, or 63%, respectively, of our total operating expenses. We allocate overhead such as our information technology expenses, including personal costs, and facility expenses based on headcount. Due to our headcount growth, we have increased the leased square footage for our corporate headquarters in Lexington, Massachusetts and our capital expenditures for leasehold improvements and information technology equipment.

The following table sets forth our operating expenses.

	Three Months Ended June 30,						Period-to-Period					Six Months Ended June 30,						Period-to-Period
	2015			2014			Change					2015			2014			Change
(dollars in thousands)	Amount			Amount			$ / #		%			Amount			Amount			$ / #		%
Operating expenses
Research and development	$	7,840		$	6,291		$	1,549		24.6	%	$	14,711		$	12,827		$	1,884		14.7	%
Percentage of revenue		26.2	%		27.1	%							26.5	%		30.0	%
Sales and marketing		12,999			11,216			1,783		15.9	%		25,018			21,635			3,383		15.6	%
Percentage of revenue		43.4	%		48.3	%							45.0	%		50.7	%
General and administrative		4,590			2,311			2,279		98.6	%		9,170			5,324			3,846		72.2	%
Percentage of revenue		15.3	%		9.9	%							16.5	%		12.5	%
Total operating expenses	$	25,429		$	19,818		$	5,611		28.3	%	$	48,899		$	39,786		$	9,113		22.9	%
Percentage of revenue		84.9	%		85.3	%							87.9	%		93.2	%
Headcount
Research and development		117			94			23		24.5	%		117			94			23		24.5	%
Sales and marketing		154			127			27		21.3	%		154			127			27		21.3	%
General and administrative		40			35			5		14.3	%		40			35			5		14.3	%
Information technology		13			13			—		—			13			13			—		—
Total		324			269			55		20.4	%		324			269			55		20.4	%

Research and development

Research and development expenses consist of costs for our research and development personnel, including salaries, benefits, bonuses and stock-based compensation, the cost of certain third-party contractors, including off-shore development, travel expense and allocated overhead. Research and development costs are expensed as they are incurred.

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We intend to continue to develop additional products and functionality for our existing solutions as well as develop new solutions for the healthcare market and expect research and development costs to continue to increase in absolute dollars, although they may fluctuate as a percentage of revenue.

Comparison of three months ended June 30, 2015 and 2014

Research and development expenses increased by $1.5 million, or 25%, during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The increase was primarily driven by increased payroll and related expenses of $1.6 million, as a result of increase in the number of employees during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014. The timing for new hires may vary on a quarterly basis and is not indicative of any trend. The increase was partially offset by a decrease of $62,000 in consulting expenses for our third-party developers located in the Ukraine and Argentina during the three months ended June 30, 2015, as compared to three months ended June 30, 2014, as the result of the timing of our projects related to our product development and release cycle.

Comparison of six months ended June 30, 2015 and 2014

Research and development expenses increased by $1.9 million, or 15%, during the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase was primarily driven by increased payroll and related costs of $2.2 million for the six months ended June 30, 2015, as compared to the six months ended June 30, 2014. The increase in payroll and related costs was primarily due to our increase in the number of employees during the six months ended June 30, 2015, as compared to the same period in 2014. The timing for new hires may vary on a quarterly basis and is not indicative of any trend. Consulting expenses for our third-party developers located in Ukraine and Argentina decreased by $263,000, as the result of the timing of our projects related to our product development and release cycle.

Sales and marketing

Sales and marketing expenses consist of costs for our sales and marketing personnel, including salaries, benefits, bonuses, stock-based compensation and sales commissions, costs of marketing and promotional events, corporate communications, online marketing, product marketing and management and other brand-building activities, travel expense and allocated overhead. Sales commissions are generally earned and recorded as expense when the customer order has been received, which may precede recognition of the associated revenue. We expect sales and marketing expenses to increase in absolute dollars as we expand our business both domestically and internationally, although they may fluctuate as a percentage of revenue.

Comparison of three months ended June 30, 2015 and 2014

Sales and marketing expenses increased by $1.8 million, or 16%, during the three months ended June 30, 2015 as compared to the three months ended June 30, 2014. The increase was attributable to increased spending on sales-related costs of $1.0 million and marketing and business-development related costs of $761,000 as we continue to invest in building our brand as well as our sales force. The increase in sales-related costs was primarily due to increased payroll and related costs of $682,000, which includes commissions, increased consulting costs of $153,000, increased travel costs of $64,000, and increased hiring costs of $58,000. In addition, increase in marketing and business-development related costs were attributable to increased payroll and related costs of $462,000 and increased marketing and promotion costs of $291,000.

Comparison of six months ended June 30, 2015 and 2014

Sales and marketing expenses increased by $3.4 million, or 16%, during the six months ended June 30, 2015 as compared to the six months ended June 30, 2014. The increase was attributable to an increase in spending on sales related costs of $1.8 million and marketing and business-development related costs of $1.6 million as we continued to invest in building our brand as well as our sales force. The increase in sales-related costs was primarily due to increased payroll and related costs of $1.3 million, which includes commissions, due to our increased headcount, increase of $244,000 related to the Company’s sales events, increased consulting costs of $132,000 and increased hiring costs of $87,000. The increase in marketing and business-development related costs were primarily due to increased payroll and related expenses of $1.3 million and increased marketing and promotion expenses of $319,000.

General and administrative

General and administrative expenses consist primarily of costs for administrative, finance, legal and human resource personnel, including salaries, benefits, bonuses and stock-based compensation, professional fees, insurance premiums, other corporate expenses and allocated overhead. General and administrative expenses also include the re-valuing of our contingent liability associated with any earn-out we may be required to pay in connection with the Validus acquisition. We measure the liability at each balance sheet date

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based on revenue earned to date from the acquired Validus product (now our Imprivata Cortext solution) and our projections of revenues from sales of Imprivata Cortext. We expect our general and administrative expenses to continue to increase in absolute dollars as a result of being a public company, although they may fluctuate as a percentage of revenue. We expect additional general and administrative expenses to include increased personnel costs, insurance costs, costs required to comply with the regulatory requirements of the SEC, as well as costs associated with enhancing our internal controls and accounting systems.

Comparison of three months ended June 30, 2015 and 2014

General and administrative expenses increased by $2.3 million, or 99%, during the three months ended June 30, 2015 as compared to the three months ended June 30, 2014. The increase was primarily due to increased payroll and related costs of $544,000, increased consulting and professional fees of $966,000, primarily for costs associated with our acquisition of HT Systems, and increased insurance expense of $176,000 as a result of the insurance requirements associated with being a publicly traded company. The three months ended June 30, 2015 included an increase of $29,000 in our contingent liability as compared to a reduction of $503,000 during the three months ended June 30, 2014.

Comparison of six months ended June 30, 2015 and 2014

General and administrative expenses increased by $3.8 million, or 72%, during the three months ended June 30, 2015 as compared to the three months ended June 30, 2014. The increase was driven primarily by increased payroll and related costs of $963,000 as a result of increased headcount, increased professional fees and consulting services of $1.4 million, which includes $709,000 of transaction costs related to our acquisition of HT Systems and increased costs as a result of becoming a public company, increased insurance expense of $341,000 in as a result of changes in our insurance coverage due to becoming a public company, increased expenses for corporate events of $464,000 and an increase of $50,000 in our contingent liability as compared to a reduction of $464,000 during the six months ended June 30, 2014.

Other income (expense)

Other income (expense) primarily consists of foreign exchange gains (losses), interest income and interest expense. Foreign exchange gains (losses) relate to transactions denominated in currencies other than the functional currency. Interest income represents interest received on our cash and cash equivalents. Interest expense is associated with our capital leases and term loans.

	Three Months Ended June 30,						Period-to-Period					Six Months Ended June 30,						Period-to-Period
	2015			2014			Change					2015			2014			Change
(dollars in thousands)	Amount			Amount			$		%			Amount			Amount			$			%
Foreign currency exchange gain (loss)	$	150		$	4		$	146		3650.0	%		(312	)		(127	)	$	(185	)		145.7	%
Percentage of revenue		0.5	%		0.0	%							-0.6	%		-0.3	%
Interest and other income (expense), net		(4	)		(35	)		31		-88.6	%		(20	)		(65	)		45			-69.2	%
Percentage of revenue		0.0	%		-0.2	%							0.0	%		-0.2	%
Total other income (expense)	$	146		$	(31	)	$	177		-571.0	%	$	(332	)	$	(192	)	$	(140	)		72.9	%

Comparison of three months ended June 30, 2015 and 2014

Other income increased by $177,000 during the three months ended June 30, 2015 as compared to three months ended June 30, 2014. The increase was primarily driven by foreign exchange gains recognized during the three months ended June 30, 2015, as compared to the three months ended June 30, 2014.

Comparison of six months ended June 30, 2015 and 2014

Other expenses increased by $140,000 during the six months ended June 30, 2015 as compared to six months ended June 30, 2014. The increase was primarily driven by foreign exchange losses recognized during the three months ended March 31, 2015 partially offset by foreign exchange gains recognized during the three months ended June 30, 2015 due to a minor weakening of the U.S. dollar against the Euro and Pound Sterling. We have cash and accounts receivable denominated in the Euro and Pound Sterling as a result of our European operations.

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Income tax expense

	Three Months Ended June 30,						Period-to-Period					Six Months Ended June 30,						Period-to-Period
	2015			2014			Change					2015			2014			Change
(dollars in thousands)	Amount			Amount			$		%			Amount			Amount			$		%
Income taxes	$	727		$	61		$	666		1091.8	%		764			87		$	677		778.2	%
Percentage of revenue		2.4	%		0.3	%							1.4	%		0.2	%

Comparison of three and six months ended June 30, 2015 and 2014

We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our activities outside of the United States are subject to local country income tax and may be subject to U.S. income tax. To date, we have incurred cumulative net losses and maintain a full valuation allowance on our net deferred tax assets. Therefore, we have not recorded any U.S. federal tax provisions and our effective tax rate differs from statutory rates.

We operate in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which we conduct business. Earnings from our activities outside of the United States are subject to local country income tax and in some circumstances are subject to U.S. income tax. To date, we have incurred cumulative U.S. operating losses and maintain a full valuation allowance on our net deferred tax assets. Therefore, we have not recorded any U.S. tax provision associated with income from operations and our effective tax rate differs from the U.S. statutory rate. Our tax expense recorded primarily relates to $173,000 of deferred tax expense associated with long term deferred tax liabilities related to tax basis in acquired goodwill and a tax expense of $83,000 on earnings of certain foreign subsidiaries and to a lesser extent state income taxes.

During the three months ended June 30, 2015, we corrected an error by recording a $535,000 out of period adjustment for the cumulative amount of deferred tax expense associated with post-acquisition adjustments made to our Validus contingent consideration. We also recorded a reduction to income tax expense of $13,500 for the six months ended June 30, 2015.

See Footnote 12, Income Taxes for additional details on these adjustments.

Liquidity and capital resources

Resources

To date, we have financed our operations primarily through the sale of equity securities, including private placements of preferred stock, and net cash proceeds from our IPO, as well as cash from operating activities.

Cash and cash equivalents

As of June 30, 2015, we had $54.7 million of cash and cash equivalents, of which $519,000 was held in our foreign subsidiaries. Our cash is invested in money market funds or in cash deposit accounts, and is held for working capital purposes. We do not enter into investments for trading or speculative purposes.

On June 30, 2014, we completed our IPO, in which we sold 5,750,000 shares of common stock, including 750,000 shares sold pursuant to the underwriters’ option to purchase additional shares, at an offering price of $15.00 per share. We received proceeds from the IPO of $80.2 million, net of underwriting discounts and commissions, but before offering expenses of approximately $3.4 million. As of December 31, 2014, all expenses incurred in connection with the IPO have been paid.

On April 30, 2015, we used approximately $18.9 million in cash to acquire HT Systems, a provider of palm-vein based biometric patient identification systems, in order to enter into the positive patient identification market.

We believe our cash and cash equivalents, $15.0 million revolving credit agreement and cash flows from operations will be sufficient to meet our working capital and capital expenditure requirements for at least 12 months.

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Our net cash flows from operating, investing and financing activities for the years indicated in the table below were as follows:

	Six Months Ended June 30,
(in thousands)	2015			2014
Net cash used in operating activities	$	(5,102	)	$	(4,742	)
Net cash used in investing activities		(19,967	)		(1,354	)
Net cash provided by financing activities		1,215			78,506
Effect of exchange rates on cash and cash equivalents		3			100
Net (decrease) increase in cash and cash equivalents	$	(23,851	)	$	72,510

Net cash used in operating activities

Cash provided by operating activities consists of significant components of the statement of operations adjusted for changes in various working capital items including accounts receivable, prepaid expenses, accounts payable, and deferred revenue. Cash provided by operating activities is influenced by the investment we make in personnel and infrastructure costs necessary to support the anticipated growth of the business, the increase in the sales of software licenses and renewal of software maintenance contracts as well as the timing of customer payments.

Our cash used in operating activities during the six months ended June 30, 2015 was primarily due to a net loss of $12.1 million adjusted for $4.2 million of non-cash expenses that included $1.7 million of depreciation and amortization, $1.8 million in stock-based compensation, deferred income taxes of $694,000, a loss on disposal of fixed assets of $14,000 and an increase of $50,000 due to increase in the fair value of the contingent purchase price liability. Net increase in working capital amounted to $2.8 million attributable to decreases in accounts receivable of $4.5 million, an increase in accounts payable of $1.0 million, an increase in deferred revenue of $604,000, and an increase in other liabilities of $279,000. These increases were partially offset by a decrease in accrued expenses of $3.0 million, and an increase in prepaid expenses and other current assets of $616,000.

Net cash used in investing activities

Our primary investing activities have consisted of capital expenditures to purchase computer equipment and furniture and fixtures as well as leasehold improvements to our company headquarters necessary to support the expansion of our infrastructure and workforce. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

During the six months ended June 30, 2015, our cash expenditures related to investing activities were acquisition of HT Systems for $18.9 million, purchase of three patents for $437,000, and purchase of property and equipment for $644,000, which was primarily driven by the increase in leasehold improvements, computer equipment and furnishings for our corporate headquarters, as well as increases in computer equipment for our increased headcount.

Net cash provided by financing activities

Our primary financing activities have consisted of proceeds from the exercise of stock options as well as proceeds from and payments on equipment debt obligations entered into to finance equipment leases and purchased software costs.

For the six months ended June 30, 2015, cash provided by financing activities primarily consisted of $684,000 proceeds from the Company’s employee stock purchase plan and $853,000 of proceeds from the exercise of stock options, partially offset by $322,000 in payments in connection with our debt, capital leases and royalty obligations.

Requirements

Capital expenditures

We have made capital expenditures primarily for leasehold improvements and furniture and fixtures related to the expansion of our corporate headquarters, as well as information technology equipment to support our increased headcount, product enhancement and development and our overall growth. Our capital expenditures totaled $644,000 and $1.4 million for the six months ended June 30, 2015 and 2014, respectively.

We expect our 2015 capital expenditures to be consistent with previous periods presented, with expenditures primarily related to, equipment to support product development, facility expansions and other general purposes to support our growth.

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Contractual obligations and commitments

There have been no other significant changes in contractual obligations from those disclosed in the audited consolidated financial statements for the year ended December 31, 2014 included in our Annual Report on Form 10-K filed with the SEC on March 11, 2015, except for the following: during the three months ended March 31, 2015, we amended our lease agreement for our corporate headquarters to lease approximately 21,000 of additional square footage. The amendment increased the total square footage leased to approximately 93,000 and extended the term through December 2021. The additional rent expense is approximately $7.9 million over the revised extended term and the landlord has agreed to contribute approximately $735,000 towards leasehold improvements.

Off-balance sheet arrangements

During the periods presented, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Item 3. Quantitative and qualitative disclosures about market risk

We have operations both within the United States and internationally which expose us to market risk. These risks are primarily the result of fluctuation in foreign exchange rates and interest rates, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. We do not use derivative instruments to mitigate the impact of our market risk exposures.

Foreign currency exchange risk

We have foreign currency risks related to our cash, accounts receivable, revenue and operating expenses denominated in currencies other than the U.S. dollar.

We maintain foreign cash accounts denominated in the Euro and British Pound Sterling, to fund our foreign operations and collect foreign accounts receivables. We generally invoice our customers in the currencies of the countries in which the customer is located. At June 30, 2015, our foreign accounts receivable balances were primarily denominated in the Euro, British Pound Sterling and the Australian Dollar.

Our customer contracts are generally denominated in the currencies of the countries in which the customer is located which exposes us to risk associated with sales made in foreign currencies. Our historical revenue has been denominated in U.S. dollars, the Euro and British Pound Sterling. The functional currency for our foreign operations is denominated in the local currency and as a result operating expenses related to our foreign locations are impacted by fluctuations in foreign currency exchange rates. Increases and decreases in our foreign denominated revenue due to fluctuations in foreign currency exchange rates are somewhat offset by the currency fluctuations in our operating expenses that are denominated in foreign currencies

If the foreign currency exchange rates fluctuated by 10% as of June 30, 2015, our foreign currency exchange gain or loss would have fluctuated by $592,000.

Interest rate risk

At June 30, 2015, we had cash and cash equivalents of $54.7 million. We maintain substantially all of our cash equivalents in an institutional money market mutual fund. The fund provides daily liquidity and invests in a portfolio of short-term money market instruments issued by the U.S. government. We do not enter into investments for trading or speculative purposes. Due to the short-term nature of these investments, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

At June 30, 2015, we had a 2.5 year term loan with a fixed interest rate of 6.5%, associated with the purchase of licenses and associated maintenance with an outstanding balance of $161,000. Changes in interest rates would not have a significant impact on our outstanding borrowing.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), refers to controls and procedures that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,

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within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to a company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer, our principal executive officer, and our Chief Financial Officer, our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2015, the end of the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

From time to time, we may be involved in lawsuits, claims, investigations and proceedings, consisting of intellectual property, commercial, employment and other matters which arise in the ordinary course of business. We are not currently involved in any material legal proceedings.

Item 1A. Risk Factors

These are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Because of the these factors, as well as other variables affecting our operating results, past financial performance should not be considered as a reliable indicator of future performance and investors should not use historical trends to anticipate results or trends in future periods. These risks are not the only ones facing us. Please also see “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS” earlier in this Quarterly Report on Form 10-Q. The following discussion highlights certain risks which may affect future operating results. These are the risks and uncertainties we believe are most important for our existing and potential stockholders to consider. Additional risks and uncertainties not presently known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or business in general, may also impair our business operations. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results would likely suffer.

Risks related to our business and industry

We have a history of losses, we expect to continue to incur losses and we may not be profitable in the future.

We incurred a $12.1 million net loss for the six months ended June 30, 2015. As of June 30, 2015, we had an accumulated deficit of $119.7 million and we expect to continue to incur operating and net losses for the foreseeable future. Our ability to be profitable in the future depends upon continued demand for our authentication, access management and secure communication solutions for the healthcare industry. In addition, our profitability will be affected by, among other things, our ability to develop and commercialize new solutions and products for those solutions, and our ability to enhance existing solutions and products. Further market adoption of our solutions, including increased penetration within our existing customers, depends upon our ability to address security concerns in the healthcare setting, improve clinical workflows related to the utilization of healthcare information technology systems, and increase clinician productivity. We expect to incur significant operating costs relating to our research and development initiatives for our new and existing solutions and products, and for our expansion of our sales and marketing operations as we add additional sales personnel and increase our marketing efforts. Furthermore, we may incur significant losses in the future for a number of reasons, including the other risks described in this Quarterly Report on Form 10-Q, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown events. As a result, we cannot assure you that we will be able achieve or sustain profitability in the future.

We depend on sales of our Imprivata OneSign solution in the healthcare industry for a substantial portion of our revenue, and any decrease in its sales would have a material adverse effect on our business, financial condition and results of operations.

A substantial portion of our revenue to date has been derived from sales to the healthcare industry of Imprivata OneSign, our authentication and access solution. We anticipate that sales of our Imprivata OneSign solution to the healthcare industry will continue to represent a substantial portion of our revenue for the foreseeable future. Any decrease in revenue from sales of this solution would have a material adverse effect on our business. Healthcare organizations are currently facing significant budget constraints, increasing demands resulting from a growing number of patients, and impediments to obtaining third-party reimbursements and patient payments for their services. Although healthcare organizations are currently allocating funds for capital and infrastructure improvements to benefit from governmental initiatives, they may not choose to prioritize or implement authentication or access management solutions as part of those efforts at this time, or at all, due to financial and resource constraints. Even if clinicians determine that our Imprivata OneSign solution provides benefits over their existing authentication and access management solutions, their healthcare organizations may not have, or may not be willing to spend, the resources necessary to purchase, install and maintain information technology systems, adopt our Imprivata OneSign solution, add licensed users in other departments or purchase additional products and services from us.

In addition, our healthcare customers have been experiencing consolidation in response to developments generally affecting the healthcare industry. As a result, we may lose existing or potential healthcare customers for our solutions. If our existing customers combine with other healthcare organizations that are not our customers, they may reduce or discontinue their purchases of our solutions. In addition, the combined organizations may have greater leverage in negotiating terms with us, and we may be forced to accept terms that are less favorable to us.

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We do not anticipate that sales of our solutions, including Imprivata OneSign, in non-healthcare industries will represent a significant portion of our revenue for the foreseeable future. Additionally, we do not expect that sales of our other solutions will represent a significant portion of our revenue for the foreseeable future. As a result, decreased revenue from sales of our Imprivata OneSign solution in the healthcare industry would have a material adverse effect on our business, financial condition and results of operations.

We may not be able to attract new customers and retain and increase sales to our existing customers, which could have a material adverse effect on our business, financial condition and results of operations.

Our success and growth strategy depends in part upon the purchase of our authentication, access management and secure communication solutions by new customers. Our sales and marketing efforts seek to demonstrate to potential new customers that our solutions improve security, streamline clinician workflow and increase productivity, enhance the value of existing investments in healthcare information technology, and help ensure compliance with complex privacy and security regulations. If we are not able to persuade new customers that our solutions provide these benefits, or if we fail to generate sufficient sales leads through our marketing programs, then we will not be able to attract new customers, which would have a material adverse effect on our business, financial condition and results of operations.

In most cases, our customers initially license our solutions for a limited number of departments within a healthcare organization. After the initial sale, our customers frequently add licensed users in other departments, functional groups and sites and buy additional products and services over time. Factors that may affect our ability to retain and increase sales to our existing customers include the quality of our customer service, training and technology, as well as our ability to successfully develop and introduce new solutions and products. Additionally, our customers may stop using our solutions or may not renew agreements for services, including software maintenance, for reasons entirely out of our control, such as a reduction in their budgets. If our efforts to satisfy our existing customers are not successful, we may not be able to retain them or sell additional functionality to them, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to successfully develop and introduce new solutions and products for existing solutions, our business, financial condition and results of operations could be adversely affected.

Our success depends, in part, upon our ability to anticipate industry evolution and introduce or acquire new solutions and products to keep pace with technological developments and market requirements both within our industry and in related industries. However, we may not be able to develop, introduce, acquire and integrate new solutions and products in response to our customers’ changing requirements in a timely manner or on a cost-effective basis, or that sufficiently differentiate us from competing solutions such that customers choose to purchase our solutions. For example, healthcare organizations may shift their existing information technology infrastructure from on-site services to cloud-based services, which may not be compatible with our solutions, requiring us to develop new products or to re-engineer our existing products. In addition, healthcare organizations may adopt mobile applications more quickly than we have anticipated, requiring us to accelerate the development of mobile versions of our solutions. If any of our competitors implement new technologies before we are able to implement them or better anticipates the innovation opportunities in related industries, those competitors may be able to provide more effective or more cost-effective solutions than ours. In addition, we may experience technical problems and additional costs as we introduce new solutions, deploy future iterations of our solutions and integrate new solutions with existing customer systems and workflows. If any of these problems were to arise, our business, financial condition and results of operations could be adversely affected.

Developments in the healthcare industry or regulatory environment could adversely affect our business.

Our growth strategy is focused on the healthcare industry and a substantial portion of our revenue is derived from the healthcare industry. This industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Developments generally affecting the healthcare industry, including new regulations or new interpretations of existing regulations, such as reductions in funding, changes in pricing for healthcare services or impediments to third-party reimbursement for healthcare costs, may cause deterioration in the financial or business condition of our customers and cause them to reduce their spending on information technology. As a result, these developments could adversely affect our business.

In March 2010, comprehensive healthcare reform legislation was enacted in the United States through the Patient Protection and Affordable Health Care for America Act and the Health Care and Education Reconciliation Act. This law has increased health insurance coverage through individual and employer mandates, subsidies offered to lower income individuals, tax credits available to smaller employers and broadening of Medicaid eligibility, and to affect third-party reimbursement levels for healthcare organizations. We cannot predict what effect federal healthcare reform or any future legislation or regulation, or healthcare initiatives, if any, implemented at the state level, will have on us or our healthcare customers.

In addition, our healthcare customers’ expectations regarding pending or potential industry developments may also affect their budgeting processes and spending plans with respect to our solutions. The healthcare industry has changed significantly in recent

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years and we expect that significant changes will continue to occur. However, the timing and impact of developments in the healthcare industry are difficult to predict. We cannot assure you that the markets for our solutions will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.

Seasonal variations in the purchasing patterns of our customers may lead to fluctuations in our operating results and financial condition.

We have experienced and expect to continue to experience seasonal variations in the timing of customers’ purchases of our solutions. Many customers make purchasing decisions based on their fiscal year budgets, which typically coincide with the calendar year and result in increased purchasing in the fourth quarter of the year. Because many of our expenses remain relatively fixed throughout the year, the seasonality of our business requires us to manage our working capital carefully over the course of the year. If we fail to manage our working capital effectively or do not accurately predict customer demand in the fourth quarter of the year, our operating results and financial condition may fluctuate.

Our sales cycles for new customers can be lengthy and unpredictable, which may cause our revenue and operating results to fluctuate significantly.

Our sales cycles for new customers can be lengthy and unpredictable. Our sales efforts involve educating our customers about the use and benefits of our authentication, access management and secure communication solutions, including demonstrating the potential of our solutions in improving security, streamlining clinician workflow and increasing productivity. Potential customers may undertake a significant evaluation process to assess their existing healthcare information technology infrastructure, as well as our solutions. This assessment can result in a lengthy and unpredictable sales cycle. In addition, purchases of our solutions are frequently subject to budget constraints, multiple approvals, and unplanned administrative, processing and other delays. We spend substantial time, effort and money in our sales efforts without any assurance that our efforts will produce any sales. In addition, cancellation of any implementation after it has begun might result in lost time, effort, and expenses invested in the cancelled implementation process and lost opportunity for implementing paying customers in that same period of time. These factors may contribute to significant fluctuations in our revenue and operating results.

Our revenue and operating results have fluctuated, and are likely to continue to fluctuate, which may make our quarterly results difficult to predict, cause us to miss analyst expectations and cause the price of our common stock to decline.

Our revenue and operating results may be difficult to predict, even in the near term, and are likely to fluctuate as a result of a variety of factors, many of which are outside of our control. Comparisons of our revenue and operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance. Each of the following factors, among others, could cause our revenue and operating results to fluctuate from quarter to quarter:

• the financial health of our healthcare customers and budgetary constraints on their ability to purchase security and productivity information technology solutions;

• changes in the regulatory environment affecting our healthcare customers, including impediments to their ability to obtain third-party reimbursement for their services;

• our ability to develop and introduce new solutions and products and enhance existing solutions that achieve market acceptance;

• the procurement and deployment cycles of our healthcare customers and the length of our sales cycles;

• our ability to forecast demand and manage lead times for the manufacture of hardware used in our solutions;

• the mix of our product and service revenue and pricing, including discounts by us or our competitors; and

• the timing of when orders are fulfilled and revenue is recognized.

The resulting variability and unpredictability could result in our failure to meet our operating plan or the expectations of investors or analysts for any period. If we fail to meet such expectations for these or other reasons, the market price of our common stock may decline.

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If we are unable to maintain successful relationships with our channel partners and technology alliance partners, our ability to market, sell and distribute our solutions will be limited and our business, financial condition and results of operations could be adversely affected.

In addition to our direct sales force, we rely on our sales partners, consisting of our channel partners and technology alliance partners, to sell our solutions. We derive a substantial portion of our revenue from sales of our products and services through our sales partners, and we expect that sales through sales partners will continue to be a significant percentage of our revenue. For the six months ended June 30, 2015 and 2014, 8% of our total revenues were derived from our largest sales partner.

Our agreements with our sales partners are generally non-exclusive, meaning our sales partners may offer their customers products and services from several different companies, including products and services that compete with ours. We depend on channel partners to supplement our direct sales organization within the United States and internationally. If our channel partners do not effectively market and sell our products and services, choose to use greater efforts to market and sell their own products and services or those of our competitors, or fail to meet the needs of our customers, our ability to grow our business and sell our products and services may be adversely affected. Our channel partners may cease marketing our products and services with limited or no notice and with little or no penalty, and they have no obligation to renew their agreements with us on commercially reasonable terms, or at all. The loss of a substantial number of our channel partners, our possible inability to replace them, or the failure to recruit additional channel partners could materially and adversely affect our results of operations. New channel partners require extensive training and may take several months or more to achieve productivity for us. Our channel partner structure could also subject us to lawsuits or reputational harm if, for example, a channel partner misrepresents the functionality of our platform to customers or violates applicable laws or our corporate policies applicable to the partner. We work with our technology alliance partners to design go-to-market strategies that combine our solutions with products or services provided by our technology alliance partners. The loss of a technology alliance partner may mean that certain of our solutions that were designed to interoperate with the products or services provided by the technology alliance partner may no longer function as intended and require substantial re-engineering or the development of new solutions and products.

Our ability to generate revenue in the future will depend in part on our success in maintaining effective working relationships with our sales partners, in expanding our indirect sales channel, in training our channel partners to independently sell and deploy our solutions and in continuing to integrate our solutions with the products and services offered by our technology alliance partners. If we are unable to maintain our relationships with these sales partners, our business, financial condition and results of operations could be adversely affected.

We depend on sole source suppliers and a contract manufacturer for hardware components of our solutions. If we are unable to source our components from them or effectively forecast our customer demand to properly manage our inventory, our business and operating results could be adversely affected.

We depend on sole source suppliers for hardware components of our solutions. We rely upon Cross Match Technologies, Inc. (formerly DigitalPersona, Inc.) as the only provider of our fingerprint readers used in our Imprivata OneSign solution, which we purchase from Avnet, Inc. on a purchase order basis. We do not have the benefit of a long-term supply agreement or supply commitment. We currently purchase all of our proximity cards used in our Imprivata OneSign solution from RF IDeas, Inc., or RF IDeas. We believe alternative sources of proximity cards are available. We rely on Fujitsu Computer Products of America, Inc., or Fujitsu, as the only provider of our palm vein readers used in our Imprivata PatientSecure solution. In addition, we depend on a contract manufacturer to produce certain other hardware components for our solutions. Our agreements with RF IDeas, Fujitsu and our contract manufacturer renew automatically on an annual basis. These agreements do not contain supply commitments. As a result, we cannot assure you that our suppliers and contract manufacturer will be able to meet our requirements, which could adversely affect our business and operating results.

Any of these suppliers or contract manufacturer could cease production of our components, experience capacity constraints, material shortages, work stoppages, financial difficulties, cost increases or other reductions or disruptions in output, cease operations or be acquired by, or enter into exclusive arrangements with, a competitor. These suppliers and contract manufacturer typically rely on purchase orders rather than long-term contracts with their suppliers. As a result, even if available, an affected supplier or contract manufacturer may not be able to secure sufficient materials at reasonable prices or of acceptable quality to build our components in a timely manner, forcing us to seek components from alternative sources, which may not have the required specifications, or be available in time to meet demand or on commercially reasonable terms, if at all.

We also place orders with our suppliers and contract manufacturer for our inventory based on forecasts of customer demand. Our forecasts are based on multiple assumptions, each of which may introduce errors into our estimates affecting our ability to meet our customers’ demands for our solutions or manage our inventory effectively. We may also be forced to redesign our solutions if a component becomes unavailable in order to incorporate a component from an alternative source, which may increase the cost of providing our solutions. Any of these circumstances could cause interruptions or delays in the delivery of our solutions to our customers, and could adversely affect our business and operating results.

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Our use of third-party off-shore development providers could have a material adverse effect on our business, financial condition and results of operations.

Since 2006, we have relied upon a third-party development provider in Lviv, Ukraine to assist with software development, quality assurance, testing and automation to reduce costs and to meet our customers’ needs in a timely manner. These services are performed pursuant to statements of work under a master services agreement. The development provider may terminate its agreement with us without cause with 60 days’ notice, unless a statement of work is in progress. While they have been dependable in the past, we have less control over the development provider’s performance than if it was comprised of our employees or if the development provider was located in the United States. As a result, we are subject to the risk that the development provider will not perform as anticipated. Furthermore, in recent periods, Ukraine has experienced military action, civil unrest and political and economic uncertainties. The evolving economic, political and social developments in Ukraine may materially and adversely affect the operations of the development provider in ways beyond their control and may constrain our ability to assert or defend our contractual or other legal rights relating to our relationship with the development provider and its handling of our intellectual property.

Since June of 2014, we have also relied upon a third-party developer in Buenos Aires, Argentina to assist with software development, quality assurance, testing and automation to reduce costs and to meet our customers’ needs in a timely manner. These services are performed pursuant to statements of work under a master services agreement. The development provider may terminate its agreement with us without cause with 30 days’ notice, unless a statement of work is in progress. We have less control over the development provider’s performance than if it was comprised of our employees or if the development provider were located in the United States.

If we are unable to rely upon either of these development providers for the reasons stated above or for other reasons, we may be required to shift development projects to our employees or to one or more other independent contractors. As a result, we may face increased costs and delays in our ability to introduce new solutions or products or provide services. These risks could have a material adverse effect on our business, financial condition and results of operations.

If we are not able to manage our growth effectively, or if our business does not grow as we expect, our operating results will be adversely affected.

We have experienced significant revenue growth in recent periods. For example, our revenue increased from $22.0 million for the year ended December 31, 2009, to $97.0 million for the year ended December 31, 2014. During this period, we significantly expanded our operations and increased the number of our employees from 105 at December 31, 2008 to 429 at June 30, 2015. Our rapid growth has placed, and will continue to place, a significant strain on our management systems, infrastructure and other resources. We plan to hire additional direct sales and marketing personnel domestically and internationally, increase our investment in research and development and acquire complementary businesses, technologies or assets. Our future operating results depend to a large extent on our ability to successfully implement these plans and manage our anticipated expansion. To do so successfully we must, among other things:

• manage our expenses in line with our operating plans and current business environment;

• maintain and enhance our operational, financial and management controls, reporting systems and procedures;

• develop and deliver new solutions and enhancements to existing solutions efficiently and reliably;

• manage operations in multiple locations and time zones; and

• integrate acquired businesses, technologies or assets.

We expect to incur costs associated with the investments made to support our growth before the anticipated benefits or the returns are realized, if at all. If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new solutions or enhancements to existing solutions. We may also fail to satisfy customer requirements, maintain quality, execute our business plan or respond to competitive pressures, which could adversely affect our operating results.

Changes in renewal rates in our software maintenance contracts may not be immediately reflected in our operating results.

We generally recognize revenue from our software maintenance contracts ratably over the contract term. A portion of the maintenance revenue we report in each quarter is derived from the recognition of deferred revenue relating to software maintenance contracts entered into during previous quarters. In each of the years ended December 31, 2014, 2013, 2012, 2011 and the six months ended June 30, 2015, we retained greater than 90% of the aggregate dollar amount of our software maintenance contracts up for renewal. Consequently, a decline in renewed software maintenance by our customers in any one quarter may not be immediately reflected in our revenue for that quarter. Such a decline, however, will adversely affect our revenue in future quarters. Accordingly, the effect of significant downturns in our rate of renewals may not be fully reflected in our operating results until future periods.

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We primarily operate in the rapidly evolving and highly competitive healthcare market, and if we fail to effectively respond to competitive pressures, our business, financial condition and operating results could be adversely affected.

The market for security and productivity information technology solutions within the healthcare market is highly fragmented, consisting of a significant number of vendors that is rapidly changing. Competition in our market is primarily based on:

• brand awareness and reputation;

• breadth of our solutions set and ease of implementation, use and management;

• breadth of product distribution;

• strategic relationships and ability to integrate with software and device vendors; and

• product innovation and ability to meet customer needs.

We believe our primary competitor in the healthcare industry in which our Imprivata OneSign solution competes is Caradigm USA LLC, a joint venture of General Electric Company and Microsoft Corporation. We expect competition to intensify in the future with existing competitors and market entrants. Our competitors in the healthcare market for authentication and access management solutions include large, multinational companies with significantly more resources to dedicate to product development and sales and marketing. These companies may have existing relationships within healthcare organizations, which may enhance their ability to gain a foothold in our market. Customers may prefer to purchase a more highly integrated or bundled solution from a single provider or an existing supplier rather than a separate supplier, regardless of performance or features. Increased competition may result in additional pricing pressure, reduced profit margins, higher sales and marketing expenses, lower revenue and the loss of market share, which could adversely affect our business, financial condition and operating results.

Our Imprivata Cortext solution competes in the market for secure communications in the healthcare market. Our Imprivata Confirm ID solution competes in the market for electronic prescribing of controlled substances. Our Imprivata PatientSecure solution competes in the market for biometric positive patient identification in the healthcare market. These markets are highly fragmented, consisting of a large number of rapidly changing vendors. We believe our primary competitor in secure communications in the healthcare market is TigerText. We expect competition to intensify in the future with existing competitors and market entrants in each of the markets in which our Imprivata Cortext, Imprivata Confirm ID and Imprivata PatientSecure solutions compete. As in the healthcare market for authentication and access management solutions, competitors in these markets include large, multinational companies with significantly more resources to dedicate to product development and sales and marketing.

Industry consolidation or new market entrants may result in increased competitive pressure, which could result in the loss of customers or a reduction in revenue.

Some of our competitors have made or may make acquisitions or may enter into partnerships or other strategic relationships to offer more comprehensive services than they individually had offered or achieve greater economies of scale. We expect these trends to continue as companies attempt to strengthen or maintain their market positions. For example, potential entrants not currently considered to be our competitors, such as providers of electronic health record systems, may enter our market by acquiring or developing their own access or authentication management solutions. In addition, providers of authentication and access management solutions, such as CA, Inc., International Business Machines Corporation, Oracle Corporation and Novell, Inc., may enter the healthcare market. Such potential entrants, if they enter the healthcare market for authentication and access management solutions, may have competitive advantages over us, such as greater name recognition, longer operating histories, more varied services and larger marketing budgets, as well as greater financial, technical and other resources. The companies resulting from combinations or that expand or vertically integrate their business to include the authentication and access management market that we address may create more compelling service offerings and may offer greater pricing flexibility than we can or may engage in business practices that make it more difficult for us to compete effectively, including on the basis of price, sales and marketing programs, technology or service functionality. These pressures could result in a substantial loss of our customers, which may have a material adverse effect on our business, financial condition and operating results.

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Our success depends upon our ability to attract, integrate and retain key personnel, and our failure to do so could adversely affect our ability to grow our business.

Our success depends, in part, on the services of our senior management and other key personnel, and our ability to continue to attract, integrate and retain highly skilled personnel, particularly in engineering, sales and marketing. Competition for highly skilled personnel is intense. If we fail to attract, integrate and retain key personnel, our ability to grow our business could be adversely affected.

The members of our senior management and other key personnel are at-will employees, and may terminate their employment at any time without notice. If they terminate their employment, we may not be able to find qualified individuals to replace them on a timely basis or at all and our senior management may need to divert their attention from other aspects of our business. Former employees may also become employees of a competitor. We may also have to pay additional compensation to attract and retain key personnel. We also anticipate hiring additional engineering, marketing and sales, and services personnel to grow our business. Often, significant amounts of time and resources are required to recruit and train these personnel. We may incur significant costs to attract, integrate and retain them, and we may lose them to a competitor or another company before we realize the benefit of our investments in them.

If we do not achieve the anticipated strategic or financial benefits from our acquisitions, or if we cannot successfully integrate them, our business and operating results could be adversely affected.

On April 30, 2015, we acquired our Imprivata PatientSecure solution when we consummated the acquisition of HT Systems, LLC. In the future we may acquire additional businesses, technologies or assets that we believe to be complementary or strategic. We may not achieve the anticipated strategic or financial benefits, or be successful in integrating HT Systems, LLC or other acquired businesses, technologies or assets. If we cannot effectively integrate newly-acquired technologies and solutions and successfully market and sell these new product offerings, we may not achieve market acceptance for, or significant revenue from, these new technologies and solutions.

Integrating newly-acquired businesses, technologies and assets could strain our resources, could be expensive and time consuming, and might not be successful. If we acquire or invest in additional businesses, technologies or assets, we will be further exposed, to a number of risks, including that we may:

• experience technical issues as we integrate acquired businesses, technologies or assets into our existing solutions;

• encounter difficulties leveraging our existing sales and marketing organizations, and sales channels, to increase our revenue from acquired businesses, technologies or assets;

• find that the acquiree’s customers chose not to do business with us;

• find that the acquisition does not further our business strategy, that we overpaid for the acquisition or that the economic conditions underlying our acquisition decision have changed;

• have difficulty retaining the key personnel of acquired businesses;

• suffer disruption to our ongoing business and diversion of our management’s attention as a result of the negotiation of any acquisition as well as related transition or integration issues and the challenges of managing geographically or culturally diverse enterprises; and

• experience unforeseen and significant problems or liabilities associated with quality, technology and legal contingencies relating to the acquisition, such as intellectual property or employment matters.

In addition, from time to time we may enter into negotiations for acquisitions that are not ultimately consummated. These negotiations could result in significant diversion of management time, as well as substantial out-of-pocket costs. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash. To the extent we issue shares of capital stock or other rights to purchase capital stock, including options and warrants, the ownership of existing stockholders would be diluted. In addition, acquisitions may result in the incurrence of debt, contingent liabilities, write-offs or other unanticipated costs, events or circumstances, any of which adversely affect our business and operating results.

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The software and hardware contained in our solutions are complex and may contain undetected errors that could have a material adverse effect on our business, financial condition and operating results.

Our solutions incorporate complex technology, are used in a variety of healthcare settings and must interoperate with many different types of complex devices and information technology systems. While we test our solutions for defects and errors prior to release, we or our customers may not discover a defect or error until after we have deployed our solutions and our customers have commenced general use of the solution. If we cannot successfully integrate our authentication, access management and secure communication solutions with health information systems as needed or if any hardware or software of these health information systems contains any defect or error, then our solutions may not perform as designed, or may exhibit a defect or error.

Any defects or errors in, or which are attributed to, our solutions, could result in:

• delayed market acceptance of our affected solutions;

• loss of customers or inability to attract new customers;

• diversion of engineering or other resources for remedying the defect or error;

• damage to our brand and reputation;

• increased service and warranty costs;

• legal actions by our customers or third parties, including product liability claims; and

• penalties imposed by regulatory authorities.

Our solutions are utilized by clinicians in the course of providing patient care. It is possible that our healthcare customers may allege we are responsible for harm to patients or clinicians due to defects in, the malfunction of, the characteristics of, or the use of, our solutions. In addition, because our customers rely on our solutions to access health records and to prevent unauthorized access to protected health information, or PHI, a malfunction or design defect in one or more of our products could result in legal or warranty claims against us for damages resulting from security breaches. Although our customer agreements contain disclaimers of liability that are intended to reduce or eliminate our potential liability, we could be required to spend significant amounts of management time and resources to defend ourselves against product liability, tort, warranty or other claims. Additionally, the possible publicity associated with any such claim, whether or not decided against us, could adversely affect our reputation. If any such claims were to prevail, we could be forced to pay damages or stop distributing our solutions. Even if potential claims do not result in liability to us, investigating and defending against these claims could be expensive and time consuming and could divert management’s attention away from our business. We maintain general liability insurance coverage, including coverage for errors and omissions; however, this coverage may not be sufficient to cover large claims against us or otherwise continue to be available on acceptable terms. Further, the insurer could attempt to disclaim coverage as to any particular claim. Such circumstances could have a material adverse effect on our business, financial condition and results of operations.

The market for biometric technology is still developing. There can be no assurance that Imprivata PatientSecure solution will be successful.

The market for Imprivata, PatientSecure, our positive patient identification solution using biometric technology, is still developing. The evolution of this market may result in the development of different technologies and industry standards that are not compatible with our current solutions, products or technologies. Several organizations set standards for biometrics to be used in identification and documentation. Although we believe that our biometric technologies comply with existing standards, these standards may change and any standards adopted could prove disadvantageous to or incompatible with our business model and current or future solutions, products and services. If the biometrics industry adopts standards or a platform different from the one we use in our solution, then our competitive position would be adversely affected.

Although the recent appearance of biometric readers on popular consumer products, such as smartphones, has increased interest in biometrics as a means of identifying individuals, the market for biometric technology remains a developing and evolving market. Acceptance of biometrics as an alternative to traditional methods of identifying patients depends upon a number of factors including: the performance and reliability of biometric solutions; costs involved in adopting and integrating biometric solutions; public perception regarding privacy concerns; and potential privacy legislation. For these reasons, we are uncertain whether our biometric technology will gain widespread acceptance in the healthcare market. Even if there is significant demand, there can be no assurance that our solution will achieve market acceptance or be successful.

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Our international operations subject us, and may increasingly subject us in the future, to operational, financial, economic and political risks abroad, which could have a material adverse effect on our business, financial condition and results of operations.

Although we currently derive a relatively small portion of our revenue from customers outside of the United States, a key element of our growth strategy is to expand internationally. Our international expansion efforts might not be successful in creating demand for our products and services or in effectively selling our solutions in the international markets we enter. In addition, we will face risks in doing business internationally that could adversely affect our business, including:

• difficulties integrating our solutions with information technology systems and processes with which we do not have experience;

• political and economic instability in, or foreign conflicts that involve or affect, the countries where we operate and sell our solutions;

• difficulties in staffing and managing personnel and sales partners;

• the need to comply with a wide variety of foreign laws and regulations, including privacy and security regulations, requirements for export controls for encryption technology, employment laws, changes in tax laws and tax audits by government agencies;

• competitors who are more familiar with local markets;

• challenges associated with delivering services, training and documentation in foreign languages;

• difficulties in collecting accounts receivable and longer accounts receivable payment cycles; and

• limited or unfavorable intellectual property protection in some countries.

In addition, as we continue to expand our international operations, we have become more exposed to the effects of fluctuations in currency exchange rates. We incur expenses for employee compensation and other operating expenses at our international locations and accept payment from customers in the local currency. Since we conduct business in currencies other than the U.S. dollar but report our operating results in U.S. dollars, we have exposure to fluctuations in currency exchange rates. We do not currently hedge against the risks associated with currency fluctuations but may do so in the future.

Any of these factors could harm our existing international business and operations, and have a material adverse effect on our business, financial condition and results of operations.

Risks posed by sales to foreign government-operated healthcare organizations could have a material adverse effect on our revenues and operating results.

We expect to continue to derive a substantial portion of our international revenues from foreign government-operated healthcare organizations. Sales to governmental entities present risks in addition to those involved in sales to commercial customers, including potential disruption due to changes in appropriation and spending patterns, delays in budget approvals and exposure to penalties in the event of violations of the Foreign Corrupt Practices Act. General political and economic conditions, which we cannot accurately predict, directly and indirectly may affect the quantity and allocation of expenditures by governmental entities. In addition, obtaining government contracts may involve long purchase and payment cycles, competitive bidding, qualification requirements, delays or changes in funding, budgetary constraints, political agendas, extensive specification development and price negotiations and milestone requirements. In general, each governmental entity also maintains its own rules and regulations with which we must comply and which can vary significantly among departments. These factors may result in cutbacks or re-allocations in the budget or losses of government sales, which could have a material adverse effect on our revenues and operating results.

If we fail to offer services that are satisfactory to our customers, our ability to sell our solutions will be adversely affected.

Our ability to sell our solutions is dependent upon our ability to provide high-quality services and support. Our services team assists our customers with their clinical workflow design, authentication and access management solution configuration, training and project management during the pre-deployment and deployment stages. Once our solutions are deployed within a customer’s facility, the customer typically depends on our services team to help resolve technical issues, assist in optimizing the use of our solutions and facilitate adoption of new functionality. For instance, a substantial proportion of our customers in the United States rely on our Imprivata OneSign solution as a means to access their electronic health record, or EHR, systems that they implement to meet

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regulatory standards for adoption, or “meaningful use,” of EHR technologies. If our solutions do not adequately facilitate our customers’ attainment of meaningful use requirements as defined by the relevant regulatory authorities and interpreted by our customers, or if deployment of our solutions is unsatisfactory, we may incur significant costs to attain and sustain customer satisfaction. As we hire new services personnel, we may inadvertently hire underperforming people who will have to be replaced, or fail to effectively train such employees. If we do not effectively assist our customers in deploying our solutions, succeed in helping our customers resolve technical and other post-deployment issues, or provide effective ongoing services, our ability to expand the use of our solutions with existing customers and to sell our solutions to new customers will be harmed. In addition, the failure of channel partners to provide high-quality services in markets outside of the United States could adversely affect sales of our solutions internationally.

We face potential liability related to the privacy and security of protected health information accessed or collected through our solutions.

Our customers who use our Imprivata OneSign solution handle, access or store PHI, in the ordinary course of their business. In the United States, the manner in which these customers manage PHI is subject to the Health Insurance Portability and Accountability Act of 1996, or HIPAA, the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH Act, the health data privacy, security and breach notification regulations issued pursuant to these statutes, in addition to state privacy, security and breach notification laws and regulations applicable to such health information. These customers rely on our Imprivata OneSign solution as a tool to facilitate their compliance with applicable health data privacy and security standards. Specifically, HIPAA-covered health care providers are required to implement technical data security safeguards, certain of which are supported by Imprivata OneSign. The failure of our Imprivata OneSign solution to perform an essential function for which it was designed could result in a breach of our obligations under our customer contracts, which could result in monetary damages, adverse publicity, and have an adverse impact on our business.

We also directly handle, access or store PHI in connection with our commercial solutions, such as our Imprivata Cortext solution, which is a secure, cloud-based communication platform that provides healthcare organizations and healthcare providers with secure SMS texting and messaging capabilities. Although we are transmitting and storing PHI in encrypted format for such customers, and do not, in the ordinary course of our business, require access to such PHI, we are deemed to be a “business associate” of such customers and as such are directly subject to certain HIPAA and HITECH Act requirements as well as contractual obligations that may be imposed by our customers pursuant to their HIPAA and HITECH Act requirements. These statutes, regulations and contractual obligations impose numerous requirements regarding the use and disclosure of PHI. Our failure to effectively implement the required or addressable health data privacy and security safeguards and breach notification procedures, our failure to accurately anticipate the application or interpretation of these statutes, regulations and contractual obligations as we develop our solutions or an allegation that defects in our products have resulted in noncompliance by our customers could result in a breach of our contractual obligations to our customers, or create material civil and/or criminal liability for us, which could result in adverse publicity and have a material adverse effect on our business.

In addition to complying with applicable U.S. law, the use and disclosure of PHI is subject to regulation in other jurisdictions in which we do business or expect to do business in the future. Those jurisdictions may attempt to apply such laws extraterritorially or through treaties or other arrangements with U.S. governmental entities. We might unintentionally violate such laws, such laws may be modified and new laws may be enacted in the future which may increase the chance that we violate them. Any such developments, or developments stemming from enactment or modification of other laws, or the failure by us to comply with their requirements or to accurately anticipate the application or interpretation of these laws, could discourage us from offering certain of our solutions, such as Imprivata Cortext, to customers outside of the United States, and could create material liability to us, result in adverse publicity and adversely affect our business. A finding that we have failed to comply with applicable laws and regulations regarding the collection, use and disclosure of PHI could create liability for us, result in adverse publicity and materially adversely affect our business.

In addition, the costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may prevent us from selling our solutions or increase the costs associated with selling our solutions, and may affect our ability to invest in or jointly develop solutions in the United States and in foreign jurisdictions. Further, we cannot assure you that our privacy and security policies and practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of PHI.

Fluctuating economic conditions could have a material adverse effect on our business, financial condition and results of operations.

Our revenue depends significantly on general economic conditions and the demand for our authentication, access management and secure communication solutions in the healthcare market. Our healthcare customers may experience declining revenues from the decreased utilization of healthcare services and diminishing margins due to impediments in obtaining third-party reimbursement and patient payments. These factors may result in constrained spending on such solutions. General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, restructuring initiatives and

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associated expenses, and impairment of investments. Uncertainty about future economic conditions also makes it difficult to forecast operating results and to make decisions about future investments. Such factors could make it difficult to accurately forecast our sales and operating results and could adversely affect our ability to provide accurate forecasts to our suppliers and contract manufacturer and manage our supplier and contract manufacturer relationships and other expenses. Economic weakness faced by us or our customers, failure of our customers and markets to recover from such weakness, customer financial difficulties, and reductions in spending on information technology products and services could have a material adverse effect on demand for our solutions and consequently on our business, financial condition and results of operations.

The market size estimates we have provided publicly may prove to be inaccurate and may not be indicative of our future growth.

Because of rapid and significant technological changes in the market for security and productivity IT in the healthcare industry, it is difficult to predict the size of the market and the rate at which the market for our solutions and services will grow or be accepted. While the estimates of the total available market we have provided publicly are made in good faith and are based on assumptions and estimates we believe to be reasonable, these estimates may not prove to be accurate. This is particularly the case with respect to estimating the size of the international component of the market.

Our Imprivata Cortext solution uses a third-party data service provider for web hosting services. Any operational delay or failure of our Imprivata Cortext solution could expose us to litigation, harm our relationships with customers and have a material adverse effect on our brand and our business.

Our Imprivata Cortext solution utilizes a cloud-based third-party data service provider for web hosting services. We exercise limited control over this third-party data service provider, which increases our vulnerability with respect to the technology and information services it provides. In addition, if we are unable to renew the agreement with the third-party data service provider on commercially reasonable terms, we may be required to transfer our services to new data service providers and we may incur significant costs and possible service interruption in connection with doing so. Our Imprivata Cortext solution provides communication and information to assist healthcare organizations. Any operational delay or failure of our Imprivata Cortext solution might result in the disruption of patient care and could harm our relationships with customers, expose us to litigation or have a material adverse effect on our brand and our business.

We anticipate that sales of our Imprivata Confirm ID solution will be driven primarily by legislation requiring that prescriptions be sent electronically. Failure or delay in the enactment of such laws could cause sales of our Imprivata Confirm ID to be adversely affected.

Our Imprivata Confirm ID solution simplifies healthcare providers’ compliance with laws requiring electronic prescriptions of controlled substances, or EPCS, and helps healthcare providers address workflow inefficiencies and the potential for fraud associated with paper-based prescriptions. Consequently, we anticipate that sales of Imprivata Confirm ID will be driven primarily by state and federal mandates requiring that prescriptions be sent electronically. For example, New York’s I-STOP (Internet System for Tracking Over-Prescribing) law mandates that all patient medications be prescribed electronically. The deadline for prescribers to comply with I-STOP is March 27, 2016. If other states fail to enact legislation requiring that prescriptions be sent electronically or if existing requirements for electronic prescriptions are scaled-back, our ability to sell Imprivata Confirm ID solution may be adversely affected.

The mix of revenue from sales of our subscription-based products and our perpetual software products may result in revenue fluctuations, which may make our quarterly results difficult to predict, cause us to miss analyst expectations, and cause the price of our common stock to decline.

The timing of revenue recognition for our products licensed on a perpetual basis will differ in the event our customers elect to purchase both perpetual and subscription-based products together. Revenue for our perpetual software products is generally recognized upon shipment. If our perpetual software products are sold in a multiple element arrangement with subscription-based products, the revenue associated with the perpetual license will likely be recognized over the period of the subscription to the extent we are unable to determine the vendor specific objective evidence of fair value of undelivered software products. As a result, our revenue and operating results may be difficult to predict, and are likely to fluctuate based on factors, many of which are outside of our control. The resulting variability and unpredictability could result in our failure to meet the expectations of investors or analysts for any period, which could cause the price of our common stock to decline.

If we are required to collect sales and use or similar foreign taxes in additional jurisdictions, we might be subject to liability for past sales and our future sales may decrease.

We might lose sales or incur significant expenses if states or foreign jurisdictions successfully impose broader guidelines on state sales and use or similar foreign taxes. A successful assertion by one or more states or foreign jurisdictions requiring us to collect sales or

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other taxes on the licensing of our solutions or sale of our services could result in substantial tax liabilities for past transactions and otherwise harm our business. Each state or foreign jurisdiction has different rules and regulations governing sales and use or similar foreign taxes, and these rules and regulations are subject to varying complex interpretations that change over time. We review these rules and regulations periodically and, when we believe we are subject to sales and use or similar foreign taxes in a particular state or foreign jurisdiction, engage tax authorities in order to determine how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use or similar taxes or related penalties for past sales in states or foreign jurisdictions where we currently believe no such taxes are required.

Vendors of solutions and services, like us, are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we might be liable for past taxes in addition to taxes going forward. Liability for past taxes might also include substantial interest and penalty charges. Our customer contracts typically provide that our customers must pay all applicable sales and similar taxes. Nevertheless, our customers might be reluctant to pay back taxes and might refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and pay back taxes and the associated interest and penalties, and if our clients fail or refuse to reimburse us for all or a portion of these amounts, we will incur unplanned expenses that may be substantial.

Moreover, imposition of such taxes on us going forward will effectively increase the cost of our solutions and services to our customers and might adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. If we undergo an ownership change, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.

Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by man-made problems such as power disruptions or terrorism.

A significant natural disaster, such as an earthquake, fire or a flood, occurring at our headquarters, our other facilities or where our contract manufacturer or its suppliers are located, could harm our business, operating results and financial condition. In addition, acts of terrorism could cause disruptions in our business, the businesses of our customers and suppliers, or the economy as a whole. We also rely on information technology systems to communicate among our workforce located worldwide, and in particular, our senior management, general and administrative, and research and development activities that are coordinated with our corporate headquarters in the Boston, Massachusetts area and our Santa Cruz, California, San Francisco, California and Tampa, Florida offices. Any disruption to our internal communications, whether caused by a natural disaster or by man-made problems, such as power disruptions, in the Boston, Massachusetts, Santa Cruz, California, San Francisco, California or Tampa, Florida areas could delay our research and development efforts, cause delays or cancellations of customer orders or delay deployment of our solutions, which could have a material adverse effect on our business, operating results and financial condition.

Our loan agreement contains operating and financial covenants that may restrict our business and financing activities.

We are party to a loan and security agreement relating to a revolving line of credit facility with Silicon Valley Bank. Borrowings under this loan and security agreement are secured by substantially all of our assets. Our loan and security agreement restricts our ability to:

• incur additional indebtedness;

• redeem subordinated indebtedness;

• create liens on our assets;

• enter into transactions with affiliates;

• make investments;

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• sell assets;

• make material changes in our business or management;

• pay dividends, other than dividends paid solely in shares of our common stock, or make distributions on and, in certain cases, repurchase our stock; or

• consolidate or merge with other entities.

In addition, our revolving line of credit requires us to maintain specified adjusted quick ratio tests. The operating and financial restrictions and covenants in the loan and security agreement governing our revolving line of credit, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants could result in a default under the loan and security agreement, which could cause all of the outstanding indebtedness under the facility to become immediately due and payable and terminate all commitments to extend further credit.

If we are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either when they mature or in the event of a default, we may not be able to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to continue as a going concern.

Risks related to our intellectual property

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to enforce our rights.

Our success depends, in part, on our ability to protect our proprietary technology. We seek to protect our proprietary technology through patent, copyright, trade secret and trademark laws in the United States and similar laws in other countries. We also seek to protect our proprietary technology through licensing agreements, nondisclosure agreements and other contractual provisions. These protections may not be available in all cases or may be inadequate to prevent our competitors from copying, reverse engineering or otherwise obtaining and using our technology, proprietary rights or solutions in an unauthorized manner. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. In addition, third parties may seek to challenge, invalidate or circumvent our patents, trademarks, copyrights and trade secrets, or applications for any of the foregoing. Our competitors may independently develop technologies that are substantially equivalent, or superior, to our technology or design around our proprietary rights. In each case, our ability to compete could be significantly impaired.

To prevent unauthorized use of our intellectual property rights, it may be necessary to prosecute actions for infringement or misappropriation of our proprietary rights. Any such action could result in significant costs and diversion of our resources and management’s attention, and there can be no assurance that we will be successful in such action. Furthermore, many of our current and potential competitors have the ability to dedicate substantially greater resources to enforce their intellectual property rights than we do. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing or misappropriating our intellectual property. While we plan to continue to seek to protect our intellectual property with, among other things, patent protection, there can be no assurance that:

• current or future U.S. or foreign patent applications will be approved;

• our issued patents will adequately protect our intellectual property and not be held invalid or unenforceable if challenged by third parties;

• we will succeed in protecting our technology adequately in all key jurisdictions in which we or our competitors operate; and

• others will not design around any patents that may be issued to us.

Our failure to obtain patents sufficiently broad to cover our technology and possible workarounds, or the invalidation of our patents, or our inability adequately to protect our intellectual property, may weaken our competitive position and harm our business and operating results. We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may harm our business, operating results and financial condition.

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Agreements we have with our employees, consultants and independent contractors may not afford adequate protection for our trade secrets, confidential information and other proprietary information.

In addition to patent protection, we also rely on copyright and trademark protection, trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our trade secrets and proprietary information, we require our employees, consultants and independent contractors to execute confidentiality and proprietary information agreements. However, these agreements may not provide us with adequate protection against improper use or disclosure of confidential information and available remedies in the event of unauthorized use or disclosure may not be adequate. The failure by employees, consultants or independent contractors to maintain the secrecy of our confidential information may compromise or prevent our ability to maintain trade secrets or obtain needed or meaningful patent protection. In some situations, our confidentiality and proprietary information agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or independent contractors have prior employment or consulting relationships. Although we require our employees, consultants and independent contractors to maintain the confidentiality of all proprietary information of their previous employers, these individuals, or we, may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others may independently develop substantially equivalent proprietary information and techniques or gain access to our trade secrets. Our failure or inability to protect our proprietary information and techniques may inhibit or limit our ability to compete effectively, or exclude certain competitors from the market.

We may not be able to obtain or maintain necessary licenses of third-party technology on commercially reasonable terms, or at all, which could delay product sales and development and have a material adverse effect on product quality and our ability to compete.

We have incorporated third-party licensed technology into certain of our solutions. We anticipate that we are also likely to need to license additional technology from third parties in connection with the development of new solutions or enhancements in the future.

Third-party licenses may not be available to us on commercially reasonable terms, or at all. The inability to retain any third-party licenses required in our current solutions or to obtain any new third-party licenses to develop new solutions and products could require us to obtain substitute technology of lower quality or performance standards or at greater cost, and delay or prevent us from introducing these solutions or products, any of which could have a material adverse effect on product quality and our ability to compete.

Claims of intellectual property infringement could harm our business.

Vigorous protection and pursuit of intellectual property rights has resulted in protracted and expensive litigation for many companies in our industry. Although claims of this kind have not materially affected our business to date, there can be no assurance such claims will not arise in the future. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements, any of which could harm our business and operating results.

Intellectual property lawsuits are subject to inherent uncertainties due to the complexity of the technical issues involved, and we cannot be certain that we will be successful in defending ourselves against intellectual property claims. In addition, we may not be able to effectively utilize our intellectual property portfolio to assert defenses or counterclaims in response to patent infringement claims or litigation brought against us by third parties. Further, litigation may involve patent holding companies or other adverse patent owners who have no relevant products and against whom our potential patents may provide little or no deterrence.

Many potential litigants have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to pay substantial damages or prevents us from distributing certain solutions or performing certain services. We might also be required to seek a license and pay royalties for the use of such intellectual property, which may not be available on commercially acceptable terms or at all. Alternatively, we may be required to develop non-infringing technology, which could require significant effort and expense and may ultimately not be successful.

Our use of open source and non-commercial software components could impose risks and limitations on our ability to commercialize our solutions.

Our solutions contain software modules licensed under open source and other types of non-commercial licenses. We also may incorporate open source and other licensed software into our solutions in the future. Use and distribution of such software may entail greater risks than use of third-party commercial software, as licenses of these types generally do not provide warranties or other

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contractual protections regarding infringement claims or the quality of the code. Some of these licenses require the release of our proprietary source code to the public if we combine our proprietary software with open source software in certain manners. This could allow competitors to create similar products with lower development effort and time and ultimately result in a loss of sales for us.

The terms of many open source and other non-commercial licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. In such event, in order to continue offering our solutions, we could be required to seek licenses from alternative licensors, which may not be available on a commercially reasonable basis or at all, to re-engineer our solutions or to discontinue the sale of our solutions in the event we cannot obtain a license or re-engineer our solutions on a timely basis, any of which could harm our business and operating results. In addition, if an owner of licensed software were to allege that we had not complied with the conditions of the corresponding license agreement, we could incur significant legal costs defending ourselves against such allegations. In the event such claims were successful, we could be subject to significant damages, be required to disclose our source code, or be enjoined from the distribution of our solutions.

Risks related to our common stock

We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.

We have never declared or paid any cash dividends on our common stock and do not currently intend to do so for the foreseeable future. We currently intend to invest our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon future appreciation in its value, if any. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders purchased their shares.

Market volatility may affect our common stock price and the value of your investment:

The market price of shares of our common stock could be subject to wide fluctuations as a result of many risks listed in this section, and others beyond our control, including:

• our operating performance and the operating performance of similar companies;

• the overall performance of the equity markets;

• announcements by us or our competitors of new products, commercial relationships or acquisitions;

• threatened or actual litigation;

• changes in laws or regulations relating to the healthcare industry;

• any major change in our board of directors or management;

• publication of research reports or news stories about us, our competitors, or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;

• large volumes of sales of our shares of common stock by existing stockholders; and

• general political and economic conditions.

In addition, the stock market in general, and the market for technology companies serving the healthcare industry in particular, has at times experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies.

Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources, and harm our business, operating results and financial condition.

Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.

There are 24,319,784 shares of our common stock outstanding, based on the number of shares outstanding as of June 30, 2015. An aggregate of 1,995,439 shares of our common stock are reserved for future issuance under our stock option plans, and 627,033 shares

47

of our common stock are reserved for future issuance under our ESPP. These shares can be freely sold in the public market upon issuance. In addition, on July 1, 2015, we filed a shelf registration statement on Form S-3 to register the sale of up to 13,395,230 shares of our common stock held by our existing stockholders. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

Our executive officers, directors, current 5% or greater stockholders and entities affiliated with any of them, together beneficially own 62.8% of our common stock outstanding, based on the number of shares outstanding as of June 30, 2015. These stockholders, if they act together, will have significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, and may take actions that may not be in the best interests of our other stockholders. This concentration of ownership could also limit stockholders’ ability to influence corporate matters. Accordingly, corporate actions might be taken even if other stockholders oppose them, or may not be taken even if other stockholders view them as in the best interests of our stockholders. This concentration of ownership may have the effect of delaying or preventing a change of control of our company, may make the approval of certain transactions difficult or impossible without the support of these stockholders and might adversely affect the market price of our common stock.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company.” We will remain an emerging growth company until the earliest of: the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of that fiscal year, the end of the fiscal year in which we have total annual gross revenue of $1 billion or more during such fiscal year, the date on which we issue more than $1 billion in non-convertible debt securities in a three-year period, or the last day of the fiscal year following the fifth anniversary of our initial public offering.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We are taking advantage of exemptions from various other requirements that are available to emerging growth companies, including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved, and exemptions from the requirements of auditor attestation reports on the effectiveness of our internal control over financial reporting. We cannot predict whether investors will find our common stock less attractive to the extent we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We are subject to financial and other reporting and corporate governance requirements that may be difficult for us to satisfy. Corporate governance and public disclosure regulations may result in additional expenses and continuing uncertainty.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules and regulations of the New York Stock Exchange, which will impose significant compliance obligations upon us, particularly after we are no longer an emerging growth company. These obligations will require a commitment of additional resources and divert our senior management’s time and attention from our day-to-day operations. We may not be successful in complying with these obligations, and compliance with these obligations will be time-consuming and expensive.

The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing the costly process of implementing and testing our systems to report our results as a public company, to continue to manage our growth and to implement internal controls. We are and will continue to be required to implement and maintain various other control and business systems related to our equity, finance, treasury, information technology, other recordkeeping systems and other operations. As a result of this implementation and maintenance, management’s attention may be diverted from other business concerns, which could adversely affect our business.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws,

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regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research or reports about our business, our stock price and trading volume could decline.

The trading market for our common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us and our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our common stock or change their opinion of our common stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Our charter documents and Delaware law could discourage, delay or prevent a change of control of our company or change in our management that stockholders consider favorable and cause our stock price to decline.

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could discourage, delay or prevent a change of control of our company or change in our management that the stockholders of our company consider favorable. These provisions:

• authorize the issuance of “blank check” preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;

• prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of stockholders;

• establish advance notice procedures for nominating candidates to our board of directors or proposing matters that can be acted upon by stockholders at stockholder meetings;

• limit the ability of our stockholders to call special meetings of stockholders;

• prohibit stockholders from cumulating their votes for the election of directors;

• permit newly-created directorships resulting from an increase in the authorized number of directors or vacancies on our board of directors to be filled only by majority vote of our remaining directors, even if less than a quorum is then in office;

• provide that our board of directors is expressly authorized to make, alter or repeal our amended and restated bylaws;

• establish a classified board of directors so that not all members of our board are elected at one time;

• provide that our directors may be removed only for “cause” and only with the approval of the holders of at least 75% of our outstanding stock; and

• require super-majority voting to amend certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws.

Section 203 of the Delaware General Corporation Law, which will apply to us, may also discourage, delay or prevent a change of control of our company.

We may not be able to obtain capital when desired on favorable terms, if at all, or without dilution to our stockholders.

We may need additional financing to execute on our current or future business strategies, including to:

• hire additional personnel;

• develop new or enhance existing products and services;

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• expand our operating infrastructure;

• acquire businesses or technologies; or

• otherwise respond to competitive pressures.

If we incur additional funds through debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or are not available on acceptable terms when we desire them, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our products and services, or otherwise respond to competitive pressures would be significantly limited. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly diluted, and these newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sales of unregistered securities

None.

Use of proceeds

On June 30, 2014, we closed our IPO of 5,750,000 shares of common stock, including 750,000 shares of common stock sold pursuant to the underwriters’ option to purchase additional shares, at a public offering price of $15.00 per share, for aggregate gross proceeds to us of $86.3 million. All of the shares issued and sold in the IPO were registered under the Securities Act of 1933 pursuant to a registration statement on Form S-1 (File No.333-194921), which was declared effective by the SEC on June 24, 2014. Following the sale of the shares in connection with the closing of our IPO, the offering terminated. The managing underwriters for the offering were J.P. Morgan and Piper Jaffray.

The net offering proceeds to us, after deducting underwriting discounts totaling approximately $6.0 million and offering expenses totaling approximately $3.4 million, were approximately $76.8 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates. At December 31, 2014, all expenses incurred in connection with the offering have been paid.

During the six months ended June 30, 2015, we used a total of $22.1 million of our offering proceeds, of which $19.6 million related to our acquisition of HT Systems, $437,000 related to our purchase of patents and $2.1 million was used for working capital purposes. There has been no material change in the use of proceeds from our IPO as described in our prospectus filed with the SEC pursuant to Rule 424(b)(4).

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

During the preparation of our financial statements for the three months ended June 30, 2015, we identified an error in our accounting for deferred income taxes in prior periods related to our deferred income tax accounting for our 2011 acquisition of Validus. Specifically, we should have, but did not, record deferred income tax expense in connection with post acquisition adjustments made to the contingent consideration recorded in connection with the acquisition. We have corrected this error by recording an out of period adjustment for the cumulative amount of deferred tax expense associated with these adjustments totaling $535,000 in its three months ended June 30, 2015 financial results. Had these tax amounts been recorded timely, we would have recorded additional tax expense of $75,000, $322,000, and $138,000, in the years ended December 31, 2012, 2013, and 2014, respectively.

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Item 6. Exhibits.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	IMPRIVATA, INC.
DATED: July 31, 2015	By:	/s/ Jeff Kalowski
		Chief Financial Officer
		Principal Financial Officer and Duly Authorized Signatory

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Exhibit Index

Exhibit No	Description
3.1	Amended and Restated Certificate of Incorporation of the Company, effective June 30, 2014 (incorporated by reference to Exhibit 3.2 of the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on June 11, 2014).
3.2	Amended and Restated Bylaws of the Company, effective June 30, 2014 (incorporated by reference to Exhibit 3.4 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on June 11, 2014).
4.1	Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to Registration Statement on Form S-1, filed on June 11, 2014.
10.20*†	Securities Purchase Agreement, by and among HT Systems, LLC (“HT Systems”), the selling equity-holders of HT Systems (the “Sellers”), the representative of the Sellers and the Company, dated as of April 30, 2015.
31.1*	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) or 15(d)-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*	The following materials from the Company’s Form 10-Q for the three and six months ended June 30, 2015, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Statements of Comprehensive Loss, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements (Unaudited).

* Filed herewith

† Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Securities and Exchange Commission.

** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Registrant specifically incorporates it by reference.

*** Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

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EX-10.20

Exhibit 10.20

Execution Version

SECURITIES PURCHASE AGREEMENT

by and among

IMPRIVATA, INC.,

the SELLING MEMBERS of

HT SYSTEMS, LLC,

HT SYSTEMS, LLC (solely with respect to the obligations contained in Section 8.3 herein)

and

David Wiener as the SELLERS REPRESENTATIVE

TABLE OF CONTENTS

		Page
ARTICLE 1 PURCHASE AND SALE			1
1.1	Membership Units		1
1.2	Purchase Price		1
1.3	Retention Payment		2
1.4	Earnout Consideration		2
1.5	Escrow Amount		4
1.6	Withholding Rights		4
ARTICLE 2 CLOSING AND DELIVERIES			5
2.1	Closing		5
2.2	Deliveries by Selling Members		5
2.3	Deliveries by Buyer		7
2.4	Payment of Purchase Price		7
ARTICLE 3 WORKING CAPITAL ADJUSTMENT			7
3.1	Estimated Closing Working Capital		7
3.2	Closing Balance Sheet		8
3.3	Disagreement and Resolution		8
3.4	Purchase Price Adjustment		9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE SELLING MEMBERS			9
4.1	Authority and Enforceability		9
4.2	Conflicts		9
4.3	Litigation		10
4.4	No Brokers		10
4.5	Membership Units		10
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLING MEMBERS RELATING TO COMPANY			10
5.1	Organization and Power		10
5.2	Capitalization		11
5.3	Subsidiaries		11
5.4	Financial Statements		11
5.5	No Undisclosed Liabilities		12
5.6	Operations Since the Most Recent Balance Sheet Date		12
5.7	Taxes		14

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5.8	Permits	15
5.9	Real Property	16
5.10	Intellectual Property	16
5.11	Compliance with Laws	20
5.12	Contracts	20
5.13	Employees	22
5.14	Employee Benefits	24
5.15	Environmental Compliance	25
5.16	Litigation	25
5.17	Insurance	26
5.18	Properties	26
5.19	Transactions with Affiliates	26
5.20	No Brokers	27
5.21	State Takeover Statutes	27
5.22	Warranties	27
5.23	Suppliers, Distributors and Customers	27
5.24	Solvency	28
5.25	Data Privacy	28
5.26	Fair Disclosure	29
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER		30
6.1	Organization	30
6.2	Authority and Enforceability	30
6.3	Conflicts	30
6.4	No Litigation	30
6.5	No Brokers	30
ARTICLE 7 CONDITIONS PRECEDENT TO CLOSING		31
7.1	Conditions Precedent to the Obligations of Buyer	31
7.2	Conditions Precedent to the Obligations of Selling Members	31
ARTICLE 8 ADDITIONAL AGREEMENTS		32
8.1	Non-Competition; Non-Solicitation	32
8.2	Tax Matters	33
8.3	Conduct of Business by the Company	37
ARTICLE 9 INDEMNIFICATION		39
9.1	Survival	39

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9.2	Indemnification by the Selling Members	40
9.3	Indemnification by Buyer	40
9.4	Limitations	41
9.5	Third Party Claims	42
9.6	Notice of Claims	42
9.7	Additional Limitations	43
9.8	Set-Off and Priority	43
9.9	Purchase Price Adjustments	44
ARTICLE 10 TERMINATION		44
10.1	Termination	44
10.2	Notice of Termination; Effect of Termination	45
10.3	Expenses	45
ARTICLE 11 GENERAL PROVISIONS		45
11.1	Sellers Representative	45
11.2	Notices	47
11.3	Entire Agreement	48
11.4	Severability	48
11.5	Binding Effect; Assignment	48
11.6	No Third-Party Beneficiaries	48
11.7	Interpretation	49
11.8	Governing Law; Jurisdiction	49
11.9	Attorneys’ Fees	50
11.10	Waivers	50
11.11	Amendments	50
11.12	No Publicity	50
11.13	Further Assurances	50
11.14	Counterparts	50
ARTICLE 12 DEFINITIONS		50
12.1	Defined Terms	50

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Exhibits
Exhibit A	Pro Rata Share
Exhibit B	Escrow Agreement
Exhibit C-1	Form of Employee Offer Letter
Exhibit C-2	Form of Consulting Agreement
Exhibit D	Form of Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement
Exhibit E-1	Form of Executive Employment Agreement for David Wiener
Exhibit E-2	Form of Executive Employment Agreement for Carl Bertrams
Exhibit E-3	Form of Executive Employment Agreement for Michael Esquinaldo
Exhibit F	Release of Claims
Exhibit G	Spousal Consent
Exhibit H	Allocation Methodology
Schedules
Schedule 2.2(h)	Contracts Requiring Consent to Assign
Schedule 2.2(i)(A)	Company Employees
Schedule 2.2(i)(B)	Company Independent Contractors
Schedule 3.1	Excluded Accounts Receivable

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SECURITIES PURCHASE AGREEMENT

THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”) is entered into as of April 30, 2015 by and among Imprivata, Inc., a Delaware corporation (“Buyer”), the parties listed as Selling Members on the signature pages hereto (collectively, the “Selling Members”), HT Systems, LLC (solely with respect to obligations contained in Section 8.3 herein), and David Wiener, as the representative of the Selling Members (the “Sellers Representative”). Buyer and the Selling Members are sometimes collectively referred to herein as the “Parties” and each, a “Party”.

RECITALS

WHEREAS, the Selling Members are party to that Limited Liability Company Agreement (the “LLC Agreement”) of HT Systems, LLC, a Florida limited liability company (“Company”), pursuant to which, among other things, all of the membership interests (the “Membership Units”) are owned by the Selling Members;

WHEREAS, the Membership Units represent all of the economic and voting membership interests in Company issued and outstanding prior to the Transactions; and

WHEREAS, the Selling Members desire to sell, and Buyer desires to purchase from the Selling Members, the Membership Units for the Purchase Price and upon the terms and conditions and subject to the conditions hereinafter set forth.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties and agreements contained herein, and intending to be legally bound hereby, the Parties agree as follows (Article 12) contains definitions of certain terms used in this Agreement):

ARTICLE 1

PURCHASE AND SALE

1.1 Membership Units. On the terms and subject to the conditions of this Agreement, at the Closing, the Selling Members shall sell, transfer and deliver to Buyer, and Buyer shall purchase from the Selling Members, all of the Selling Member’s right, title, and interest in and to all of the Membership Units, free and clear of all Encumbrances (the “Purchase”).

1.2 Purchase Price. Subject to adjustment as provided in Article 3 and Article 9, the purchase price for the Membership Units shall be an amount equal to Nineteen Million Seventy-Five Thousand Dollars ($19,075,000) (the “Purchase Price”). The Purchase Price shall be allocated to each Selling Member in accordance with such Selling Member’s Pro Rata Share. Whenever any component of the Purchase Price is distributed to the Selling Members, each Selling Member shall be entitled to receive the portion of such distribution equal to such Selling Member’s Pro Rata Share.

1.3 Retention Payment.

(a) In addition to the Purchase Price and the Earnout Consideration, if any, provided in Section 1.4, subject to the forfeiture provisions set forth in Section 1.3(b) below and provided that a Selling Member remains an employee of Buyer or an Affiliate of Buyer through the second anniversary of the Closing Date (the “Retention Period”), Buyer shall pay or cause to be paid to such Selling Member, within five (5) Business Days following the end of the Retention Period, the Retention Payment applicable to such Selling Member. The Parties agree that the Retention Payments will be treated as compensation income received by each Selling Member for U.S. federal, state and local income tax purposes.

(b) Notwithstanding the foregoing, if, before the conclusion of the Retention Period, (i) a Selling Member’s employment with Buyer or any Affiliate of Buyer is terminated or otherwise not continued by Buyer or any Affiliate of Buyer, as applicable, without Cause or (ii) a Selling Member’s employment with Buyer or any Affiliate of Buyer is terminated by such Selling Member for Good Reason then Buyer shall pay or cause to be paid to such Selling Member, within five (5) Business Days following such termination, the Retention Payment applicable to such Selling Member; provided, however, if, before the conclusion of the Retention Period (i) a Selling Member’s employment with Buyer or any Affiliate of Buyer is terminated by Buyer or any Affiliate of Buyer, as applicable, with Cause or (ii) a Selling Member’s employment with Buyer or any Affiliate of Buyer is terminated by such Selling Member without Good Reason, then any Retention Payment otherwise payable to such Selling Member shall be forfeited.

1.4 Earnout Consideration.

(a) In addition to the payments made at the Closing to the Selling Members and the Retention Payment, if any, provided in Section 1.3, Buyer agrees to pay or cause to be paid to the Selling Members (each an “Earnout Payment” and the sum of all Earnout Payments, the “Earnout Consideration”), if any, as provided in this Section 1.4 within five (5) Business Days of final determination of the applicable Earnout Payment in accordance with Section 1.4(b).

(i) For the period beginning on the day after the Closing Date and ending on the first anniversary of the Closing Date (such period, the “Initial Earnout Period”), [***] of the Bookings during such period in excess of the Initial Earnout Period Threshold, up to the Maximum Earnout Consideration (such amount, the “Initial Earnout Payment”), it being understood that no Initial Earnout Payment shall be payable with respect to the Initial Earnout Period if Bookings for the Initial Earnout Period do not exceed the Initial Earnout Period Threshold. The Initial Earnout Payment shall be allocated to each Selling Member in accordance with such Selling Member’s Pro Rata Share; provided, however, if, one or more Selling Member’s employment with Buyer or any Affiliate of Buyer is (A) terminated by Buyer or any Affiliate of Buyer, as applicable, with Cause, or (B) terminated by such Selling Member without Good Reason, before the conclusion of the Initial Earnout Period (each such Selling Member, a “Initial Period Terminated Member”), then the Pro Rata Share of the Initial Earnout Payment otherwise payable to the Initial Period Terminated Members shall be forfeited.

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(ii) For the period beginning on the day after the first anniversary of the Closing Date and ending on the second anniversary of the Closing Date (such period, the “Subsequent Earnout Period” and together with the Initial Earnout Period, the “Earnout Period”), [***] of the Bookings during such period in excess of the Subsequent Earnout Period Threshold, up to the Maximum Earnout Consideration minus the Initial Earnout Payment, if any (such amount, the “Subsequent Earnout Payment”), it being understood that no Subsequent Earnout Payment shall be payable if Bookings for the Subsequent Earnout Period do not exceed the Subsequent Earnout Period Threshold, and in no event shall the aggregate Earnout Consideration exceed the Maximum Earnout Consideration. The Subsequent Earnout Payment shall be allocated to each Selling Member in accordance with such Selling Member’s Pro Rata Share; provided, however, if, one or more Selling Member’s employment with Buyer or any Affiliate of Buyer is (A) terminated by Buyer or any Affiliate of Buyer, as applicable, with Cause, or (B) terminated by such Selling Member without Good Reason, before the conclusion of the Subsequent Earnout Period (each such Selling Member, a “Subsequent Period Terminated Member”), then the Pro Rata Share of the Subsequent Earnout Payment otherwise payable to the Subsequent Period Terminated Members shall be forfeited.

(b) Within sixty (60) days following the end of each respective Earnout Period, Buyer shall deliver to the Sellers Representative a written notice (in each case, an “Earnout Notice”) specifying whether the Earnout Threshold for the applicable Earnout Period has been achieved, the amount of Bookings during such Earnout Period and the amount of the applicable Earnout Payment payable to each Selling Member, if any. Buyer shall permit the Sellers Representative and/or its designated accountants, representatives and counsel to have reasonable access to their books and records related to the calculations used by Buyer in calculating the amount of any Earnout Payment. The Sellers Representative may, on or prior to the date that is thirty (30) days after delivery of any Earnout Notice from Buyer, object to the amount of Bookings during such Earnout Period or the amount of the applicable Earnout Payment by providing written notice to Buyer and such notice shall identify in reasonable detail those items or amounts as to which the Sellers Representative disagrees (each such item or amount, an “Earnout Item of Dispute”). If Sellers Representative does not so object, the date of final determination of the applicable Earnout Payment shall be the day following the expiration of such thirty (30) day period. Except for Earnout Items of Dispute, the Sellers Representative shall be deemed to have agreed with all other items and amounts contained in the applicable Earnout Notice. In the event of any such objection, Buyer and the Sellers Representative shall, for a period of thirty (30) days, negotiate in good faith to resolve any such Earnout Item of Dispute. If the parties resolve all such Earnout Items of Dispute, the date of final determination of the applicable Earnout Payment shall be the day of such resolution. If the parties are unable to resolve their differences with respect to the Earnout Item of Dispute within such thirty (30) day period, then either Buyer or the Sellers Representative may submit the Earnout Item of Dispute to the Accounting Arbitrator. Buyer and the Sellers Representative shall each provide their respective calculations of Earnout Item of Dispute and shall request that the Accounting Arbitrator render a written determination, which determination shall be resolved within thirty (30) days after its retention, and the Parties shall cooperate fully with the Accounting Arbitrator so as to enable it to make such determination as quickly and as accurately as practicable. The

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Accounting Arbitrator’s determination as to each Earnout Item of Dispute submitted to it shall be in writing and shall be conclusive and binding upon the Parties, absent manifest error or willful misconduct, and the amount of Bookings during such Earnout Period and the amount of the applicable Earnout Payment, if any, shall be modified to the extent necessary to reflect such determination. The date of such Accounting Arbitrator’s written determination shall be the date of final determination of the applicable Earnout Payment. The fees and expenses of the Accounting Arbitrator shall be paid by the Party whose calculation of the Earnout Item of Dispute is furthest from the determination rendered by the Accounting Arbitrator.

(c) The Parties agree that each Earnout Payment will be treated as compensation income received by each Selling Member for U.S. federal, state and local income Tax purposes.

(d) Notwithstanding anything to the contrary contained in this Section 1.4, in the event that Buyer has made any indemnification claim or claims pursuant to Article 9, Buyer shall be entitled to exercise its set-off rights with respect to up to Two Million Dollars ($2,000,000) of the Earnout Consideration, if any, pursuant to Section 9.8.

1.5 Escrow Amount.

(a) At Closing: (a) Buyer, the Sellers Representative and J.P. Morgan Chase Bank, N.A. (the “Escrow Agent”) shall enter into an Escrow Agreement in the form of Exhibit B attached hereto (the “Escrow Agreement”) and (b) Buyer shall deposit with the Escrow Agent, the Escrow Amount to be held as a trust fund (the “Escrow Fund”) by wire transfer in immediately available funds denominated in United States Dollars to the account specified in the Escrow Agreement. The Escrow Fund shall be held in escrow by the Escrow Agent under the Escrow Agreement pursuant to the terms thereof for the purpose of securing the indemnification obligations set forth in Article 9 and for the purpose of securing the working capital adjustments, if any, to the Initial Closing Consideration as set forth in Article 3, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Escrow Agreement.

(b) The Buyer and the Selling Members agree that (i) the right of the Selling Members to any disbursements of the Escrow Fund shall be treated as a contingent payment sale with a stated maximum selling price as contemplated by Treasury Regulations § 15A-453-1(c) and (ii) to the extent a portion of the Escrow Fund is disbursed to the Selling Members in accordance with the terms of the Escrow Agreement in a taxable year following the taxable year that includes the Closing Date, interest shall be imputed at the short-term rate in an amount as required by Code Sections 483 and 1274(d).

1.6 Withholding Rights. Buyer shall be entitled to deduct and withhold from any amounts otherwise payable by Buyer pursuant to this Agreement such amounts as Buyer is required to deduct and withhold with respect to the making of such payment under the Code or any other applicable Tax Law. Except with respect to any failure by a Seller to deliver the certificate described in Section 2.2(l) prior to the Closing Date and with respect to the Retention Payment and the Earnout Payment, Buyer shall use reasonable best efforts to notify Sellers Representative prior to making such deduction and withholding and shall consider in good faith

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any legal interpretation or additional information provided by Sellers Representative to Buyer that may alleviate the Tax Law requirement to deduct and withhold from the amounts otherwise payable. Between the date hereof and the Closing Date, the parties agree to cooperate in good faith with respect to any deduction or withholding that may be required with respect to amounts otherwise payable pursuant to this Agreement. To the extent that any amounts are so deducted and withheld by Buyer and are remitted to the appropriate Governmental Authority, such deducted and withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction or withholding was made.

ARTICLE 2

CLOSING AND DELIVERIES

2.1 Closing. The closing of the transactions contemplated hereby (the “Closing”) will take place at the offices of Goodwin Procter LLP, 53 State Street, Boston, MA 02109 on the date of this Agreement (the “Closing Date”). All proceedings to be taken and all documents to be executed and delivered by all parties at the Closing will be deemed to have been taken and executed simultaneously (notwithstanding any waiver by the Parties in accordance with Article 7), and no proceedings will be deemed to have been taken nor documents executed or delivered until all have been taken, executed and delivered at Closing (if not otherwise waived in accordance with Article 7).

2.2 Deliveries by Selling Members. At the Closing, the Selling Members shall deliver or cause to be delivered to Buyer the following items:

(a) A counterpart to this Agreement, duly executed by the Selling Members and the Sellers Representative;

(b) a copy of Company’s Articles of Organization certified by the Florida Department of State, Division of Corporations as of a date reasonably prior to the Closing Date;

(c) a good standing certificate of Company from its jurisdiction of organization and each other jurisdiction in which it is qualified to do business, in each case dated as of a date reasonably prior to the Closing Date;

(d) evidence reasonably satisfactory to Buyer of the release of any Encumbrances (other than Permitted Encumbrances) that had been imposed on any assets of Company;

(e) a duly executed assignment document from each Selling Member effecting the transfer of the Membership Units;

(f) a duly executed resignation from each manager and officer of Company;

(g) evidence reasonably satisfactory to Buyer regarding the termination of any Contracts between Company and any of its respective Affiliates other than the LLC Agreement and the Contracts set forth on Schedule 5.12 of the Disclosure Schedule;

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(h) evidence reasonably satisfactory to Buyer regarding the assignment of Contracts set forth on Schedule 2.2(h).

(i) each of Company’s employees set forth on Schedule 2.2(i)(A) and independent contractors set forth on Schedule 2.2(i)(B) hereto shall have executed and delivered (i) in the case of employees, employment offer letters with Buyer, or an Affiliate of Buyer acceptable to the Selling Members, in substantially the form attached hereto as Exhibit C-1, and in the case of independent contractors, consulting agreements with Buyer, or an Affiliate of Buyer, in the form attached hereto as Exhibit C-2, and (ii) a non-competition, non-solicitation, confidentiality and invention assignment agreement with Buyer or an Affiliate of Buyer in the form attached hereto as Exhibit D (an “Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement”);

(j) each of David Wiener, Carl Bertrams and Michael Esquinaldo shall have executed and delivered (i) an employment agreement with Buyer acceptable to the Selling Members, in substantially the forms attached hereto as Exhibits E-1, E-2 and E-3, respectively (collectively, the “Executive Employment Agreements”), (ii) an Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement, and (iii) a Release of Claims in the form attached hereto as Exhibit F (a “Release of Claims”);

(k) the Escrow Agreement, duly executed by the Sellers Representative and the Escrow Agent;

(l) non-foreign person affidavit from each Selling Member dated as of the Closing Date prepared in accordance with the requirements of Treasury Regulation Section 1.1445-2(b)(2);

(m) if any Selling Member is a married individual, a spousal consent in the form attached hereto as Exhibit G executed by the spouse of such Selling Member consenting to the transactions contemplated by the Transaction Documents;

(n) any minute books, statutory books and registers, books of account, trading and financial records, copies of taxation returns and other documents and papers of Company, and any common seal, duplicate seal or official seal, of Company;

(o) IRS Form 8023 duly executed by the Selling Members indicating the intention of such Selling Members to make an election under Code Section 338(h)(10) with respect to the sale and, if necessary, any similar forms for applicable state Tax purposes identified by Buyer at least one day prior to the Closing Date;

(p) unaudited balance sheet for the fiscal year ended December 31, 2013, unaudited income statement and balance sheet for the fiscal year ended December 31, 2014, and the unaudited income statement and balance sheet for the three-month period ended March 31, 2015;

(q) an officer’s certificate executed in accordance with Section 7.1(e); and

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(r) such other documents as Buyer may reasonably and timely request for the purpose facilitating the consummation or performance of the Transactions or any of the Transaction Documents.

2.3 Deliveries by Buyer. At the Closing, Buyer shall execute and deliver or cause to be delivered to Buyer the following items:

(a) a counterpart to this Agreement, duly executed by Buyer;

(b) the Executive Employment Agreements, duly executed by Buyer or an Affiliate of Buyer;

(c) IRS Form 8023 duly executed by the Buyer indicating the Buyer’s intention to make an election under Code Section 338(h)(10) with respect to the sale and, if necessary, any similar forms for applicable state Tax purposes identified by Buyer at least one day prior to the Closing Date; and

(d) the Escrow Agreement, duly executed by Buyer and the Escrow Agent.

2.4 Payment of Purchase Price. At the Closing, Buyer shall pay, or cause to be paid, to the Selling Members, an amount in cash equal to the Initial Closing Consideration due at Closing, subject to the adjustments set forth herein, by wire transfer of immediately available funds to the account designated in writing by the Sellers Representative to Buyer.

ARTICLE 3

WORKING CAPITAL ADJUSTMENT

3.1 Estimated Closing Working Capital. At least five (5) Business Days prior to the Closing Date, the Selling Members shall have caused Company to prepare in good faith and deliver to Buyer (a) an estimated unaudited balance sheet as of the close of business on the last Business Day immediately preceding the Closing Date (the “Estimated Closing Balance Sheet”), (b) a statement of the book value of Company’s current assets (excluding cash and including accounts receivable, but excluding the accounts receivable listed on Schedule 3.1 to this Agreement), less Company’s current liabilities (excluding Indebtedness, Transaction Expenses and all deferred revenue, both long-term and current) (the “Working Capital”) and as reflected on the face of the Estimated Closing Balance Sheet (the “Estimated Closing Working Capital”) and the Working Capital Target as reflected on the face of the Estimated Closing Balance Sheet (the “Estimated Working Capital Target”), and (c) the calculation for the Estimated Closing Working Capital Adjustment, in all cases without giving effect to the Transactions and with reasonable supporting calculations and detail. The Estimated Closing Balance Sheet, Estimated Closing Working Capital, Estimated Working Capital Target and Estimated Closing Working Capital Adjustment will be prepared in accordance with the GAAP, and will not include any changes in assets or liabilities as a result of purchase accounting adjustments arising from, or resulting as a consequence of, the Transactions. If Buyer disagrees with the Selling Members’ calculation of the Estimated Closing Working Capital, Estimated Working Capital Target or Estimated Closing Working Capital Adjustment, the Parties shall work together in good faith to resolve such disagreement prior to the Closing. If the Estimated Closing Working Capital Adjustment is a negative number, then the absolute value of the

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Estimated Closing Working Capital Adjustment shall be subtracted from the Initial Closing Consideration. If the Estimated Closing Working Capital Adjustment is zero, then no adjustment to the Initial Closing Consideration shall be made.

3.2 Closing Balance Sheet. Within ninety (90) days after the Closing Date, Buyer shall prepare in good faith and deliver to the Sellers Representative an unaudited balance sheet as of the close of business on the last Business Day immediately preceding the Closing Date (the “Closing Balance Sheet”), and a statement of the Working Capital as reflected on the face of the Closing Balance Sheet (the “Closing Working Capital”) and the Working Capital Target as reflected on the face of the Closing Balance Sheet (the “Closing Working Capital Target”). The Closing Balance Sheet and the calculation of the Closing Working Capital and Closing Working Capital Target will be prepared in accordance with GAAP and as described in Section 3.1, and will not include any changes in assets or liabilities as a result of purchase accounting adjustments arising from or resulting as a consequence of the Transactions.

3.3 Disagreement and Resolution.

(a) If the Sellers Representative disagrees with the determination of the Closing Working Capital or the Closing Working Capital Target, then the Sellers Representative shall notify Buyer in writing of such disagreement within thirty (30) days after delivery of the Closing Balance Sheet, which notice shall describe the nature of any such disagreement in reasonable detail, identify the specific items involved and the dollar amount of each such disagreement and provide reasonable supporting documentation for each such disagreement. After the end of such thirty (30) day period, neither Buyer nor the Sellers Representative may introduce additional disagreements with respect to any item in the Closing Balance Sheet, Closing Working Capital or the Closing Working Capital Target or increase the amount of any disagreement, and any item not so identified shall be deemed to be agreed to by the Parties and will be final and binding.

(b) If Buyer and the Sellers Representative are unable to resolve all disagreements properly identified pursuant to Section 3.3(a) within thirty (30) days after delivery of written notice of such disagreements, then either Buyer or the Sellers Representative may submit such dispute for final and binding resolution to the Accounting Arbitrator (determined in accordance with the procedures described in Section 1.4(b)). Within twenty (20) days of receipt of a supporting brief, the receiving party may present a responsive brief to the Accounting Arbitrator (which responsive brief shall also be concurrently provided to the other party). The Accounting Arbitrator shall only consider the briefs of the parties, and shall not conduct any independent review in determining those items and amounts disputed by the parties. The Accounting Arbitrator shall deliver to Buyer and the Sellers Representative, as promptly as practicable and in any event within ninety (90) days after its appointment, a written report setting forth the resolution of any such disagreement determined in accordance with the terms of this Agreement. The determination of the Accounting Arbitrator shall be final and binding on the Parties. The fees of the Accounting Arbitrator shall be borne by the Party whose calculation of the Closing Working Capital Adjustment is furthest from the determination rendered by the Accounting Arbitrator. The Closing Working Capital Adjustment as finally determined in accordance with this Section 3, shall be referred to as the “Final Working Capital Adjustment”.

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3.4 Purchase Price Adjustment.

(a) If the True-Up Amount is a negative number then Buyer and the Sellers Representative shall promptly (and in any event within two (2) Business Days after the date of such notice) issue instructions to the Escrow Agent to release to Buyer from the Escrow Fund an amount of cash equal to the absolute value of the True-Up Amount, by wire transfer of immediately available funds to Buyer.

(b) If the True-Up Amount is a positive number, then Buyer shall promptly (and in any event within two (2) Business Days after the date of such notice) pay or cause to be paid to the Selling Members based on their respective Pro Rata Share the True-Up Amount by wire transfer of immediately available funds.

(c) Amounts paid under this Section 3 or Article 8 shall be treated as an adjustment to the Purchase Price for Tax purposes.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE SELLING MEMBERS

As an inducement to Buyer to enter into this Agreement and to consummate the Transactions, except as set forth in the Disclosure Schedule, each Selling Member represents and warrants to Buyer (severally and not jointly) as set forth in this Article 4.

4.1 Authority and Enforceability. Such Selling Member has the legal capacity to execute and deliver this Agreement or any Transaction Document to which such Selling Member is a party, to consummate the Transactions and to perform its obligations under this Agreement and such Transaction Documents. This Agreement has been duly and validly executed and delivered by such Selling Member and (assuming the due authorization, execution and delivery by Buyer) this Agreement constitutes the legal, valid and binding obligations of such Selling Member.

4.2 Conflicts. The execution and delivery by such Selling Member of this Agreement and the performance by it of its obligations hereunder, do not and will not:

(a) (A) conflict with or violate any provision of Law or (B) conflict with or violate any Court Order to which such Selling Member or any of the Membership Units held by such Selling Member is subject;

(b) (A) require a consent, approval or waiver from, or notice to, any party to any Contract to which such Selling Member is a party or by which such Selling Member or any Membership Units held by such Selling Member is bound or affected, or (B) result in a breach of, constitute a default under, or result in the acceleration of obligations, loss of benefit or increase in any liabilities or fees under, or create in any party the right to terminate, cancel or modify (whether after the giving of notice, lapse of time or both), any Contract to which such Selling Member is a party or by which any Membership Units are bound or affected;

(c) result in the creation of any Encumbrance on any of the property or assets of such Selling Member (including the Membership Units held by such Selling Member); or

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(d) require a registration, filing, application, notice, consent, approval, order, qualification, or waiver with, to or from any Governmental Authority or any other Person.

4.3 Litigation. There is no Action presently pending or, to the knowledge of such Selling Member, threatened against such Selling Member that would reasonably be expected to prevent, hinder or delay the consummation of the Transactions. Such Selling Member is not subject to any outstanding Court Order that would reasonably be expected to prevent, hinder or delay the consummation of the Transactions, nor is such Selling Member a party or, to the knowledge of such Selling Member, threatened to be made a party, to any such Court Order.

4.4 No Brokers. No Selling Member is obligated to pay any fee or commission to any broker, finder, investment banker or intermediary, for or on account of the Transactions.

4.5 Membership Units. The Selling Members collectively own all of the Membership Units, free and clear of Encumbrances, and in such respective amounts as set forth on Exhibit A hereto, and the Selling Members collectively own all of the outstanding equity interests of Company, free and clear of Encumbrances. Such Selling Member is not a party to any option, warrant, right, contract, call, put or other agreement or commitment providing for the disposition or acquisition of any such Membership Units or any such equity interests. Such Selling Member is not a party to any, and there is no voting trust, proxy or other agreement or understanding with respect to the voting of any such Membership Units or any such equity interests, other than the LLC Agreement.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF SELLING MEMBERS RELATING TO COMPANY

As an inducement to Buyer to enter into this Agreement and to consummate the Transactions, each Selling Member represents and warrants to Buyer (severally and not jointly) as set forth in this Article 5 (except as set forth in the corresponding section or subsection of the Disclosure Schedule, provided that any disclosure in any such section or subsection shall only be deemed to be disclosures against any other representations and warranties to the extent the relevance of such disclosures to such other representations and warranties is reasonably and readily apparent on the face of such disclosure). All references to Company in this Article 5 shall refer to any predecessor entities thereof.

5.1 Organization and Power. Company is a limited liability company duly formed, validly existing and in good standing under the Laws of the State of Florida and is licensed or qualified to conduct its business and is in good standing in each jurisdiction listed in Schedule 5.1 of the Disclosure Schedule, which sets forth every jurisdiction where it is required to be so licensed or qualified, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. Company has the limited liability company power and authority to own, lease and operate its assets and properties and to carry on its business in the same manner as currently conducted. Company has never conducted any business under or otherwise used for any purpose in any jurisdiction any fictitious name, assumed name, trade name or other name. A true, correct and complete copy of the LLC Agreement has been delivered or made available by Company to Buyer. Company does not have any minute books or other records of meetings of the manager(s), Selling Members or committees of Company’s managers.

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5.2 Capitalization.

(a) Schedule 5.2(a) of the Disclosure Schedule sets forth the Membership Units that are issued and outstanding and the capitalization of Company. All issued and outstanding equity securities of Company are validly issued and fully paid. The Membership Units were offered, issued, sold and delivered in compliance with applicable securities Laws, without giving rise to preemptive rights of any kind. Company does not have outstanding any of the following: (i) securities convertible into or exchangeable for any equity securities of Company; (ii) options, warrants or other rights to purchase or subscribe to equity securities of Company or securities convertible into or exchangeable for equity securities of Company; or (iii) Contracts, puts, calls or claims relating to the issuance of any equity securities of Company, any such convertible or exchangeable securities or any such options, warrants or right.

(b) There are (i) no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Membership Units or any interests therein, (ii) no rights to have the Membership Units registered for sale to the public in connection with the Laws of any jurisdiction, and (iii) no documents, instruments or agreements relating to the voting of the Membership Units or restrictions on the transfer of the Membership Units. There are no declared or accrued but unpaid dividends with respect to any Membership Units.

(c) The relative rights, preferences and other provisions relating to the Membership Units are as set forth in Company’s Organizational Documents. The Membership Units represent all of the issued and outstanding equity interests of Company and the Selling Members are the sole record owners of the Membership Units, in each case, free and clear of all Encumbrances (other than restrictions on transfer of securities under the LLC Agreement and applicable securities Laws).

5.3 Subsidiaries. Company does not currently have, and has never had, any subsidiaries or any equity or ownership interest (or any interest convertible or exchangeable or exercisable for, any equity or ownership interest), whether direct or indirect, in any Person. Company is not obligated to make nor is it bound by any agreement or obligation to make any investment in or capital contribution in or on behalf of any other Person.

5.4 Financial Statements. The Selling Members have caused Company to deliver to Buyer: (i) true, accurate and complete copies of Company’s unaudited financial statements, including the balance sheet (the “Most Recent Balance Sheet”), as of March 31, 2015 (the “Most Recent Balance Sheet Date”), and the related unaudited statements of operations, members’ equity and cash flow for the three-month period then ended (together, the “Most Recent Financial Statements”), and (ii) true, accurate and complete copies of Company’s unaudited balance sheet for the fiscal year ended December 31, 2013 and the unaudited income statement and balance sheet for the fiscal year ended December 31, 2014 (together with the Most Recent Financial Statements, the “Financial Statements”). Except for the absence of notes to the Financial Statements, the Financial Statements have been prepared in accordance with GAAP

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applied on a consistent basis throughout the periods covered thereby and present fairly, in all material respects, the financial position of Company as at and for the respective periods then ended and the consolidated results of its operations and cash flows and changes in financial position for the periods indicated, except that the Most Recent Financial Statements do not contain the notes required by GAAP and are subject to normal and recurring year-end adjustments which are not, individually or in the aggregate, material.

5.5 No Undisclosed Liabilities. Company does not have any liabilities of any nature, whether or not accrued, contingent, asserted, unasserted, absolute or otherwise, except for: (a) liabilities specifically reserved against on the face of the Most Recent Balance Sheet (and, for the avoidance of doubt, not solely in the notes thereto), (b) the matters set forth on Schedule 5.5 of the Disclosure Schedule, (c) executory Contract liabilities under (i) any Business Agreement or (ii) any Contract not required to be listed in Schedule 5.12 of the Disclosure Schedule, (d) liabilities and obligations incurred in connection with this Agreement and the Transactions, and (e) liabilities that do not exceed $25,000.

5.6 Operations Since the Most Recent Balance Sheet Date.

(a) Since the Most Recent Balance Sheet Date, Company has not:

(i) suffered a Material Adverse Effect;

(ii) sold, pledged, assigned, leased (as lessor or lessee), licensed, transferred, abandoned or otherwise disposed of any of its assets (including Intellectual Property), whether tangible or intangible (other than disposition of Inventory in the Ordinary Course of Business);

(iii) acquired any property or assets other than in the Ordinary Course of Business or made or committed to make any capital expenditures in excess of $10,000;

(iv) increased any bonus, wage, salary or other compensation or benefit payable or to become payable by Company to any of its employees, consultants, contractors, or advisors, including the modification of any existing compensation or equity arrangements with such individuals, or committed, orally or in writing, to any such increase to any such individual or group thereof, or made, granted or instituted any increase or committed, orally or in writing, to any such increase in any existing Benefit Plan or adopted or materially amended any Benefit Plan, except as required to comply with applicable Law, other than, in each case, any increase of a current non-officer employee’s salary or bonus or increase occurring in the Ordinary Course of Business not in excess of five percent (5%) of such employee’s salary or bonus in effect as of the date of the Most Recent Balance Sheet;

(v) (A) granted any severance or termination pay to any employee, or (B) entered into any employment agreement, extension of any employment offer, payment or agreement to pay, any bonus or special remuneration to any employee;

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(vi) created, incurred, assumed or guaranteed any Indebtedness or extended any loans, lines of credit or financing to any Person (which shall not include advances made to a non-officer employee of Company in the Ordinary Course of Business);

(vii) mortgaged, pledged or encumbered any of its properties or assets or subjected them to any Encumbrance, except Permitted Encumbrances;

(viii) amended its Organizational Documents;

(ix) been involved in any labor dispute or experienced any activity, union organizing or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees;

(x) terminated any employee (it being understood that termination of employees by reason of death or disability shall not constitute termination for purposes of this Section 5.6(a)(x));

(xi) entered into any new line of business, made any material change in its business practices, including any change in accounting methods or practices or collection, credit, pricing or payment policies, except as described in Section 5.6(a)(xi) of the Disclosure Schedule;

(xii) disposed of (whether by sale, assignment, license, forfeiture, abandonment or otherwise), encumbered or failed to keep in effect or maintain, or taken any action, or failed take any action, that could reasonably be expected to result in the loss, lapse, abandonment, invalidity or unenforceability of, any right in, to or for the use of any Company Intellectual Property, or entered into any license agreement (other than non-exclusive end-user license agreements entered into by Company in the Ordinary Course of Business), distribution agreement, security agreement, assignment or other conveyance or option for the foregoing;

(xiii) entered into any acquisition or agreement to acquire by merger, consolidation or otherwise, or agreement to acquire a substantial portion of the assets of, or in any other manner, any business of any other Person;

(xiv) entered into any Business Agreement or terminated (other than an expiration of the term in accordance with the terms thereof), extended, amended or modified of the terms of any Business Agreement (or any Contract or other agreement that would have been a Business Agreement but for such termination, extension, amendment or modification) or any waived, released or assigned any rights or claims thereunder;

(xv) made any Tax election or settled and/or compromised any Tax liability of Company; prepared any Tax Returns in a manner that is inconsistent with the past practices of Company with respect to the treatment of items on such Tax Returns; incurred any material liability for Taxes other than in the ordinary course of business, or filed an amended Tax Return or a claim for refund of Taxes with respect to the income, operations or property of Company;

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(xvi) instituted any claim or lawsuit related to the Business;

(xvii) entered into any settlement, conciliation or similar Contract, or waived, canceled, compromised or released any rights or claims of material value to the Business, whether or not in the Ordinary Course of Business;

(xviii) entered into any transaction that was not in the Ordinary Course of Business; or

(xix) agreed, whether orally or in writing, to do any of the foregoing.

5.7 Taxes.

(a) Except as described in Section 5.7(a) of the Disclosure Schedule, all income and other material Tax Returns of Company have been timely and properly filed. Company has timely paid all Taxes due and owing (whether or not shown on any Tax Returns). All such Tax Returns were true correct and complete in all material respects. No unresolved issue has been raised in writing by any Governmental Authority in the course of any audit with respect to Taxes for which Company would be held liable.

(b) Except as described in Section 5.7(b) of the Disclosure Schedule, Company does not have any liability for the Taxes of any other Person under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign Law), as a transferee or successor, by contract, or otherwise and Company is neither a party to nor is bound by any agreement a principal purpose of which is to allocate or share liability for Taxes between or among Company and other Persons.

(c) Company has withheld or collected and paid all Taxes required to have been withheld or collected and paid in connection with amounts allocated, paid or owing to or by any employee, independent contractor, customer, client, creditor, member, or other Persons.

(d) Except as described in Section 5.7(d) of the Disclosure Schedule, no claim for assessment or collection of Taxes has been received by Company in writing that has not been fully resolved. There is no audit, examination, request for information, refund claim, litigation, proceeding, proposed adjustment or matter in controversy with respect to any Taxes of or with respect to Company presently pending or threatened in writing. To the Selling Members’ actual knowledge, no such action or proceeding has otherwise been threatened by a Governmental Authority.

(e) Company has not been subject to any extension of, or has filed any waiver with respect to, any statute of limitations applicable to the assessment or collection of any Tax.

(f) Company has not engaged in a transaction that constitutes a “reportable transaction” as such term is defined in Section 6707A(c)(1) of the Code and Treasury Regulation Section 1.6011-4(b).

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(g) There are no liens for Taxes (other than for current Taxes not yet due and payable) on the assets of Company.

(h) No written claim has ever been received by the Company by a Tax authority in a jurisdiction where the Company does not pay Taxes or file Tax Returns to the effect that it is or may be subject to Taxes assessed by or a filing requirement in such jurisdiction.

(i) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) use of an improper method of accounting for a taxable period ending on or prior to the Closing Date; (iii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of U.S. state, local or non-U.S. income Tax Law) executed on or prior to the Closing Date; (iv) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local or foreign income Tax Law); (v) installment sale or open transaction disposition made on or prior to the Closing Date; (vi) prepaid amount received on or prior to the Closing Date; or (vii) election made under Section 108(i) of the Code prior to the Closing.

(j) The Company is, and at all times since its formation has been, qualified and treated as an S corporation (within the meaning of Section 1361 and 1362 of the Code and every analogous provision of applicable state, local or foreign Tax Law) having in effect a valid and timely election made pursuant to Section 1362(a) of the Code (and any similar election under any applicable state and local income Tax Law for a Taxing jurisdiction in which the Company has nexus for income Tax purposes, the “S Election”), and no Tax authority has challenged the effectiveness of this election. All requirements for making the S Election were satisfied at the time the S Election was made and that the S Election was timely filed and in effect for all taxable years of the Company for which U.S. federal, state or local income Tax Returns were filed based upon the continued validity of such S Election. The Company has, and at all times has had, only one class of common stock and does not have any outstanding options, contracts or other instruments that would constitute a second class of stock within the meaning of Section 1361(b)(1)(D) of the Code and the Treasury Regulations issued thereunder. The Company has no potential liability for Taxes under Section 1374 of the Code (or any similar provision of state or local law).

5.8 Permits. Company holds all Permits that are necessary to entitle Company to own or lease, operate and use Company’s assets and to carry on and conduct Company’s business in substantially the same manner as currently conducted. All of the Permits held by Company are in full force and effect. Since the Company’s formation, there have not been any material violations recorded in respect of any such Permits. No proceeding is pending or, to the knowledge of the Selling Members, threatened to revoke or limit any such Permit. Since the Company’s formation, Company has not received any written notice from any Governmental Authority regarding a violation of, conflict with, or failure to comply with, any term or requirement of any Permit.

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5.9 Real Property.

(a) Company does (i) not own, nor has ever owned, any real property and (ii) is not obligated nor has any option to acquire any ownership interest in any real property. The Leased Real Property identified in Schedule 5.9 of the Disclosure Schedule comprises all of the real property used in the operation of the Business and leased by Company.

(b) Except for the list of all leases and subleases of real property set forth on Schedule 5.9 of the Disclosure Schedule, in each case including all amendments, extensions and modifications thereto and assignments and subleases thereof, together with all exhibits, addendum, riders and other documents constituting a part thereof or affecting such leasehold (collectively, the “Leases”), there are no leases, subleases, licenses, occupancy agreements, options, rights, concessions or other agreements or arrangements, written or oral, granting to any person the right to purchase, use or occupy any address of each Leased Real Property facility of Company (“Premises”), or any real property or any portion thereof or interest in any such Premises or real property. All of the Leases are in full force and effect and are enforceable in accordance with their respective terms, and shall continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the Closing. Company is not, and to the knowledge of the Selling Members, no other party to such Lease is in material breach or material default under any such Lease, and to the knowledge of the Selling Members, no event has occurred which, with notice or lapse of time, would constitute such a breach or default or permit termination, modification or acceleration under any Lease.

5.10 Intellectual Property.

(a) Schedule 5.10(a) of the Disclosure Schedule contains an accurate and complete list of all Company Registered IP.

(b) Schedule 5.10(b) of the Disclosure Schedule sets forth a complete list of (i) all licenses, sublicenses or other agreements under which Company is granted rights by others in any Intellectual Property used or held for use in the operation of the Business (“Licenses In”) (other than commercial off-the-shelf software in executable code form which is made available for a total cost of less than $10,000), and (ii) licenses, sublicenses or other agreements under which Company has granted rights to others in Company Intellectual Property (“Licenses Out”) (other than non-exclusive, end user licenses granted by Company in the Ordinary Course of Business pursuant to Company’s standard form of end user license agreement, copies of which have been provided to Buyer). True and complete copies of all Licenses In and Licenses Out have been delivered to Buyer.

(c) except as set forth on Schedule 5.10(c) of the Disclosure Schedule:

(i) to the knowledge of the Selling Members, with respect to Intellectual Property (A) owned or purported to be owned by Company, Company exclusively owns such Company Intellectual Property and, without payment to a third party, possesses adequate and enforceable rights to such Intellectual Property as is material to the operation of the Business and (B) used or held for use by Company in the operation of the Business (other than commercial off the shelf software in executable code form which is made available for a total cost of less than $10,000), Company possesses adequate and enforceable rights to such Intellectual Property; in the case of the foregoing clauses (A) and (B) above, free and clear of all Encumbrances, other than Permitted Encumbrances;

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(ii) all Company Intellectual Property owned by or exclusively licensed to Company that has been issued by, or registered with, or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or any similar office or agency anywhere in the world (“Company Registered IP”) is currently in compliance with formal legal requirements (including without limitation, as applicable, payment of filing, examination and maintenance fees, inventor declarations, proofs of working or use, timely post-registration filing of affidavits of use and incontestability, and renewal applications), and, to the knowledge of the Selling Members, all Company Intellectual Property owned by or exclusively licensed to Company is valid and enforceable;

(iii) none of the Company Registered IP is subject to any maintenance fees or taxes or actions falling due within ninety (90) days after the Closing Date;

(iv) none of the Company Registered IP is subject to any proceedings or actions before any court or tribunal (including the U.S. Patent and Trademark Office, U.S. Copyright Office or equivalent authority anywhere in the world) to which Company is a party or in which claims are raised relating to the validity, enforceability, scope, ownership or infringement of any of Company Registered IP (including any interference, reissue, review, derivation, reexamination or opposition proceeding); there is no patent or patent application of any third party that potentially interferes with or is derived from any Patent included in the Company Registered IP; all Products made, used or sold under Patents included in the Company Intellectual Property have been marked with the proper patent notice;

(v) there are no pending or threatened claims, or any communications from any third party, against Company or any of Company’s employees alleging that any of the operation of the business or any activity by Company, or manufacture, sale, offer for sale, importation, and/or use of any Product infringes or violates (or in the past infringed or violated) the rights of others in or to any Intellectual Property (“Third Party IP Assets”) or constitutes a misappropriation of (or in the past constituted a misappropriation of) any portion of any Third Party IP Assets or that any of Company Intellectual Property is invalid or unenforceable;

(vi) neither the operation of the Business, nor any activity by Company, nor manufacture, use, importation, offer for sale and/or sale or license of any Product infringes, misappropriates or violates (or in the past infringed, misappropriated or violated) any (A) Third Party IP Asset, other than the rights of any Third Party under any Patent, and (B) to the knowledge of the Selling Members, the rights of any Third Party under any Patent;

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(vii) Company (A) does not have any obligation to compensate any Person for the use of any Intellectual Property and (B) there are no settlements, covenants not to sue, consents, judgments, or orders or similar obligations that: (1) restrict the rights of Company to use any Intellectual Property, (2) restrict the business of Company, in order to accommodate a third party’s Intellectual Property, or (3) permit third parties to use any Company Intellectual Property;

(viii) No government, university, college, other educational institution, research center or non-profit institution involved in the research and development of Intellectual Property (collectively, “Institutions”) provided facilities or funding for the development of any Company Intellectual Property or Product. No Institutions have any rights in or with respect to any developments of any Intellectual Property made by any current or former employee, or consultant of Company that relate in any manner to Company Intellectual Property or the Products. To the knowledge of the Selling Members, no current or former employee, or consultant of Company who was involved in, or who contributed to, the creation or development of any Company Intellectual Property has performed services for any Institution during a period of time during which such employee, or consultant was also performing services for Company;

(ix) Except as set forth on Schedule 5.10(c)(ix) of the Disclosure Schedule, all former and current employees, consultants and contractors of Company have executed valid and enforceable written instruments with Company that assign to Company all rights, title and interest in and to any and all (A) Software, inventions, improvements, ideas, discoveries, writings, works of authorship, and information relating to the Business or any of the Products and (B) Intellectual Property relating thereto; in each case where any Company Registered IP is held by Company by assignment, the assignment has been duly recorded with the U.S. Patent and Trademark Office, U.S. Copyright Office and all similar offices and agencies anywhere in the world in which foreign counterparts are registered or issued;

(x) to the knowledge of the Selling Members, (A) there is no, nor has there been any, infringement or violation by any person or entity of any of Company Intellectual Property or the rights of Company therein or thereto and (B) there is no, nor has there been any, misappropriation by any person or entity of any of Company Intellectual Property or the subject matter thereof;

(xi) Company has taken all commercially reasonable security measures to protect the secrecy, confidentiality and value of all Trade Secrets owned by Company or used or held for use by Company in the operation of the Business (the “Company Trade Secrets”), including, without limitation, requiring each employee and consultant of Company, and any other person with access to Company Trade Secrets, to execute a binding confidentiality agreement, and, to the Selling Members’ knowledge, there has not been any breach by any party to such confidentiality agreements;

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(xii) Company has not (A) granted, directly or indirectly, any current or contingent rights, licenses or interests in or to any source code of any of the Products, or (B) provided or disclosed any source code of any Product to any Person;

(xiii) to the knowledge of the Selling Members, each Product performs in accordance with its documented specifications and as Company has warranted to its customers;

(xiv) the Products do not contain any “viruses”, “worms”, “time bombs”, “key-locks”, or any other devices created that could disrupt or interfere with the operation of the Products or equipment upon which the Products operate, or the integrity of the data, information or signals the Products produce;

(xv) to the knowledge of the Selling Members, all use and distribution of the Products or any Publicly Available Software by or through Company is in full compliance with all licenses applicable thereto, including all copyright notice and attribution requirements. Schedule 5.10(c)(xv) of the Disclosure Schedule lists all Publicly Available Software used in the Products, including in development or testing thereof, and (A) identifies the license applicable thereto (including the specific version thereof under which such Publicly Available Software were licensed); (B) identifies, where available, a URL at which the applicable Publicly Available Software are available and at which the applicable license is identified; (C) describes the manner in which such Publicly Available Software were used or distributed; (D) states whether (and, if so, how) the Publicly Available Software were modified by or for Company; and (E) describes how such Publicly Available Software are integrated with or interact with the Products or any portion thereof. To the knowledge of the Selling Members, Company has not (w) incorporated Publicly Available Software into, or combined Publicly Available Software with, any of the Products; (x) distributed Publicly Available Software in conjunction with or for use with any of the Products; or otherwise (y) used copyleft materials in a manner that obligates Company to disclose, make available, offer or deliver any portion of the source code of any Product to any third party or otherwise affects Company’s freedom of action with respect to the use or distribution of Products or any software to which any Company Intellectual Property relates or (z) used any copyleft materials in a manner that (1) obligates Company to grant any licenses under any patents in which it now or hereafter may have an interest (including any use of copyleft materials that are subject to version 3 of the GNU General Public License that results in a grant of a patent license under Section 11 thereof or (2) requires Company to permit third parties to reverse engineer or replace portions of the software embodied in any Products, as required under the GNU Lesser General Public License;

(xvi) following the Closing, Company will have the same rights and privileges in Company Intellectual Property as Company had in Company Intellectual Property immediately prior to the Closing; and

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(xvii) the computer, information technology and data processing systems, facilities and services used by Company, including all Software, hardware, networks, communications facilities, platforms and related systems and services in the custody or control of Company (collectively, “Systems”), are reasonably sufficient for the existing and currently anticipated future needs of Company, including as to capacity, scalability and ability to process current and anticipated peak volumes in a timely manner; the Systems are in good working condition to effectively perform all computing, information technology and data processing operations necessary for the operation of Company; all Systems (to the extent dedicated to Company), other than software licensed to Company pursuant to a valid and enforceable License In, are owned and operated by, and or are under the control of, Company.

5.11 Compliance with Laws. Company is, has been since its formation, in material compliance with all Laws. Company has not received any written notice to the effect that it is not in compliance with any Law.

5.12 Contracts.

(a) The applicable subsection of Schedule 5.12 of the Disclosure Schedule sets forth a list of the following Contracts (that have not expired or otherwise terminated) as of the date of this Agreement (all Contracts listed or required to be listed on Schedule 5.12 of the Disclosure Schedule, the “Business Agreements”) to which Company is a party or by which Company is, or any of Company’s assets are, bound:

(i) Any Contract involving the obligation of Company to purchase more than $5,000 annually in products, materials, supplies, goods, equipment, other assets or services;

(ii) Any Contract involving the obligation of Company to sell Products pursuant to which the aggregate payments to become due to Company exceed $25,000;

(iii) Any sales, advertising, agency, lobbying, broker, sales promotion, market research, marketing or similar Contract, in each case, requiring the payment of any commissions by Company;

(iv) Any Contract relating to capital expenditures and involving payments in excess of $5,000;

(v) Any Contract or group of Contracts requiring the purchase of all or substantially all of its requirements of a particular product from any Person;

(vi) All Contracts pursuant to which Company has agreed to provide “most favored nation” pricing or other similar terms and conditions to any Person;

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(vii) Any Contract with a Third Party that prohibits Company from engaging in competition or that otherwise restricts or limits Company from conducting any business or operation in any geographic area;

(viii) Any Contract related to Indebtedness, including any guarantees thereof;

(ix) Any joint venture, distribution, reseller, partnership, manufacturer, development or supply agreement or other similar Contract which involves a sharing of revenues, profits, losses, costs or liabilities by Company with any other Person;

(x) Any License In or License Out providing for the granting of exclusive rights or licenses in or to any Intellectual Property or pursuant to which Company is obligated to pay, or entitled to receive, more than $10,000 annually;

(xi) Any royalty or similar Contract based on the revenues or profits of Company;

(xii) Any Contract involving fixed price or fixed volume arrangements;

(xiii) Any Contract imposing any confidentiality obligation on Company, or containing “standstill” or similar provisions;

(xiv) All Contracts of indemnification or guaranty by Company to any Person;

(xv) Any acquisition, merger or similar agreement;

(xvi) Any Contract with any Governmental Authority;

(xvii) Any Contract relating to the settlement of any Action;

(xviii) Any plan or Contract providing for bonuses, benefits upon a change of control, stock, options, stock purchases, profit sharing, pension, retirement, other form of deferred compensation, collective bargaining or the like or any Contract with any labor union;

(xix) Any employment Contract or Contract for services that requires the payment of cash compensation and that is not terminable by Company without liability for any penalty or severance payment;

(xx) any Contract under which Company has made advances or loans to any other Person (which shall not include advances made to a non-officer employee of Company in the Ordinary Course of Business);

(xxi) any Contract under which Company has (A) any obligations to create or maintain interoperability or compatibility of any Company Intellectual

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Property or Products with any Intellectual Property, technology, products or services of any other Person or (B) committed to a third party that Company will provide (i) custom software development services or (ii) deliver features or functionality at a date beyond the date of the Contract;

(xxii) any Contract between or among Company, on the one hand, and any officer, manager, director, Selling Member or other Affiliate of Company and, to the knowledge of the Selling Members, any immediate relative or spouse (or immediate relative of such spouse) who resides with, or is a dependent of, any such Selling Member, officer, manager, director or other Affiliate, on the other hand; or

(xxiii) any lease or similar agreement under which: (A) Company is the lessee of, or holds or uses, any machinery, equipment, vehicles or other tangible personal property owned by any Third Party or (B) Company is the lessor of, or makes available for use by any Third Party, any tangible personal property owned by it.

(b) Each of the Business Agreements (i) is valid and in full force and effect and constitutes legal, valid and binding obligations of Company and, to the knowledge of the Selling Members, the other parties thereto, and (ii) is enforceable against Company and, to the knowledge of the Selling Members, the other parties thereto, in accordance with their respective terms. The Selling Members have caused Company to deliver to Buyer true and complete copies of the Business Agreements. Company is not in breach under any of the Business Agreements, or has received written notice of any such breach, and to the knowledge of the Selling Members, no condition or event or facts exist which, with notice, lapse of time or both, would constitute a breach thereof on the part of Company. Company has not received any notice or threat to terminate any Business Agreement.

5.13 Employees.

(a) Schedule 5.13(a) of the Disclosure Schedule sets forth a complete and accurate list of all of the directors, officers and employees of Company, identifying for each such individual his or her employer, his or her position, whether classified as exempt or non-exempt for wage and hour purposes, date of hire, business location, annual base salary and other annual compensation, whether paid on a salary, hourly or commission basis and the actual rates of compensation, last year’s bonus, full-time or part-time status, accrued and unused vacation days and the cash value of same, and active/inactive status (and if inactive, the type of leave and estimated return date). Currently and for the past three years, Company has properly classified and treated all of its employees in accordance with applicable Laws, including, without limitation, for purposes of minimum wage and overtime requirements under applicable Laws.

(b) Except as set forth in Schedule 5.13(b) of the Disclosure Schedule, Company does not employ any independent contractors, temporary employees, leased employees or any other servants or agents compensated other than through reportable wages paid by Company (collectively, “Contingent Workers”). To the extent Company utilizes or has utilized Contingent Workers in the past three years, Company has properly classified and treated them in accordance with applicable Laws and for purposes of all Benefit Plans and perquisites.

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(c) Company is not negotiating and has not negotiated, nor is it or has it been a party to or bound by, any collective bargaining agreement or any other labor-related agreement or arrangement. Company is not, and since its formation has not been, subject to any: (i) pending or, to the knowledge of the Selling Members, threatened labor strike, slowdown, work stoppage, lockout, or other organized labor disturbance, or (ii) to the knowledge of the Selling Members, attempt by any union to represent employees or Contingent Workers as a collective bargaining agent.

(d) Company is not delinquent in payments to any of its employees or Contingent Workers for any wages, salaries, commissions, bonuses, severance, termination pay, consulting fees or other direct compensation or remuneration for any services performed therefore or amounts required to be reimbursed to such employees or Contingent Workers. Company is and heretofore has been in compliance with all applicable Laws and regulations respecting labor and employment matters, including fair employment practices, human rights, affirmative action, pay equity, terms and conditions of employment, occupational safety and health, workers’ compensation, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work, or any other concerted interference with normal operations existing, pending or, to the knowledge of the Selling Members, threatened against or involving Company. Company is, and at all times has been, in compliance with the requirements of the Immigration Reform Control Act of 1986. Company has not ever implemented any plant closing or mass layoff of employees as those terms are defined in the Worker Adjustment Retraining and Notification Act of 1988, as amended (the “WARN Act”), mass termination provisions of any applicable employment standards legislation (the “Mass Termination” provisions) or any similar federal, state, provincial or local Law or regulation and no layoffs that could implicate such Laws or regulations up through and including the Closing Date are currently contemplated or have been effected within the six (6) months prior to the Closing. Company does not have a written policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment. Further, all employees and contractors of Company are at will and not subject to any Contract with Company that requires notice prior to termination or provides for severance pay or any form of severance compensation in connection with termination of employment. There are no, and within the past three years, there have not been any grievances, complaints or charges involving the Company and related to labor or employment matters that have been filed against Company in any judicial, regulatory or administrative forum or under any private dispute resolution procedure (including any proceedings under any dispute resolution procedure under any collective bargaining agreement). Company has not received written notice, or to the knowledge of the Selling Members, other notice of the pending or threatened resignation of any officer or key employee or key supervisory personnel of Company, nor has the employment of any such individual been terminated for any reason in the past twelve (12) months.

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5.14 Employee Benefits.

(a) Schedule 5.14(a) of the Disclosure Schedule sets forth a true, complete and correct list of every Benefit Plan that is maintained by the Company or any ERISA Affiliate.

(b) No Benefit Plan is intended to qualify under Section 401(a) of the Code, and neither the Company nor any ERISA Affiliate maintains any plan described in Section 401(k) of the Code.

(c) (i) Each Benefit Plan is, and has been operated in material compliance with applicable Laws and regulations and is and has been administered in all material respects in accordance with applicable Laws and regulations and with its terms. (ii) No litigation or governmental administrative proceeding, audit or other proceeding (other than those relating to routine claims for benefits) is pending or, to the knowledge of the Selling Members, threatened with respect to any Benefit Plan or any fiduciary or service provider thereof, and, to the knowledge of the Selling Members, there is no reasonable basis for any such litigation or proceeding. (iii) All payments and/or contributions required to have been made with respect to all Benefit Plans either have been made or have been accrued in accordance with the terms of the applicable Benefit Plan and applicable law.

(d) No Benefit Plan is a single employer pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the Company or any ERISA Affiliate could incur liability under Section 4063 or 4064 of ERISA or a plan maintained by more than one employer as described in Section 413(c) of the Code.

(e) Neither the Company nor any ERISA Affiliate has ever maintained any Benefit Plan that is or was subject to Title IV of ERISA, Section 412 of the Code, Section 302 of ERISA or is a Multiemployer Plan and neither the Company nor any ERISA Affiliate has ever incurred any liability under Title IV of ERISA that has not been paid in full.

(f) None of the Benefit Plans provides health care or any other non-pension benefits to any employees after their employment is terminated (other than as required by Part 6 of Subtitle B of Title I of ERISA or similar state law) and the Company has never promised to provide such post-termination benefits.

(g) (i) Each Benefit Plan may be amended, terminated, or otherwise modified by the Company to the greatest extent permitted by applicable law, including the elimination of any and all future benefit accruals thereunder and no employee communications or provision of any Benefit Plan has failed to effectively reserve the right of the Company or the ERISA Affiliate to so amend, terminate or otherwise modify such Benefit Plan. (ii) Neither the Company nor any of its ERISA Affiliates has announced its intention to modify or terminate any Benefit Plan or adopt any arrangement or program which, once established, would come within the definition of a Benefit Plan. (iii) Each asset held under each Benefit Plan may be liquidated or terminated without the imposition of any redemption fee, surrender charge or comparable liability other than ordinary administration expenses. (iv) No Benefit Plan provides health or disability benefits that are not fully insured through an insurance contract.

(h) The per share exercise price of each option to purchase equity interests in the Company is no less than the fair market value of such equity unit on the date of grant of such

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option determined in a manner consistent with Section 409A of the Code. Each Benefit Plan that constitutes in any part a nonqualified deferred compensation plan within the meaning of Section 409A of the Code (each, a “NQDC Plan”) has been operated and maintained in all material respects in operational and documentary compliance with Section 409A of the Code and applicable guidance thereunder. No payment to be made under any Benefit Plan is, or to the knowledge of the Selling Members, will be, subject to the penalties of Section 409A(a)(1) of the Code.

(i) No Benefit Plan is subject to the Laws of any jurisdiction outside the United States.

(j) Neither the execution and delivery of this Agreement, the member approval of this Agreement, nor the consummation of the transactions contemplated hereby could (either alone or in conjunction with any other event) (i) result in, or cause the accelerated vesting payment, funding or delivery of, or increase the amount or value of, any payment or benefit to any employee, officer, director or other service provider of the Company or any of its ERISA Affiliates; (ii) result in any “parachute payment” as defined in Section 280G(b)(2) of the Code (whether or not such payment is considered to be reasonable compensation for services rendered); or (iii) other than with respect to any payments being made to the Selling Members as contemplated by this Agreement, result in a requirement to pay any tax “gross-up” or similar “make-whole” payments to any employee, director or consultant of the Company or an ERISA Affiliate.

5.15 Environmental Compliance. (i) Company has complied with all Laws (including, without limitation, permits, licenses and governmental approvals) which are intended to protect the environment and/or human health (collectively, “Environmental Laws”); (ii) Company has not handled, generated, used, stored, transported or disposed of any material, substance or waste which is regulated by Environmental Laws (“Hazardous Materials”), except for reasonable amounts of materials ordinarily associated with businesses engaged in business material similarly to the Business (including ordinary office and/or office-cleaning supplies) which have been used in compliance with Environmental Laws; (iii) there is not now, nor has there ever been, any underground storage tank or asbestos on any real property owned, operated or leased by Company; (iv) Company has not conducted, nor is any Selling Member aware of, any environmental investigations, studies, audits, tests, reviews or analyses, the purpose of which was to discover, identify, or otherwise characterize the condition of the soil, groundwater, air or the presence of Hazardous Materials at any real property owned, operated or leased by Company; and (v) there are no Environmental Liabilities (as defined below). For purposes of this Agreement, “Environmental Liabilities” are any claims, demands, or liabilities under Environmental Laws which (i) arise out of or in any way relate to Company’s operations or activities, or any real property at any time owned, operated or leased by Company, or any use or ownership thereof, whether vested or unvested, contingent or fixed, actual or potential, and (ii) arise from or relate to actions occurring (including any failure to act) or conditions existing on or before the Closing Date.

5.16 Litigation. There is no, and since the Company’s formation, there has not been any, (a) Action pending against Company, or, to the knowledge of the Selling Members, threatened against Company or (b) to the knowledge of the Selling Members, any investigations

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before or by any Governmental Authority in each case, against Company or any of its assets or businesses or, to the knowledge of the Selling Members, any present or former officer, director or employee of Company in his or her capacity as such. Company is not subject to any outstanding Court Order. Company is not or, to the knowledge of the Selling Members, any present or former officer, director or employee of Company in his or her capacity as such is not subject to any outstanding Court Order. There is no Action pending or, to the knowledge of the Selling Members, threatened against Company that would reasonably be expected to challenge, prevent or materially impair or delay the consummation of the Transactions. Since the Company’s formation, Company has not received any written notice or other written communication from any Governmental Authority regarding any violation of, or failure to comply with, any term or requirement of any Court Order to which Company or any of Company’s assets is subject.

5.17 Insurance. A true, accurate and complete list of all policies or binders of fire, liability, product liability, workers’ compensation, vehicular and other insurance held by Company (including information on the scope and amount of the coverage provided thereunder) is set forth on Schedule 5.17 of the Disclosure Schedule and Selling Members have caused Company to deliver true, accurate and complete copies of such policies to Buyer. All policies set forth on Schedule 5.17 of the Disclosure Schedule are in full force and effect. All premiums on all such policies have been paid to date and Company is not in material breach or default and, to the knowledge of the Selling Members, has not taken any action or failed to take any action that, with notice or the lapse of time, would constitute such a breach or default, or permit termination or material modification of any such policies. Since the Company’s formation, Company has not received written notice of any failure to comply with the terms of such policies or any written notice of nonrenewal of any such policies. There are currently no claims pending against Company under any such insurance policies.

5.18 Properties. Except as set forth on Schedule 5.18 of the Disclosure Schedule, the Company has legal title to all of the properties and assets used in its business or held by it, whether real, personal, tangible or intangible, free and clear of all Encumbrances (except Permitted Encumbrances). All items of machinery, equipment, and other tangible assets of Company are (i) sufficient, and in sufficient condition, for the conduct of the business as presently conducted by Company, (ii) taken as a whole, in reasonably good operating condition and repair (ordinary wear and tear excepted) and are suitable for their intended use and (iii) constitute all of the properties and assets (whether real, personal or mixed and whether tangible or intangible) necessary and sufficient to permit Company to continue to conduct Company’s business immediately after the Closing in the Ordinary Course of Business.

5.19 Transactions with Affiliates

(a) No officer, manager, director, Selling Member or other Affiliate of Company and, to the knowledge of the Selling Members, no immediate relative or spouse (or immediate relative of such spouse) who resides with, or is a dependent of, any such Selling Member, officer, manager, director or other Affiliate: (i) has any direct or indirect financial interest in any creditor, competitor, supplier manufacturer, agent, representative, distributor, provider, supplier or customer of Company; or (ii) owns, directly or indirectly, in whole or in part, or has any other interest in, any tangible or intangible property that Company uses in the

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conduct of Company’s business, except, in each case, for any such ownership or interest resulting from the ownership of not more than five percent (5%) of the outstanding capital stock of a public company.

(b) Except as set forth on Schedule 5.19 of the Disclosure Schedule, no director, manager, officer, Selling Member, or other Affiliate of Company, or, to the knowledge of the Selling Members, any member of the immediate family of any such Person, or any corporation, partnership, trust or other entity in which any such Person, is an officer, manager, director, trustee, partner or holder of more than five percent (5%) of the outstanding capital stock thereof, is a party to any transaction or understanding with Company, including any Contract or other arrangement providing for the employment of, furnishing of services by, rental of real or personal property from or otherwise requiring payments to any such Person or firm, other than employment-at-will arrangements in the Ordinary Course of Business.

5.20 No Brokers. Company is not obligated to pay any fee or commission to any broker, finder, investment banker or intermediary, for or on account of the Transactions.

5.21 State Takeover Statutes. No “fair price,” “moratorium,” “control share acquisition” or other similar anti-takeover statute, regulation or Law or any anti-takeover provision in Company’s Organizational Documents is, or at Closing will be, applicable to Company or the Membership Units.

5.22 Warranties. Schedule 5.22 of the Disclosure Schedule sets forth a complete list of all outstanding product and service warranties and guarantees on any of the products or services that Company distributes, services, markets, sells or produces for itself, a customer or a third party (each such product or service shall be referred to herein as a “Company Product”). There are no existing nor, to the knowledge of the Selling Members, threatened, claims against Company relating to any work performed by any of Company, product liability, warranty or other similar claims against Company alleging that any Company Product is defective or fails to meet any product or service warranties. To the knowledge of the Selling Members, there are (a) no inherent design defects or systemic or chronic problems in any Company Product and (b) no liabilities for warranty or other claims or returns with respect to any Company Product relating to any such defects or problems.

5.23 Suppliers, Distributors and Customers. Schedule 5.23 of the Disclosure Schedule sets forth the name of each customer (“Customer”) and each distributor (“Distributor”) together with the names of any persons or entities with which Company has had a material strategic partnership or similar relationship (“Partner”). No Customer, Distributor or Partner has terminated or materially modified its business relationships with Company, Company is not aware that any Customer, Distributor or Partner is considering or intends to terminate or materially modify its business relationship with Company, and there has been no communication from any Customer, Distributor or Partner which would lead Company reasonably to believe that such Customer, Distributor or Partner is considering or intending to terminate (whether as a result of the Transactions or otherwise) or materially modify its business relationships with Company (whether related to payment, price or otherwise). There has not been any material adverse change in relations with any Customer, Distributor or Partner.

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5.24 Solvency.

(a) No order has been made, or application filed, or resolution passed or a notice of intention given to pass a resolution for the winding up of Company and there are no circumstances justifying commencement of any such action.

(b) No receiver, receiver and manager, controller, trustee, administrator or similar official has been appointed over, or has possession or control of, all or any part of the assets or undertaking of Company or a Selling Member, nor has Company or any Selling Member entered into any arrangement or composition or compromise with all or any class of its creditors.

(c) The Company is able to pay its debts as and when they fall due.

5.25 Data Privacy.

(a) At all times since its inception Company has complied in all material respects and does comply in all material respects with all of its privacy and security policies and its contractual obligations applicable to its collection, use, processing, storage, protection, use and disclosure of Personal Data as well as all Laws applicable to its collection, use, processing, storage, protection, use and disclosure of Personal Data, including, without limitation, the Health Insurance Portability and Accountability Act of 1996, as amended, and all rules and regulations promulgated pursuant thereto (collectively “HIPAA”) and all state Laws concerning privacy and data security of Personal Data.

(b) At all times since inception, Company has provided accurate notice of its privacy policies on all of its websites and any other properties and (i) these notices do not and have not contained any material omissions of Company’s privacy policies; (ii) have complied and do comply with all Laws applicable to Personal Data and are consistent with standards that are customary in the industry.

(c) At all times since its inception, Company has implemented and has maintained a system of internal controls sufficient to ensure that Company complies with all applicable Laws and that Company will not acquire, fail to secure, share or use such Personal Data in a manner inconsistent with (A) applicable Laws, (B) any policy adopted by Company, (C) any contractual commitment made by Company, or (D) any privacy policy or privacy statement from time to time published or otherwise made available to third parties by Company. Company has periodically tested its system of internal controls and, to the extent deemed appropriate in the business judgment of Company, the internal controls of any service provider to which access to Personal Data has been provided, to assess the effectiveness, implementation and required improvements of or to any such system of internal controls. Except for disclosures of information required by Law or specifically authorized by the provider of the Personal Data, Company does not sell, rent or otherwise make available to third parties any Personal Data. At all times since its inception, in connection with each third party servicing, outsourcing or similar arrangement that the Company has entered into, the Company has contractually obligated each service provider to (A) comply with all applicable Laws with respect to Personal Data acquired from or with respect to Company, (B) take reasonable steps to protect and secure from

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unauthorized disclosure Personal Data acquired from or with respect to Company, (C) restrict use of Personal Data acquired from or with respect to Company to those authorized or required under the servicing, outsourcing or similar arrangement, and (D) afford to Company access to the places of business and systems of such servicer, outsourcer or similar provider to assess compliance with such contractual obligations.

(d) Company does not collect, use, disclose or otherwise process and has not collected, used, disclosed or otherwise processed, any Personal Data in connection with the operation of its business that is in any material respect: (i) violates any applicable Law; (ii) contrary to any of Company’s privacy and security policies; and/or (iii) contrary to any contractual obligations of Company.

(e) To the knowledge of the Selling Members, Company has complied in all material respects and does comply in all material respects with all applicable privacy and data protection Laws of foreign countries, including those applicable to all transborder flows of Personal Data.

(f) Company is not subject to any contractual requirements nor any privacy policies or other legal obligations, that following the Closing would prohibit Buyer from receiving and using any of the Personal Data in compliance with such applicable Laws.

(g) Company has security measures in place designed to provide appropriate protections for all Personal Data under its control and/or in its possession and/or protect such Personal Data from unauthorized access by any parties. Company’s hardware, software, encryption, systems, policies and procedures satisfy the requirements of HIPAA in all material respects as applicable to Company.

(h) Company has not suffered any breach in security that has permitted any unauthorized access to the Personal Data under Company’s control or possession which unauthorized access resulted in or would be reasonably likely to result in any material Liability to the Company.

(i) No claims have been asserted or, to the knowledge of the Selling Members, threatened with respect to Company’s receipt, collection, use, storage, processing, disclosure or disposal of Personal Data.

5.26 Fair Disclosure. This Agreement, including the Disclosure Schedule and any certificate, instrument or other document required to be delivered pursuant to this Agreement by Company, does not contain any untrue statement of a material fact, and does not omit to state any material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Selling Members have caused Company to deliver or make available to Buyer all documents listed in the Disclosure Schedule (including any material attachment thereto) or in any other Exhibit or Schedule called for by this Agreement.

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ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF BUYER

As an inducement to the Selling Members to enter into this Agreement and to consummate the Transactions, Buyer hereby represents and warrants to the Selling Members as follows:

6.1 Organization. Buyer is a corporation duly incorporated, validly existing and in good standing under the Laws of Delaware.

6.2 Authority and Enforceability. Buyer has the corporate power and authority to execute, deliver and perform this Agreement and any Transaction Document to which it is a party, to consummate the Transactions and to perform its obligations under this Agreement and such Transaction Documents. The execution, delivery and performance of this Agreement by Buyer have been duly authorized and approved by its board of directors and do not require any further authorization or consent of its stockholders. This Agreement has been duly and validly executed and delivered by Buyer and (assuming the valid authorization, execution and delivery of this Agreement by the Selling Members) is the legal, valid and binding agreement of Buyer, enforceable in accordance with its terms.

6.3 Conflicts. The execution and delivery by Buyer of this Agreement, and the performance by each of its obligations hereunder, does not and will not:

(a) (i) conflict with or violate any provision of Law or (ii) conflict with or violate any Court Order to which Buyer is subject;

(b) (A) require a consent, approval or waiver from, or notice to, any party to any Contract to which Buyer is a party or by which Buyer is bound or affected, or (B) result in a breach of, constitute a default under, or result in the acceleration of obligations, loss of benefit or increase in any liabilities or fees under, or create in any party the right to terminate, cancel or modify (whether after the giving of notice, lapse of time or both), any Contract to which Buyer is a party or by which Buyer is bound or affected; or

(c) require a registration, filing, application, notice, consent, approval, order, qualification, or waiver with, to or from any Governmental Authority or any other Person.

6.4 No Litigation. There is no Action pending or, to the knowledge of Buyer, threatened, against Buyer or its Affiliates which would reasonably be expected to prevent, hinder or delay the consummation of any of the Transactions. There is no Action pending or, to the knowledge of Buyer, threatened, that questions the legality or propriety of the Transactions.

6.5 No Brokers. Buyer is not obligated to pay any fee or commission to any broker, finder, investment banker or intermediary, for or on account of the Transactions, except for certain consulting fees payable to an advisor to Buyer, which includes a success fee contingent upon the Closing of the Transactions.

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ARTICLE 7

CONDITIONS PRECEDENT TO CLOSING

7.1 Conditions Precedent to the Obligations of Buyer. The obligations of Buyer under this Agreement shall be subject to the satisfaction, on or before the Closing, of each of the following conditions (any of which may be waived only by a specific writing executed by Buyer):

(a) Representations and Warranties. Each of the Fundamental Representations shall be true and correct in all respects as of the date hereof and as of the Closing as though made on and as of the Closing (except that those representations and warranties which address matters only as of a particular date need only be true and correct as of such date), and all other representations and warranties of the Selling Members contained in this Agreement shall be true and correct (without giving effect to any limitation as to “materiality” or “Material Adverse Effect” set forth herein) in all material respects as of the date hereof and as of the Closing as though made on and as of the Closing (except that those representations and warranties which address matters only as of a particular date need only be true and correct in all material respects as of such date).

(b) Covenants. Each of the Company and the Selling Members shall have performed or complied in all respects with all agreements and covenants required by this Agreement to be performed or complied with by it at or prior to the Closing Date.

(c) No Injunction. No action or proceeding will have been instituted or threatened prior to or on the Closing Date before any Governmental Authority pertaining to the transactions contemplated by this Agreement, the result of which would prevent or make illegal the consummation of such transactions. No Governmental Authority will have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction or other order (whether temporary, preliminary or permanent) that is in effect and has the effect of prohibiting the consummation of the transactions contemplated by this Agreement.

(d) Corporate Authorization. Any limited liability company action necessary to authorize (i) the execution, delivery and performance by Company and the Selling Members of this Agreement and the Transaction Documents and (ii) the consummation of the Transactions contemplated hereby and thereby shall have been obtained by Company.

(e) No Material Adverse Effect. Since the date of this Agreement, there will not have occurred, nor will any event have occurred or failed to occur that could reasonably be expected to cause or result in, any Material Adverse Effect; and Buyer shall have received at the Closing a certificate, dated the Closing Date, signed by an officer of Company to such effect.

(f) Closing Deliveries. Buyer shall have received the closing deliverables listed in Section 2.2.

7.2 Conditions Precedent to the Obligations of Selling Members. The obligations of the Selling Members under this Agreement shall be subject to the satisfaction, on or before the

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Closing, of each of the following conditions (any of which may be waived only by a specific writing executed by the Sellers Representative):

(a) No Injunction. There shall not be in effect any preliminary or permanent injunction or other order issued by any state or federal court which prevents the consummation of the transactions contemplated hereby.

(b) Closing Deliveries. Seller shall have received the closing deliverables listed in Section 2.3.

ARTICLE 8

ADDITIONAL AGREEMENTS

8.1 Non-Competition; Non-Solicitation.

(a) Each Selling Member agrees as follows:

(i) During the period beginning on the Closing Date and ending on the fifth (5th) anniversary of the Closing Date (the “Non-Competition Period”), such Selling Member shall not, directly or indirectly engage, participate or invest anywhere in the United States in (A) any business activity that in any way or manner competes with any currently existing product or service of Company or any product currently in development; or (B) the business of providing any patient authentication solution (deployed on-premises or in the cloud) for in-hospital and/or owned affiliated ambulatory offices or clinics that links the biometric or other authentication method to the patient’s medical records in any Hospital Information System registration, Enterprise Master Patient Index or Electronic Medical Record system ((A) and (B) collectively, the “Business”); provided, however, that such Selling Member shall not be prohibited from owning up to five percent (5%) of the outstanding stock of a corporation that competes with the Business and that is publicly traded on a national securities exchange or in the over-the-counter market, so long as such Selling Member has no active participation in connection with the business of such corporation; or (C) call upon, solicit, divert, take away, accept or conduct any business from or with any of the customers or prospective customers of Company, Buyer or any of their Affiliates.

(ii) During the Non-Competition Period, such Selling Member shall not, directly or indirectly, employ, facilitate the hire of, engage as a consultant or otherwise, solicit, induce or attempt to induce any employees or consultants of Company, Buyer or any of its Affiliates to leave the employ of Company, Buyer or any of their Affiliates, as applicable, provided that such Selling Member may make general solicitation advertisements that are not targeted at such employees or consultants.

(iii) During the Non-Competition Period, such Selling Member shall not directly publish, repeat or report any statement or comment, or take, encourage, induce or voluntarily participate in any action, that would negatively comment on, disparage, defame or call into question the business, operations, policies or conduct of Buyer, Company, any of their respective subsidiaries or any director, officer, manager, employee, partner, shareholder, agent, Affiliate or customer of any of the foregoing; provided that this Section 8.1(a)(iii) shall not in any way affect such Selling Member’s obligation to testify truthfully in any legal proceeding.

(b) Each Selling Member acknowledges and agrees that the restrictions contained in Section 8.1(a) are a reasonable and necessary protection of the immediate interests

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of Buyer, including, without limitation, Buyer’s interest in the good will, confidential information and trade secrets of Company, and that Buyer would not have entered into this Agreement without receiving the consideration offered by such Selling Member in binding it and its Affiliates to these restrictions. If any provision contained in Section 8.1(a) shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of Section 8.1(a), but Section 8.1(a) shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. It is the intention of the Parties that if any of the restrictions or covenants contained herein is held to cover a geographic area, scope of business activity or length of time that is not permitted by applicable Law, or in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable Law, a court of competent jurisdiction shall construe and interpret or reform Section 8.1(a) to provide for a covenant having the maximum enforceable geographic area, scope of business activity, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable Law. Each Selling Member acknowledges that Buyer would be irreparably harmed by any breach of Section 8.1(a) and that there would be no adequate remedy at law or in damages to compensate Buyer for any such breach. Each Selling Member agrees that, in the event of a breach or threatened breach of Section 8.1(a), Buyer shall be entitled to injunctive relief requiring specific performance by such Selling Member of Section 8.1(a) without the necessity of proving the inadequacy as a remedy of money damages or the posting of a bond, and such Selling Member consents to the entry thereof; provided, however, that the right to injunctive relief will not be construed as prohibiting Buyer or the Selling Members from pursuing any other available remedies, whether at law or in equity, for such breach or threatened breach.

8.2 Tax Matters.

(a) Code Section 338(h)(10) Election. Buyer and each Selling Member covenant and agree to make an election pursuant to Section 338(h)(10) (the “Section 338(h)(10) Election”) of the Code (and any comparable election under state, local or foreign Tax Law), to execute any and all documents, and to take all actions and to file such forms (including IRS Form 8023) as may be necessary to effectuate such election. In connection with the Section 338(h)(10) Election, the Purchase Price shall be allocated for Tax purposes in accordance with the methodology set forth on Exhibit H hereto (the “Allocation”), which such methodology the parties agree is in accordance with Code Section 1060 and the Treasury Regulations promulgated thereunder (and any similar provisions of state, local or foreign Law). Buyer and Selling Members shall file all Tax Returns (including amended returns, claims for refund, and IRS Forms 8023 and 8883) and information reports in a manner consistent with the Allocation. The parties shall not take any Tax position or file any Tax report that is inconsistent with such Allocation, unless otherwise required by applicable Law.

(b) Preparation and Filing of Tax Returns.

(i) Sellers Representative shall prepare or cause to be prepared and timely file or cause to be filed all Tax Returns for the Company that relate to (1) the Company’s Internal Revenue Service Form 1120S or (2) the Company’s state and local income Tax Returns that allocate the Company’s income or other Tax

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items of the Company to Sellers under state or local income Tax Law that conforms to Code Section 1366 for all Pre-Closing Tax Periods (each a “Seller Tax Return”). All Seller Tax Returns shall be prepared and filed in a manner that is consistent with the prior practice of the Company (including, without limitation, prior Tax elections and accounting methods or conventions made or utilized by the Company) except as required by Law. Sellers Representative shall deliver all Seller Tax Returns to Buyer as soon as practical after the preparation of such Seller Tax Return for its review and comment, but not less than thirty (30) days prior to the date on which such Seller Tax Returns are due to be filed (taking into account any applicable extensions). The Sellers Representative shall consider any such comments of the Buyer in good faith to the extent such comments could reasonably be expected to impact the Buyer or the Company for a taxable period beginning after the Closing Date.

(ii) Following the Closing, Buyer shall timely prepare and file, or cause to be prepared and filed, all Tax Returns required to be filed by the Company that are not Seller Tax Returns, including the Straddle Period Returns. With respect to any such Tax Return for a Pre-Closing Tax Period and any Straddle Period Returns, at least three (3) days prior to the due date thereof (taking into account any valid extensions thereof) Selling Members shall pay Buyer an amount equal to the Taxes owed by Selling Members as determined under Section 8.2(c) (unless such Taxes were reflected as liabilities in the calculation of Final Working Capital Adjustment). Except with respect to Straddle Period Returns, Buyer shall provide Sellers Representative with copies of the Tax Returns Buyer is responsible for preparing under this Section 8.2(b)(ii) for Sellers Representative’s review and approval at least thirty (30) days prior to the applicable filing due date (taking into account any valid extensions thereof). Following receipt thereof, the Sellers Representative shall have a period of ten (10) days to provide Buyer with a statement of any disputed items with respect to the Tax Returns listed in this paragraph. In the event Sellers Representative and Buyer are unable to reach agreement with respect to any disputed items within a period of five (5) days after Buyer’s receipt of such statement, all such disputed items shall be submitted to the Accounting Arbitrator for final resolution prior to the applicable filing due date in accordance with Section 8.2(h). Buyer shall deliver all Straddle Period Returns to Sellers Representative as soon as practicable after the preparation of such Straddle Period Return for its review and comment, but not less than thirty (30) days prior to the date on which such Straddle Period Returns are due to be filed (taking into account any applicable extensions). Buyer shall consider any such comments of the Sellers Representative in good faith.

(c) Straddle Period Allocation. Buyer and the Selling Members agree that if the Company is permitted under any applicable state or local income Tax Law to treat the Closing Date as the last day of the taxable period during which the Closing occurs, Buyer and the Selling Members shall treat (and shall cause their respective controlled affiliates to treat) such date as the last day of such taxable period. In the case of a Straddle Period, Taxes will be apportioned between the period of the Straddle Period that begins before the Closing Date and ends on and includes the Closing Date (“Pre-Closing Straddle Period”) and the period of the

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Straddle Period that begins the day after the Closing Date and ends at the end of the Straddle Period (the “Post-Closing Straddle Period”) in accordance with this Section 8.2(c). The portion of Taxes attributable to a Pre-Closing Straddle Period shall (i) in the case of any sales or use taxes, value-added taxes, employment taxes, withholding taxes and any other Tax based on or measured by income, business activity, receipts or profits earned during a Straddle Period, be deemed to equal the amount that would be payable if the Straddle Period ended on and included the Closing Date (provided, however, that any exemptions or allowances that are calculated on an annual or other periodic basis shall be allocated between the Pre-Closing Straddle Period and the Post-Closing Straddle Period in proportion to the number of days in each such period); and (ii) in the case of personal property, real property, ad valorem and other similar Taxes of the Company imposed on a periodic basis during a Straddle Period, be deemed to be the amount of the Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days in the Pre-Closing Straddle Period and the denominator of which is the number of days in such Straddle Period. The portion of Taxes attributable to a Post-Closing Straddle Period shall be calculated in a corresponding manner.

(d) Tax Cooperation. Buyer and the Selling Members shall reasonably cooperate with each other in connection with the preparation of Tax Returns related to the Company and shall preserve all information, returns, books, records and documents relating to any liabilities for Taxes with respect to a taxable period until the later of the expiration of all applicable statutes of limitation and extensions thereof, or a final determination with respect to Taxes for such period and shall not destroy or otherwise dispose of any record without first providing the other party a reasonable opportunity to review and copy the same.

(e) Tax Audits

(i) If any Governmental Authority issues written notice of an intent to audit, examine, or assess any Tax Return of the Company for a Pre-Closing Tax Period or a Straddle Period, or a written notice or inquiry with respect to any Taxes for a Pre-Closing Tax Period or Straddle Period (a “Tax Claim”), then the party hereto first receiving notice of such Tax Claim shall provide written notice thereof to the other party or parties hereto of such written notice within twenty (20) Business Days following receipt, provided however, that the failure to provide such notice shall not relieve the other party from any of its obligations under this Section 8.2.

(ii) Sellers Representative shall have the right to control any Tax Claim of the Company relating to a Seller Tax Return; provided that, if the resolution of such Tax Claim could reasonably be expected to materially affect the Taxes of the Company for a Tax period (or portion thereof) that begins after the Closing Date, then (A) the Buyer shall have the right to participate in such Tax Claim at its own expense and with counsel of its choice, and (B) the Sellers Representative shall not settle any issue with respect to such Tax Claim without the prior written consent of the Buyer, not to be unreasonably withheld, delayed or conditioned.

(iii) Buyer shall exclusively control any Tax Claim in respect of the Company other than a Tax Claim relating to a Seller Tax Return; provided that (i) Buyer shall provide the Sellers Representative with a timely and reasonably detailed account of each phase of such Tax Claim, (ii) Buyer shall consult with Sellers Representative before taking any

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significant action in connection with such Tax Claim, (iii) Buyer shall consult with the Sellers Representative and offer the Sellers Representative an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Claim, (iv) Buyer shall defend such Tax Claim diligently and in good faith, (v) Sellers Representative, at the Selling Members sole cost and expense, shall have the right to participate in such Tax Claim and receive copies of any written materials relating to such Tax Claim received from the relevant Governmental Authority, and (vi) Buyer shall not agree to settle such Tax Claim without the written consent of the Sellers Representative, which consent shall not be unreasonably withheld, delayed or conditioned.

(f) Tax Refunds. Any Tax refunds of the Company and/or Selling Members or their Affiliates that are received after the Closing Date by Buyer or the Company, and any amounts applied in lieu of a refund against Taxes of the Company and/or Buyer or its Affiliates, in each case, that relate to a Pre-Closing Tax Period or a Pre-Closing Straddle Period of the Company, shall be for the account of Selling Members to the extent such refund or application was not reflected in the calculation of Final Working Capital Adjustment and does not result from a carryback or utilization of any loss or other item arising in a Tax Period (or portion thereof) which begins after the Closing Date, and Buyer shall pay over to the Selling Members the amount of any such refund or the amount of such application within fifteen (15) days after receipt of the refund or application against Tax; provided that, the Selling Members shall, upon the request of Buyer, promptly repay any amounts paid to the Selling Members under this Section 8.2(f) to the extent Buyer, the Company or any of their respective Affiliates are required to repay to a Governmental Authority all or a portion of any such refund or amounts applied in lieu of such refund.

(g) Transfer Taxes. Buyer and Selling Members shall cooperate in preparing, executing and filing Tax Returns relating to any sales, use, real estate, transfer, stamp duty, value-added, documentary, title, registration, recording, and other similar Taxes (“Transfer Taxes”) relating to the purchase and sale of the Membership Units, and also shall cooperate to minimize or avoid any Transfer Taxes that might be imposed, to the extent permitted by Law. Notwithstanding anything to the contrary in this Agreement, including this Section 8.2, the Selling Members on the one hand and Buyer on the other hand shall each be responsible for one-half of any Transfer Taxes incurred in connection with the purchase and sale of the Membership Units.

(h) Tax Disputes. Notwithstanding any other provision of this Agreement, including for the avoidance of doubt, Article 9, any dispute, controversy or claim arising out of or relating to (I) Sections 8.2(a), 8.2(c), 8.2(d), 8.2(e) (except to the extent there is a conflict between Section 8.2(e) and this Section 8.2(h), in which case Section 8.2(e) shall govern), 8.2(f) or 8.2(g), or (II) whether Taxes constitute Indemnified Taxes (in each case, a “Tax Dispute”) that Buyer and the Sellers Representative through reasonable best efforts are not able to resolve through direct good-faith negotiation, shall be resolved in accordance with the procedures set forth in this Section 8.2(h). If there has been no resolution of the Tax Dispute after direct negotiation in accordance with any applicable timelines, then any party may seek resolution of the Tax Dispute through binding arbitration administered by tax experts of the Accounting Arbitrator. The arbitration shall be conducted in the English language at a mutually agreeable office of the Accounting Arbitrator or, if the Buyer and Sellers Representative are unable to

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mutually agree on an office location, then the Accounting Arbitrator shall select the office location. The Accounting Arbitrator shall be instructed to resolve the Tax Dispute and such resolution shall be (A) set forth in writing and signed by the Accounting Arbitrator, (B) delivered to each party involved in the Tax Dispute as soon as practicable after the Tax Dispute is submitted to the Accounting Arbitrator but no later than the tenth (10th) day after the Accounting Arbitrator is instructed to resolve the Tax Dispute, (C) made in accordance with this Agreement, and (D) final, binding and conclusive on the parties involved in the Tax Dispute on the date of delivery of such resolution. The Accounting Arbitrator shall only be authorized on any one issue to decide in favor of and choose the position of either of the parties involved in the Tax Dispute or to decide upon a compromise position between the ranges presented by the parties to the Accounting Arbitrator. The fees and expenses of the Accounting Arbitrator shall be borne equally by Selling Members, on the one hand, and Buyer, on the other hand. Buyer and Selling Members shall keep the decision of the Accounting Arbitrator confidential, except to the extent required by Law or pursuant to disclosure of Tax Returns

(i) Notwithstanding any provision of Article 9 to the contrary, in the case of a conflict between Section 8.2 and any provisions in Article 9 that relate to process and procedure with respect to Taxes and Tax Returns, including Tax Claims and Tax Disputes, this Section 8.2 shall govern.

8.3 Conduct of Business by the Company. During the period from the date of this Agreement and until the earlier of the termination of this Agreement or the Closing:

(a) Company shall not take any action inconsistent with the provisions of this Agreement;

(b) Company and the Selling Members shall operate Company’s business and operations, including the license of Company Intellectual Property only in the Ordinary Course of Business, consistent with past practice, and will not take or permit any action which could reasonably be expected to have a Material Adverse Effect on the ability of Company or the Selling Members to consummate the transactions contemplated by this Agreement without the prior written consent of Buyer;

(c) No change or amendment shall be made in the Organizational Documents. Company shall, and the Selling Members shall cause Company to, (i) maintain and preserve intact its present business organization and structure, (ii) preserve and maintain its properties, tangible and intangible assets, books and records in a commercially reasonable manner consistent with past practice, (iii) preserve its relationships with employees, suppliers and others having business dealings with it in a commercially reasonable manner consistent with past practice, provided that Company shall be free to make any termination for cause which may become necessary in the ordinary course of its business, (iv) use commercially reasonable efforts to comply in all material respects with all Laws applicable to it and to the conduct of its business, and (v) not engage in any transaction or activity, enter into any agreement or make any commitment except in the Ordinary Course of Business consistent with past practice;

(d) Except for contracts or commitments made in the Ordinary Course of Business, without the prior written consent of Buyer which shall not be unreasonably withheld,

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conditioned or delayed, no contracts or commitments shall be entered into by or on behalf of Company involving, in the aggregate, an annual expenditure of more than Twenty-Five Thousand Dollars ($25,000) by Company; provided, however, that such consent shall be deemed not to be withheld unreasonably if Buyer in good faith believes that the Selling Members’ or Company’s proposed action would have an adverse effect on Company. Company shall not, and the Selling Members shall not permit Company to, other than renewals, modifications or amendments without change of terms that adversely affects Company, modify, amend or terminate any Contract affecting Company or voluntarily waive, release, compromise or assign any material right or claim of Company or any Subsidiary;

(e) Company shall not, and the Selling Members shall not permit Company to, (i) grant any increase in compensation other than normal merit and cost-of-living increases pursuant to its general prevailing practices to any director, officer, employee or agent except as required by any contract existing on the date hereof (a copy of which has been delivered to Buyer); (ii) enter into or adopt, or amend in any respect, any employment contract, severance agreement or consulting agreement; or (iii grant or pay any severance or termination pay or any bonus;

(f) Company shall not, and the Selling Members shall not permit Company to: (i) incur any additional Indebtedness or other obligation for borrowed money or sell, pledge, factor or transfer any right to receive any payment, other than transfers of accounts receivable in the ordinary course to collection agencies; (ii) assume, guarantee, endorse, or otherwise as an accommodation become responsible for the obligations of an individual, corporation, or other entity; or (iii) impose, or suffer the imposition, on any material asset or property of any Encumbrance (other than Permitted Encumbrances) not existing on the date of this Agreement;

(g) Company shall not, and the Selling Members shall not permit Company to: (i) sell, transfer, mortgage, encumber (except in respect of a Permitted Encumbrance), or otherwise dispose of any of its properties or assets or cancel, release or assign any Indebtedness or any debt, payable or other obligation between any Affiliates of Company; (ii) acquire or agree to be acquired by merging or consolidating with, or acquiring by purchasing a substantial portion of the assets of, or in any other manner, any business or any corporation, partnership, limited liability company or other organization or division thereof; (iii) open or close any facility of Company; or (iv) enter into any line of business outside the Ordinary Course of Business or change its investment, liability management or other operational policies; and

(h) Company shall not, and each of the Selling Members shall not, directly or indirectly, through any of its or their respective directors, officers, employees, advisers, consultants, agents or representatives or otherwise, solicit offers from, negotiate with, provide information to, accept any written proposal of any other person (other than Buyer and its Affiliates) relating to the acquisition of any equity of Company, issuance of debt or the acquisition of the whole or a material amount of the assets or business of Company, whether through direct purchase, merger, consolidation or other business consolidation (each, an “Alternative Transaction”). Company and each of the Selling Members shall notify Buyer without delay regarding any written proposal (including, without limitation, any that are electronically communicated) regarding an Alternative Transaction between (i) Company or any holder of equity interests in Company, including any Selling Member, in each case, to the extent

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that Company or the Selling Member shall become aware of such contact, and (ii) any other person, regarding any such offer or proposal or any related inquiry, provided that such notification may omit details regarding such contact that are subject to a legal restriction on disclosure to Buyer.

ARTICLE 9

INDEMNIFICATION

9.1 Survival.

(a) All representations, warranties, covenants, and agreements contained in this Agreement or in any schedule to this Agreement (i) shall be deemed to have been relied upon by the Party or Parties to whom they are made, shall survive the Closing (subject to the immediately following sentence) regardless of any investigation on the part of such Party or its representatives, with each Party reserving all of its rights hereunder in connection with any breach or alleged breach, and (ii) shall bind the Parties’ successors and assigns (including, without limitation, any successor to any Party by way of acquisition, merger or otherwise), whether so expressed or not, and, except as otherwise provided in this Agreement, all such representations, warranties, covenants and agreements shall inure to the benefit of the parties and, subject to Section 11.5, their respective successors and permitted assigns, whether so expressed or not. Notwithstanding the foregoing, all representation and warranties contained in this Agreement or in any schedule to this Agreement shall terminate as of 11:59 p.m., Eastern Time, on the day that is twenty-four (24) months following the Closing Date; provided, however, (i) the representations and warranties contained in Section 5.10 (Intellectual Property) (the “IP Representation”) shall survive the Closing until the day that is four (4) years following the Closing Date, (ii) the representations and warranties contained in Sections 5.7 (Taxes) and 5.14 (Employee Benefits) shall survive the Closing for sixty (60) days following expiration of the applicable statute of limitations, (iii) the representations and warranties contained in Article 4 (Representations and Warranties of Selling Members), Sections 5.1 (Organization and Power), 5.2 (Capitalization), 5.3 (Subsidiaries), 5.20 (No Brokers), 6.1 (Organization), 6.2 (Authority and Enforceability), and 6.5 (No Brokers) (such representations and warranties listed in clauses (ii) and (iii) are collectively referred to as the “Fundamental Representations”) shall survive the Closing indefinitely and (iv) any breach of any representation or warranty that constitutes fraud or intentional misrepresentation (in each case, as finally determined by a court of competent jurisdiction) shall survive the Closing indefinitely. The period from the Closing Date until the date upon which any representation or warranty contained herein terminates if any, is referred to herein as the “Survival Period” for such representation or warranty. All of the covenants, agreements and obligations of the Parties contained in this Agreement (including those which are Conditions Precedent to Closing, each of which shall be deemed satisfied or waived upon Closing) or in any schedule to this Agreement shall survive (y) until fully performed or fulfilled, unless non-compliance with such covenants, agreements or obligations is waived in writing by the Party or Parties entitled to such performance or (z) if not fully performed or fulfilled, or so waived, until the expiration of the relevant statute of limitations. The Parties specifically and unambiguously intend that the Survival Periods that are set forth in this Section 9.1 shall replace any statute of limitations for such representations or warranties that would otherwise be applicable.

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(b) Indemnified Persons shall not be entitled to make any claim in respect of any representation, warranty or covenant after the expiration of its applicable Survival Period, except that the representations, warranties and/or covenants underlying any bona fide claim initiated by an Indemnified Person prior to the expiration of the applicable Survival Period in accordance with the provisions hereof shall survive (only with respect to such claim) until such claim is settled or resolved pursuant to this Agreement.

9.2 Indemnification by the Selling Members.

(a) After the Closing Date and subject to the limitations set forth herein (including without limitation, the limitations set forth in Sections 9.4, 9.5, 9.6 and 9.7), the Selling Members, severally and not jointly, shall indemnify and hold harmless Buyer and its Affiliates, each of their respective directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Buyer Indemnified Parties”), from and against any and all Losses that are incurred by any Buyer Indemnified Party or to which any Buyer Indemnified Party may otherwise become subject (regardless of whether or not such Losses relate to any Third Party Claim) and which arise and are incurred from or as a result of:

(i) any breach of any warranty or the inaccuracy of any representation of any Selling Member contained in this Agreement (other than a Fundamental Representation or IP Representation);

(ii) any breach of any Fundamental Representation made by any Selling Member;

(iii) any breach of the IP Representation made by any Selling Member;

(iv) any breach by any Selling Member of any of its respective covenants or obligations contained in this Agreement;

(v) any Transaction Expenses;

(vi) any Indebtedness;

(vii) any Indemnified Taxes; and

(viii) any claims or liabilities arising under, related to or in connection with any Person’s status as a securityholder of Company (or in each case any predecessor thereto) prior to the Closing.

9.3 Indemnification by Buyer. After the Closing Date and subject to the limitations set forth herein (including without limitation, the limitations set forth in Sections 9.4, 9.5, 9.6 and 9.7), Buyer will indemnify and hold harmless the Selling Members and their respective Affiliates, directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Company Indemnified Parties”), from and against any and all Losses that are directly or indirectly incurred by any Company Indemnified Party or to which any Company Indemnified Party may otherwise become subject

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(regardless of whether or not such Losses relate to any Third Party Claim) and which arise from or as a result of:

(a) any breach of any warranty or the inaccuracy of any representation of Buyer contained in this Agreement (other than a Fundamental Representation);

(b) any breach of any Fundamental Representation made by Buyer; and

(c) any breach by Buyer of any of its covenants or obligations contained in this Agreement.

9.4 Limitations. Notwithstanding anything herein to the contrary:

(a) Other than distributions from the Escrow Fund, no Selling Member shall be liable under Section 9.2(a) with respect to any indemnification claim in an amount in excess of such Selling Member’s Pro Rata Share of the Indemnity Cap, to the extent actually paid to such Selling Member, or such Selling Member’s Pro Rata Share of such Losses (whichever is the lower amount).

(b) Notwithstanding anything herein to the contrary, the Selling Members shall be required to indemnify and hold harmless under Section 9.2(a)(i), (ii) and (iii) for Losses only to the extent that the aggregate amount of such Losses exceeds Seventy-Five Thousand Dollars ($75,000.00) (the “Deductible”), provided that if such Losses do exceed the Deductible, Buyer Indemnified Parties shall be entitled to indemnification for the amount of such Losses in excess of the Deductible.

(c) In determining whether a representation or warranty in this Agreement has been breached, or the amount of any Losses with respect to such breach, by Company or any Selling Member for purposes of Section 9.2(a)(i), (ii) or (iii), or with respect to a breach or inaccuracy of a representation or warranty by Buyer for purposes of Section 9.3(a), any terms or words such as “material,”, “in all material respects” or “Material Adverse Effect” or any other similar qualifier contained herein shall be disregarded.

(d)

(i) The maximum aggregate amount required to be paid by the Selling Members under Section 9.2(a)(i) shall not exceed an amount equal to the Escrow Amount plus the Set-off Amount, if any;

(ii) The maximum aggregate amount required to be paid by the Selling Members under Sections 9.2(a)(ii), (iv), (v), (vi), (vii) and (viii) or Buyer under Section 9.3 shall be equal to the Indemnity Cap, to the extent actually paid; and

(iii) The maximum aggregate amount required to be paid by the Selling Members under Section 9.2(a)(iii) shall be seventy-five percent (75%) of the Indemnity Cap, to the extent actually paid.

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(iv) The limitations set forth in this Section 9.4 shall not apply to any claim arising from fraud or intentional misrepresentation by any Party, in each case, as finally determined by a court of competent jurisdiction.

9.5 Third Party Claims.

(a) Promptly after receipt by a Person entitled to indemnity under Sections 9.2 or 9.3 (an “Indemnified Person”) of notice of the assertion of a Third Party Claim against it, such Indemnified Person shall give notice to the Person obligated to indemnify under such Section (an “Indemnifying Person”) of the assertion of such Third Party Claim in accordance with Section 9.6; provided, that any failure to notify the Indemnifying Person will not relieve the Indemnifying Person of any liability that it may have to any Indemnified Person, except to the extent that the Indemnifying Person is materially prejudiced by such failure to give such notice.

(b) Buyer shall have the right to (i) conduct and control any proceedings or negotiations in respect of such Third Party Claim, (ii) settle or defend any such Third Party Claim and (iii) employ counsel to contest any such Third Party Claim or liability.

(c) With respect to any Third Party Claim subject to indemnification under this Article 9: (i) the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the other Persons reasonably informed of the status of such Third Party Claim and any related Actions at all stages regardless of whether such Person is represented by its own counsel, and (ii) the Parties agree (at the Indemnifying Person’s expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third Party Claim.

(d) With respect to any Third Party Claim subject to indemnification under this Article 9, the Parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all confidential information and the attorney-client and work-product privileges of the other Party. In connection therewith, each Party agrees that: (i) it will use its commercially reasonable efforts, in respect of any Third Party Claim in which it has assumed or participated in the defense, to avoid production of confidential information (consistent with Law and rules of procedure); and (ii) all communications between any Party and counsel responsible for or participating in the defense of any Third Party Claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege.

9.6 Notice of Claims. In the event any Indemnified Person is asserting a claim for indemnification, the Indemnified Person shall deliver to the Indemnifying Person written notice of such claim that the Indemnified Person has determined has given or could give rise to indemnification under Section 9.2 or 9.3 (a “Claim Notice”). The failure by any Indemnified Person so to notify the Indemnifying Person shall not relieve the Indemnifying Person from liability under this Agreement which it may have to such Indemnified Person under Section 9.2 or 9.3 hereof except to the extent the Indemnifying Person shall have been prejudiced in any material respect as a result of such failure. A Claim Notice shall describe in reasonable detail the nature of the claim and shall indicate the amount of Losses (or, if not known, estimated Losses, to the extent that Losses in respect of such claim are reasonably capable of being estimated). The

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Sellers Representative may object to any claim set forth in a Claims Notice by delivering written notice to Buyer of the Sellers Representative’s objection (a “Dispute Notice”). Such Dispute Notice must describe the grounds for such objection in reasonable detail. If a Dispute Notice is not delivered by the Sellers Representative to Buyer within twenty (20) calendar days after delivery of the Claim Notice, such failure to so object will be an irrevocable acknowledgment by each party to this Agreement (including the Sellers Representative) that the Buyer Indemnified Parties are entitled to indemnification under Section 9.2 for the Losses set forth in such Claim Notice in accordance with this Article 9. If a Dispute Notice is delivered, the Parties shall thereafter attempt to resolve the dispute promptly by negotiation in good faith.

9.7 Additional Limitations.

(a) No Selling Member shall have any liability for any Loss to the extent that such liability is included in the Final Working Capital Adjustment.

(b) Except (i) for injunctive and provisional relief, (ii) in the case of fraud, (iii) the determination of the Earnout Payment (which shall be governed by Section 1.4) or (iv) the determination of the Final Working Capital Adjustment (which shall be governed by Article 3), following the Closing, the sole and exclusive remedy for any and all claims arising under, out of, or related to this Agreement, or the Purchase and the other Transactions, shall be the rights of indemnification set forth in this Article 9, and no Person will have any other entitlement, remedy or recourse, whether in contract, tort or otherwise, it being agreed that all of such other remedies, entitlements and recourse are expressly waived and released by the Parties to the fullest extent permitted by law.

(c) The amount required to be paid for Losses under Section 9.2 or 9.3 will be reduced by any amounts an Indemnified Party actually receives pursuant to the terms of the insurance policies (if any) covering such claim or Losses.

(d) Any Loss for which any Indemnified Party is entitled to indemnification under this Article 9 shall be determined without duplication of recovery by reason of the state of facts giving rise to such Loss constituting a breach of more than one representation, warranty, covenant or agreement.

9.8 Set-Off and Priority. In the event of a claim for indemnification under Section 9.2(a)(i), the amount of the related Losses shall be paid first from the Escrow Fund, and thereafter, Buyer may choose to offset any such Losses from the Earnout Consideration, if any, up to Two Million Dollars ($2,000,000) (the “Set-off Amount”), subject to the limitations on recovery contained in this Agreement, including Section 9.4. For the avoidance of doubt, to the extent the Earnout Consideration is less than Two Million Dollars ($2,000,000), Buyer shall not have recourse against the Selling Members unless such further recourse is expressly provided in this Agreement. To exercise its right of set-off pursuant to this Section 9.8, Buyer shall deliver to the Sellers Representative a notice (a “Set-off Certificate”) specifying in reasonable detail the nature and amount of the claim and the Set-off Amount. To the extent the claims set forth in the Set-off Certificate are finally resolved in the Selling Members’ favor (whether by mutual agreement of Buyer and the Sellers Representative or by final non-appealable order of an arbitration panel or court of competent jurisdiction), Buyer shall within five (5) Business Days

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thereafter pay the portion of the Set-off Amount resolved in the Selling Members’ favor to the Selling Members, in accordance with Section 1.4. In the event of a claim for indemnification under Sections 9.2(a)(iv) through (viii), Buyer shall recover the amount of the related Losses initially from the Escrow Fund and, following depletion of the Escrow Fund or release of the Escrow Fund to the Selling Members pursuant to this Agreement and the Escrow Agreement, at Buyer’s option, Buyer may recover such Losses by offsetting such Losses against the Earnout Consideration, if any, as described in this Section 9.8, or by recovering such Losses directly from the Selling Members, subject to the limitations on recovery contained in this Agreement, including Section 9.4. In the event of a claim for indemnification under Sections 9.2(a)(ii) and (iii), at its election, Buyer may recover any related Losses from the Escrow Fund, the Earnout Consideration or by recovering such losses directly from the Selling Members, subject to the limitations on recovery contained in this Agreement, including Section 9.4.

9.9 Purchase Price Adjustments. Any amounts payable under this Article 9 shall be treated by Buyer and Selling Members as an adjustment to the Purchase Price for all Tax purposes, unless otherwise required by applicable Law.

ARTICLE 10

TERMINATION

10.1 Termination. This Agreement may be terminated at any time prior to the Closing, by action taken or authorized by all requisite corporate or other actions of the terminating Party or Parties:

(a) by mutual written consent duly authorized by the boards of directors of Buyer and Company;

(b) by either Company or Buyer, if the Closing shall not have occurred by May 29, 2015; provided, however, that the right to terminate this Agreement under this Section 10.1(b) shall not be available to any Party whose action or failure to act has been a principal cause of or resulted in the failure of the Closing to occur on or before such date and such action or failure to act constitutes a breach of this Agreement;

(c) by either Company or Buyer, if a Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Court Order which (i) is in effect, (ii) has the effect of permanently restraining, enjoining or otherwise prohibiting the Closing and (iii) is final and nonappealable; or

(d) by Buyer, upon a material breach of any representation, warranty, covenant or agreement on the part of the Company or a Selling Member set forth in this Agreement, or if any representation or warranty of the Company or a Selling Member shall have become untrue, in either case such that the conditions set forth in Section 7.1(a) or (b) would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become untrue, and, provided that if such breach is capable of being cured, such breach shall not have been cured within twenty (20) Business Days of delivery of written notice of such breach to the Company by Buyer; provided, however, that there shall be no right to terminate if Buyer is in material breach of its representations and warranties under this Agreement or has failed in any material respect to perform its obligations under this Agreement.

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10.2 Notice of Termination; Effect of Termination. Subject to any applicable unexpired cure period, any termination of this Agreement under Section 10.1 above shall be effective immediately upon the delivery of a valid written notice of the terminating Party to the other Party hereto. In the event of the termination of this Agreement, this Agreement shall be of no further force or effect, except (i) as set forth in this Section 10.2, Section 10.3, Section 11.1(f), Section 11.12 and Article 12, which shall survive the termination of this Agreement and (ii) nothing herein shall relieve any Party from liability for any breach of this Agreement occurring prior to such termination.

10.3 Expenses. Except as specifically provided for herein, all fees and expenses incurred in connection with this Agreement and the transactions contemplated by the Transaction Documents, including fees and expenses of financial advisors, financial sponsors, legal counsel and other advisors, shall be paid by the Party incurring such expenses whether or not the transactions contemplated by the Transaction Documents are consummated.

ARTICLE 11

GENERAL PROVISIONS

11.1 Sellers Representative.

(a) For purposes of this Agreement and the Transaction Documents, the Selling Members hereby designate David Wiener to serve as the sole and exclusive representative of the Selling Members (the “Sellers Representative”) from and after the Closing Date with respect to those provisions of this Agreement and the Transaction Documents that contemplate action by the Sellers Representative including the Escrow Agreement; provided, however, that if David Wiener at any time is unable, due to incapacity or otherwise, to serve as Sellers Representative or resigns as Sellers Representative, then Carl Bertrams shall serve as successor Sellers Representative. Upon the agreement of at least two (2) of the three (3) Selling Members, the Selling Members may replace the Sellers Representative at any time upon thirty (30) days’ prior written notice to the Sellers Representative and Buyer. Each successor Sellers Representative, if required to serve, shall sign an acknowledgment in writing agreeing to perform and be bound by all of the provisions of this Agreement applicable to the Sellers Representative. Each successor Sellers Representative shall have all of the power, authority, rights and privileges conferred by this Agreement upon the original Sellers Representative, and the term “Sellers Representative” as used herein shall be deemed to include any successor Sellers Representative.

(b) The Sellers Representative is hereby constituted and appointed as agent and attorney-in-fact for and on behalf of the Selling Members. This power of attorney and all authority hereby conferred is granted and shall be irrevocable and shall not be terminated by any act of any the Selling Members, by operation of Law, whether by such Person’s death, disability, protective supervision, dissolution, reorganization or any other event. Without limiting the generality of the foregoing, the Sellers Representative has full power and authority, on behalf of each of the Selling Members and their respective successors and assigns, to: (i) interpret the terms and provisions of this Agreement and the documents to be executed and delivered by any

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of the Selling Members in connection herewith, including the Escrow Agreement, (ii) execute and deliver and receive deliveries of all agreements, certificates, statements, notices, approvals, extensions, waivers, undertakings, amendments, and other documents required or permitted to be given in connection with the consummation of the Transactions and any Transaction Document, (iii) receive service of process in connection with any claims under this Agreement and any Transaction Document, (iv) agree to, negotiate, enter into settlements and compromises of, assume the defense of claims, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Sellers Representative for the accomplishment of the foregoing, (v) give and receive notices and communications, (vi) authorize delivery to Buyer of the Escrow Amount or any portion thereof in satisfaction of claims brought by Buyer for Losses, (vii) object to such deliveries, (viii) distribute the Escrow Amount and any earnings and proceeds thereon, and (ix) take all actions necessary or appropriate in the judgment of the Sellers Representative on behalf of the Selling Members in connection with this Agreement and any Transaction Document.

(c) Service by the Sellers Representative shall be without compensation except for the reimbursement by the Selling Members of out-of-pocket expenses and indemnification specifically provided herein.

(d) Neither the Sellers Representative nor any agent employed by the Sellers Representative shall be liable to any of the Selling Members relating to the performance of such Sellers Representative’s duties under this Agreement for any errors in judgment, negligence, oversight, breach of duty or otherwise except to the extent it is finally determined in a court of competent jurisdiction by clear and convincing evidence that the actions taken or not taken by the Sellers Representative constituted actual fraud or were taken or not taken in bad faith. The Sellers Representative shall be indemnified and held harmless by the Selling Members against all losses, including costs of defense, paid or incurred in connection with any action, suit, proceeding or claim to which the Sellers Representative is made a party by reason of the fact that the Sellers Representative was acting as the Sellers Representative pursuant to this Agreement; provided, however, that the Sellers Representative shall not be entitled to indemnification hereunder to the extent it is finally determined in a court of competent jurisdiction by clear and convincing evidence that the actions taken or not taken by the Sellers Representative constituted actual fraud or were taken or not taken in bad faith.

(e) Buyer shall be entitled to rely upon any actions taken by the Sellers Representative as the duly authorized action of the Sellers Representative on behalf of each of the Selling Members with respect to any matters set forth in this Agreement and any Transaction Document, without inquiry on the part of Buyer and regardless of whether such actions are later determined to have been unauthorized, fraudulent or taken in bad faith.

(f) The Sellers Representative agrees to, and shall cause its Affiliates to: (i) treat and hold as confidential (and not disclose or provide access to any Person) all information relating to Intellectual Property, processes, product development, price, customer and supplier lists, pricing and marketing plans, policies and strategies, details of Contracts, operations methods, product development techniques, Bookings and any underlying financial or sales records, and all other confidential or proprietary information with respect to the Products or the Business that the Sellers Representative may acquire in the course of performing its duties under

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this Section 11.1, (ii) in the event that the Sellers Representative or any of its Affiliates becomes legally compelled to disclose any such information, provide Buyer with prompt written notice of such requirement so that Buyer may seek a protective order or other remedy or waive compliance with this Section 11.1(f) and assist Buyer in connection therewith, and (iii) in the event that such protective order or other remedy is not obtained, or Buyer waives compliance with this Section 11.1(f), furnish only that portion of such confidential information that is legally required to be provided and exercise its commercially reasonable efforts to obtain assurances that confidential treatment will be accorded such information; provided, however, that this sentence shall not apply to any information that, at the time of disclosure, is available publicly and was not disclosed in breach of this Agreement by the Sellers Representative or its Affiliates.

11.2 Notices. All notices, consents and other communications required or permitted by this Agreement shall be in writing and shall be sent as follows to the following address (or to such other address as a Party may designate by notice to the other Party): (a) by personal delivery, in which case notice shall be deemed to have been given on the date of delivery; (b) by United States certified mail, return receipt requested, in which case notice shall be deemed to have been given three (3) days after deposit of such notice in the mail; (c) by UPS, Federal Express, DHL or other nationally-recognized overnight delivery service, in which case notice shall be deemed to have been given the first Business Day after deposit of such notice with such service; (d) by facsimile with a copy of such notice sent on the same date by the means set forth in the foregoing clause (b) or (c), in which case notice shall be deemed to have been given on the day of the facsimile transmission as set forth in a facsimile log; or (e) by electronic mail with a copy of such notice sent on the same date by the means set forth in the foregoing clause (b) or (c), in which case notice shall be deemed to have been given on the day of the electronic mail transmission as set forth in the body of such electronic mail transmission:

If to Buyer to:

Marked: Personal and Confidential

Imprivata, Inc.

10 Maguire Road

Lexington, MA 02421

Attention: Omar Hussain, Chief Executive Officer

Facsimile: 781-674-2760

Email: ohussain@imprivata.com

With a copy (which shall not constitute notice) to:

Goodwin Procter LLP

53 State Street

Boston, MA 02109

Attention: Kenneth J. Gordon, Esq.

Facsimile: 617-523-1231

Email: kgordon@goodwinprocter.com

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If to the Selling Members or the Sellers Representative to:

Marked: Personal and Confidential

HT Systems LLC

Attention: David Wiener

Facsimile: 813-749-9485

Email: davidjw.fl@gmail.com

With copies (which shall not constitute notice) to:

Squire Patton Boggs (US) LLP

777 South Flagler Drive, Suite 1900

West Palm Beach, Florida 33401

Attention: Scott M. Coffey, Esq.

Facsimile: 561-655-1509

Email: scott.coffey@squirepb.com

11.3 Entire Agreement. The Disclosure Schedule, the Schedules and the Exhibits to this Agreement are incorporated into this Agreement and are hereby made a part of this Agreement as if set out in full in this Agreement. This Agreement, together with the Transaction Documents, contains the entire understanding of the Parties with respect to the subject matter hereof and supersede all prior oral or written agreements, negotiations, understandings, statements or proposals with respect to the subject matter hereof and thereof.

11.4 Severability. Any provision of this Agreement which is invalid or unenforceable in any jurisdiction will, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement (so long as the economic or legal substance of the Transactions is not affected in any manner adverse to any Party), and any such prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Law, the Parties waive any provision of Law which renders any such provision prohibited or unenforceable in any respect.

11.5 Binding Effect; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective heirs, executors, successors and permitted assigns and any reference to a Party will also be a reference to an heir, executor, successor or permitted assign. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, directly or indirectly, by a Party without the prior written consent of the other Parties; provided, however, that Buyer may assign, without the prior written consent of any other Party, all or any portion of this Agreement and/or its rights hereunder to any Affiliate of Buyer, provided that any such assignment shall not relieve Buyer from any obligations hereunder.

11.6 No Third-Party Beneficiaries. This Agreement is not intended and shall not be deemed to confer upon or give any Person, except the Parties and their respective successors and permitted assigns, any remedy, claim, liability, reimbursement, cause of action or other right under or by reason of this Agreement, or result in such Person being deemed a third party beneficiary of this Agreement.

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11.7 Interpretation.

(a) The Article and Section headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders, the plural shall include the singular, and the singular shall include the plural.

(b) The words “include,” “includes” and “including” when used herein shall be deemed to be followed by the phrase “without limitation” unless such phrase otherwise appears. Unless the context otherwise requires, references herein to articles, sections, schedules and exhibits shall be deemed references to articles and sections of, and schedules and exhibits to, this Agreement. Unless the context otherwise requires, the words “hereof,” “hereby” and “herein” and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular article, section or provision hereof. Except when used together with the word “either” or otherwise for the purpose of identifying mutually exclusive alternatives, the term “or” has the inclusive meaning represented by the phrase “and/or.” Any deadline or time period set forth in this Agreement that by its terms ends on a day that is not a Business Day shall be automatically extended to the next succeeding Business Day. All references in this Agreement to “dollars” or “$” means United States dollars.

(c) With regard to each and every term and condition of this Agreement, the Parties understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the Parties desire or are required to interpret or construe any such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the issue of which Party actually prepared, drafted or requested any term or condition of this Agreement.

11.8 Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the internal Laws of the State of Delaware without giving effect to the principles of conflicts of Laws thereof. For the purposes of establishing the Parties’ rights hereunder, each Party hereto hereby irrevocably and unconditionally consents to and agrees that any legal action or proceeding with respect to this Agreement and the transactions contemplated hereby shall be brought in any of the Federal or state courts having subject matter jurisdiction located in the State of Delaware. By execution and delivery of this Agreement and such other documents executed in connection herewith, each such Party hereby (i) accepts the exclusive jurisdiction of the aforesaid courts, (ii) irrevocably agrees to be bound by any final judgment (after any and all appeals) of any such court with respect to such documents, (iii) irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceedings with respect to such documents brought in any such court, and further irrevocably waives, to the fullest extent permitted by Law, any claim that any such suit, action or proceedings brought in any such court has been brought in an inconvenient forum, (iv) agrees that service of process in any such action may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such party at its address set forth herein, or at such other address of which the other parties hereto shall have been notified, and (v) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law.

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11.9 Attorneys’ Fees. Except as otherwise provided herein, if any Action is brought arising out of or based upon this Agreement, the prevailing party shall be entitled to recover such reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled, as may be awarded by the court or arbitrator.

11.10 Waivers.

(a) Except as otherwise provided herein, no action taken pursuant to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by the Party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. Any term, covenant, agreement, obligation, undertaking, condition, representation or warranty under this Agreement may be waived at any time by the Party which is entitled to the benefit thereof, but only by a written notice signed by such Party expressly waiving such term, covenant, agreement, obligation, undertaking, condition, representation or warranty.

(b) No waiver on the part of any party of any right, power or privilege, nor any single or partial exercise of any such right, power or privilege, shall preclude any further exercise thereof or the exercise of any other such right, power or privilege.

11.11 Amendments. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by Buyer and the Sellers Representative or, in the case of a waiver, by Buyer or the Sellers Representative (on behalf of the Selling Members), whichever is so waiving compliance.

11.12 No Publicity. Each Selling Member agrees that it will not originate any publicity, press release or public announcements, written or oral, whether to the public or press, relating to this Agreement, including its existence, the subject matter to which it relates, performance under it or any of its terms without the prior written consent of Buyer. Each Selling Member acknowledges that Buyer will make such announcements and disclosures that it deems necessary or advisable, including, for the avoidance of doubt but not limited to, those disclosures required by applicable Law or the New York Stock Exchange, the issuance of a press release announcing this transaction and participation in a publicly accessible conference call to discuss the transactions contemplated by this Agreement.

11.13 Further Assurances. Each Party shall execute such documents and other papers and take such further actions as may be reasonably required or desirable to carry out the provisions hereof and the Transactions.

11.14 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original.

ARTICLE 12

DEFINITIONS

12.1 Defined Terms. In this Agreement, the following terms have the meanings specified in this Section 12.1.

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“Accounting Arbitrator” means an independent accounting or financial firm mutually acceptable to Buyer and Sellers Representative, provided that if the Buyer and the Sellers Representative are unable to mutually agree upon an accounting firm within fifteen (15) days, then Buyer and the Sellers Representative shall each select a nationally recognized certified public accounting firm and, within five (5) days after their selection, those two accounting firms shall select a third nationally recognized certified public accounting firm, which third accounting firm shall act as the Accounting Arbitrator; provided further that such third nationally recognized accounting firm shall not be an accounting firm that has performed accounting or similar services for Buyer or the Sellers Representative or each of their Affiliates in the past three (3) years.

“Action” means any claim, demand, proceeding, suit, litigation, investigation, audit, action or cause of action in contract, tort, under statute, under common law or otherwise.

“Affiliate” means, with respect to any Person, any other Person, which directly or indirectly controls, is controlled by or is under common control with such other Person. For purposes of determining whether a Person is an Affiliate, the term “control” and its correlative forms “controlled by” and “under common control with” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of securities, by contract or otherwise.

“Agreement” has the meaning set forth in the Preamble.

“Allocation” has the meaning set forth in Section 8.2(a).

“Alternative Transaction” has the meaning set forth in Section 8.3(h).

“Benefit Plan” means any (A) “employee benefit plan” within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA; (B) stock option plans, stock purchase plans, bonus or incentive award plans, severance pay plans, programs or arrangements, deferred compensation arrangements or agreements, employment agreements, executive compensation plans, programs, agreements or arrangements, change in control plans, programs or arrangements, supplemental income arrangements, vacation plans, and all other employee benefit plans, agreements, and arrangements, not described in (A) above; and (C) plans or arrangements providing compensation to employee and non-employee directors, in each case in which Company or any ERISA Affiliate sponsors, contributes to, or provides benefits under or through such plan, or has any obligation to contribute to or provide benefits under or through such plan, or if such plan provides benefits to or otherwise covers any current or former employee, officer or director of Company or any ERISA Affiliate (or their spouses, dependents, or beneficiaries).

“Bookings” means the net dollar value of non-cancellable orders with no contingencies or rights of returns for sales of Products made after the Closing, after deducting discounts, sales concessions, customer returns, partner resell and referral fees, and third-party subcontracted services related to the sale of the Products. In addition, for an order of Products to be considered part of Bookings, the following shall also apply:

(A) Orders for Products (other than maintenance) must be delivered and invoiced within each respective Earnout Period to be considered Bookings. By way of example, if an order received for Products has

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extended payment terms beyond the Earnout Period, then only the payments due within each respective Earnout Period will be considered Bookings.

(B) Orders for Products that are maintenance agreements (including but not limited to renewals of maintenance agreements) will be considered Bookings for the prepaid initial one-year annual value. In the event an order is received for prepaid maintenance during an Earnout Period in excess of one year, no more than one year’s maintenance will be included as Bookings in such Earnout Period.

(C) Orders for professional services will be considered Bookings to the extent they are scheduled to be delivered and invoiced within the Earnout Period.

“Business” has the meaning set forth in Section 8.1(a)(i).

“Business Agreements” has the meaning set forth in Section 5.12(a).

“Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of Massachusetts are authorized or obligated to close.

“Buyer” has the meaning set forth in the Preamble.

“Buyer Indemnified Parties” has the meaning set forth in Section 9.2(a).

“Cause” means, with respect to a Selling Member:

(i) such Selling Member’s conviction of, or plea of guilty or nolo contendre to, any (i) felony involving fraud, moral turpitude or dishonesty or (ii) other criminal conduct against Buyer;

(ii) such Selling Member’s material breach of any provision of the Restrictive Covenant Agreement or the HT Noncompete (each as defined in the Executive Employment Agreement), which breach is not cured within ten (10) business days written notice thereof;

(iii) any intentional misconduct or gross negligence on the part of such Selling Member which has a materially adverse effect on Buyer’s business or reputation; or

(iv) such Selling Member’s repeated and willful failure to perform the duties, functions and responsibilities of such Selling Member’s position after a written warning from Buyer specifying in reasonable detail the enumerated duties in question, the nature of the failure to perform and the actions necessary to remedy the perceived failure to perform such duties, and such perceived failure is not remedied within ten (10) business days.

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“Claim” means any claim, demand and assessment, and any action or proceeding at law or in equity (where applicable), and any judgment, whether civil, criminal, administrative or investigative.

“Claim Notice” has the meaning set forth in Section 9.6.

“Closing” has the meaning set forth in Section 2.1.

“Closing Balance Sheet” has the meaning set forth in Section 3.2.

“Closing Date” has the meaning set forth in Section 2.1.

“Closing Working Capital” has the meaning set forth in Section 3.2.

“Closing Working Capital Adjustment” means the lesser of (i) the Closing Working Capital, minus the Closing Working Capital Target, and (ii) zero.

“Closing Working Capital Target” has the meaning set forth in Section 3.2.

“Code” means the Internal Revenue Code of 1986, as amended.

“Company” has the meaning set forth in the Recitals.

“Company Indemnified Parties” has the meaning set forth in Section 9.3.

“Company Intellectual Property” means all Intellectual Property, including, without limitation, all Patents, registered and material unregistered Marks, Products and registered and material unregistered Copyrights, in each case owned by Company or used or held for use by Company in the operation of the Business, and including, without limitation, all Software developed by, for, or on behalf of Company.

“Company Products” has the meaning set forth in Section 5.22.

“Company Registered IP” has the meaning set forth in Section 5.10(c)(ii).

“Company Trade Secrets” has the meaning set forth in Section 5.10(c)(xi)

“Contingent Workers” has the meaning set forth in Section 5.13(b).

“Contract” means any oral or written contract, agreement, license, lease, guaranty, indenture, sales or purchase order or other legally binding instrument, arrangement or commitment.

“Copyrights” means copyrights in both published and unpublished works, including without limitation all compilations, databases and computer programs, manuals and other documentation and all copyright registrations and applications, and all derivatives, translations, adaptations and combinations of the above.

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“Court Order” means any judgment, order, writ, decision, injunction, award or decree of any foreign, federal, state, local or other court or tribunal and any ruling or award in any binding arbitration proceeding.

“Customer” has the meaning set forth in Section 5.23.

“Deductible” has the meaning set forth in Section 9.4(b).

“Disclosure Schedule” means that certain document (as may be modified from time to time in accordance with the terms hereof) identified as the Disclosure Schedule delivered by the Selling Members to Buyer in connection with this Agreement.

“Dispute Notice” has the meaning set forth in Section 9.6.

“Distributor” has the meaning set forth in Section 5.23.

“Earnout Consideration” has the meaning set forth in Section 1.4(a).

“Earnout Item of Dispute” has the meaning set forth in Section 1.4(b).

“Earnout Notice” has the meaning set forth in Section 1.4(b).

“Earnout Payment” has the meaning set forth in Section 1.4(a).

“Earnout Period” has the meaning set forth in Section 1.4(a)(ii).

“Earnout Threshold” means the Initial Earnout Period Threshold, in the case of the Initial Earnout Period, and the Subsequent Earnout Period Threshold, in the case of the Subsequent Earnout Period.

“Encumbrance” means any lien, encumbrance, covenant, hypothecation, claim, charge, security interest, mortgage, restriction (whether on voting, sale, transfer, disposition, or otherwise), deed of trust, pledge, easement, encroachment, option, right of first refusal, conditional sale or other title retention agreement, defect in title or other restriction of a similar kind, in each case whether imposed by Contract or Law.

“Employee Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement” has the meaning set forth in Section 2.2(i).

“Environmental Laws” has the meaning set forth in Section 5.15.

“Environmental Liabilities” has the meaning set forth in Section 5.15.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

“ERISA Affiliate” means any entity that would have ever been considered a single employer with Company under Section 4001(b) of ERISA or part of the same “controlled group” as Company for purposes of Section 302(d)(3) of ERISA.

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“Escrow Agent” has the meaning set forth in Section 1.5.

“Escrow Agreement” has the meaning set forth in Section 1.5.

“Escrow Amount” means Two Million Dollars ($2,000,000).

“Escrow Fund” has the meaning set forth in Section 1.5.

“Estimated Closing Balance Sheet” has the meaning set forth in Section 3.1.

“Estimated Closing Working Capital” has the meaning set forth in Section 3.1.

“Estimated Closing Working Capital Adjustment” means the lesser of (i) the Estimated Closing Working Capital, minus the Estimated Working Capital Target, and (ii) zero.

“Estimated Working Capital Target” has the meaning set forth in Section 3.1.

“Executive Employment Agreements” has the meaning set forth in Section 2.2(j).

“Final Working Capital Adjustment” has the meaning set forth in Section 3.3(b).

“Financial Statements” has the meaning set forth in Section 5.4.

“Fundamental Representations” has the meaning set forth in Section 9.1(a).

“GAAP” means U.S. generally accepted accounting principles consistently applied.

“Good Reason” means the occurrence of any of the following events with respect to a Selling Member:

(i) a material diminution in such Selling Member’s position, responsibilities, authority or duties and such diminution is not cured within ten (10) business days after written notice by such Selling Member to Buyer identifying the diminution in reasonable detail;

(ii) a material diminution in such Selling Member’s base salary, except for across-the-board salary reductions based on Buyer’s financial performance similarly affecting all or substantially all senior management employees of Buyer (provided that such diminution in such Selling Member’s base salary is not disproportionate to the diminution in base salary of such other across-the-board salary reductions);

(iii) a material change in the geographic location at which such Selling Member is required to provide services to Buyer, not including business travel and short-term assignments; or

(iv) Buyer’s breach of any material covenant of the Executive Employment Agreement for such Selling Member or a material covenant of this Agreement, and such breach is not cured within thirty (30) days after written notice by such Selling Member to Buyer identifying the breach.

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“Governmental Authority” means any foreign, domestic, federal, territorial, state or local governmental authority, quasi-governmental authority, court, commission, tribunal, board, bureau, agency or instrumentality, or any regulatory, administrative or other department, agency, or any political or other subdivision, department or branch of any of the foregoing.

“Hazardous Materials” has the meaning set forth in Section 5.15.

“HIPAA” has the meaning set forth in Section 5.25(b).

“Indebtedness” of any Person means (i) any indebtedness or other obligation of such Person for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money, whether current, short-term or long-term, secured or unsecured, (ii) any indebtedness of such Person evidenced by any note, bond, debenture or other security or similar instrument, (iii) any liability of such Person with respect to interest rate or currency swaps, collars, caps and similar hedging obligations, (iv) any liabilities for the deferred purchase price of property or other assets with respect to which such Person is liable, contingently or otherwise, as obligor or otherwise (including “earn-out” payments, but specifically excluding trade payables incurred in the Ordinary Course of Business), (v) any commitment by which a Person assures a creditor against loss (including, contingent reimbursement liability with respect to letters of credit), (vi) any liabilities of such Person in respect of any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which liabilities are required to be classified and accounted for under GAAP as current and long-term capital leases, (vii) off balance sheet financings, (viii) any obligations of such Person for any bank overdrafts, (ix) any indebtedness guaranteed in any manner by a Person (including, guarantees in the form of an agreement to repurchase or reimburse) or any obligations of such Person in respect of the indebtedness of any other Person, (x) any liabilities under leases recorded for accounting purposes by the applicable Person as capitalized leases or financing leases with respect to which a Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, (xi) any unsatisfied obligation for “withdrawal liability” to a “multiemployer plan” as such terms are defined under ERISA, including any liabilities related to any pension plan, (xii) any amounts owed to any Person under any noncompetition, severance or similar arrangements (except for any non-competition, severance or similar payments which arise out of a termination of employment occurring after the Closing), (xiii) any change-of-control or other payment which is triggered as a result of the consummation of the Transactions, (xiv) any liability of any Person under deferred compensation plans, phantom stock plans, or bonus plans, or similar arrangements made payable as a result of the consummation of the Transactions, (xv) any Tax liabilities of such Person attributable to any period prior to or including the Closing Date, (xvi) any dividends payable, or accrued for, by a Person, (xvii) any other liability or obligation required by GAAP to be reflected as indebtedness on a consolidated balance sheet of such Person as of the relevant date prepared in accordance with GAAP or (xviii) all accrued interest, premiums, penalties and other obligations relating to the foregoing.

“Indemnified Person” has the meaning set forth in Section 9.5(a).

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“Indemnified Taxes” means any and all Taxes (i) imposed on or with respect to the Company payable in respect of any taxable periods ending on or before the Closing Date (a “Pre-Closing Tax Period”); (ii) all Taxes of the Company that are attributable to a Pre-Closing Straddle Period pursuant to Section 8.2(e); (iii) any and all Taxes of any Person for which the Company is liable as transferee or successor, by contract or otherwise, which Taxes relate to an event or transaction occurring on or before the Closing Date; (iv) any Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company is or was a member on or prior to the Closing Date pursuant to Treasury Regulations Section 1.1502-6 or any analogous or similar state, local or non-U.S. law; (v) any Transfer Taxes for which Selling Members are responsible under Section 8.2(g); provided, however, Indemnified Taxes shall not include (A) Taxes that arise as a result of any transactions carried out or effected by the Company, Buyer or its Affiliates at any time after the Closing but on the Closing Date, provided however, that Selling Members shall remain liable and shall indemnify Buyer for Taxes attributable to actions and transactions that are carried out or effected on the Closing Date (y) in the Company’s Ordinary Course of Business; or (z) pursuant to this Agreement; and (B) Taxes that are taken into account as liabilities in the calculation of the Final Working Capital Adjustment.

“Indemnifying Person” has the meaning set forth in Section 9.5(a).

“Indemnity Cap” means an amount equal to (a) the Purchase Price, plus (b) the Earnout Consideration.

“Initial Closing Consideration” means an amount equal to (a) Nineteen Million Seventy-Five Thousand Dollars ($19,075,000), minus (b) Indebtedness, minus (c) the absolute value of the Estimated Closing Working Capital Adjustment, if the Estimated Closing Working Capital Adjustment is a negative number, minus (d) Transaction Expenses and minus (e) the Escrow Amount.

“Initial Earnout Payment” has the meaning set forth in Section 1.4(a)(i).

“Initial Earnout Period” has the meaning set forth in Section 1.4(a)(i).

“Initial Earnout Period Threshold” means [****].

“Initial Period Terminated Member” has the meaning set forth in Section 1.4(a)(i).

“Institutions” has the meaning set forth in Section 5.10(c)(viii).

“Intellectual Property” means any and all of the following: Copyrights, Patents, Trade Secrets, Marks (including, in each case, the goodwill associated therewith), franchises, licenses, Software, goodwill, permits, consents, approvals, and claims of infringement and misappropriation against third parties, all improvements to any of the foregoing, and any and all intellectual property rights and/or proprietary rights relating to any of the foregoing.

“Inventory” means all inventory, including raw materials, manufacturing and other supplies, work in process, packaging materials, purchased products and finished goods.

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“IP Representation” has the meaning set forth in Section 9.1(a).

“IRS” means the United States Internal Revenue Service.

“Law” means any law, statute, rule, regulation, ordinance, arbitration award, order, decree, license or permit promulgated, declared or issued or required by any Governmental Authority.

“Leased Real Property” means all of the right, title and interest of Company under all written leases, subleases, licenses, concessions and other agreements (written or oral), pursuant to which Company holds a leasehold or sub-leasehold estate in, or is granted the right to use or occupy, any land or building which is used in the operation of its business.

“Leases” has the meaning set forth in Section 5.9(b).

“Licenses In” has the meaning set forth in Section 5.10(b).

“Licenses Out” has the meaning set forth in Section 5.10(b).

“LLC Agreement” has the meaning set forth in the Recitals.

“Losses” means any and all liabilities, losses, diminution in value, claims, damages, liabilities, costs and expenses (including reasonable attorneys’ and accountants’ fees, court costs, expert witness fees and other expenses of litigation), awards, judgments, penalties and assessments, but will exclude punitive damages, unless such punitive damages are included as part of a Third Party Claim.

“Marks” means rights in all registered and unregistered trade names, trademarks, trade dress, logos, packaging design, slogans, Internet domain names, website addresses, URLs, customer lists and service marks, in each case together with any registrations and applications related thereto.

“Mass Termination” has the meaning set forth in Section 5.13(d).

“Material Adverse Effect” means any fact, event, development, circumstance, change or effect (each, an “Effect”) that is, or would reasonably be expected to be, individually or in the aggregate, materially adverse to (a) the ability of Company or any of the Selling Members to consummate the Transactions or (b) the business, condition (financial or otherwise), prospects or results of operations of Company.

“Maximum Earnout Consideration” means Five Million Dollars ($5,000,000).

“Membership Units” has the meaning set forth in the Recitals.

“Most Recent Balance Sheet” has the meaning set forth in Section 5.4.

“Most Recent Balance Sheet Date” has the meaning set forth in Section 5.4.

“Most Recent Financial Statements” has the meaning set forth in Section 5.4.

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“Multiemployer Plan” means an employee pension or welfare benefit plan to which more than one unaffiliated employer contributes and which is maintained pursuant to one or more collective bargaining agreements.

“Non-Competition Period” has the meaning set forth in Section 8.1(a)(i).

“NQDC Plan” has the meaning set forth in Section 5.14(h).

“Ordinary Course of Business” means the ordinary course of business, consistent with past practice.

“Organizational Documents” means the articles of organization, LLC Agreement, bylaws, articles of formation, operating agreement or similar governing documents of Company or any predecessor thereto.

“Partner” has the meaning set forth in Section 5.23.

“Party” or “Parties” has the meaning set forth in the Preamble.

“Patents” means all issued patents, patent applications of any kind, patent rights, inventions, discoveries and invention disclosures (whether or not patentable).

“Permits” means all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any Governmental Authority.

“Permitted Encumbrances” means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) liens for Taxes and other governmental charges and assessments which are not yet due and payable or which are being contested in good faith and for which adequate reserves have been established in accordance with GAAP and set forth on the Most Recent Balance Sheet; (b) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the Ordinary Course of Business for sums not yet due and payable or which are being contested in good faith, in each case which are not material in amount and do not, and are not reasonably expected to, materially detract from the value of or materially impair the existing use of the property affected by such lien or imperfections, in each case whether individually or in the aggregate; and (c) any utility company rights, easements and franchises, which are as of record on the date hereof and do not interfere with the present use of the affected property.

“Person” means an individual, sole proprietorship, firm, partnership, corporation, limited liability company, trust, joint stock company, trust, unincorporated association or organization, joint venture, Governmental Authority or other entity of whatever nature.

“Personal Data” means any and all data that concerns an identified and/or identifiable person and includes, but shall not be limited to, an individual’s name, address, credit card information, email address, social security number and health information, including protected health information (as such term is defined by the Health Insurance Portability and Accountability Act of 1996).

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“Post-Closing Straddle Period” has the meaning set forth in Section 8.2(c).

“Pre-Closing Straddle Period” has the meaning set forth in Section 8.2(c).

“Premises” has the meaning set forth in Section 5.9(b).

“Products” means software products, hardware products, computer programs and/or services (including maintenance) and related documentation currently or previously researched, designed, developed, manufactured, performed, licensed, sold, distributed and/or otherwise made commercially available by Company, or which Company intends to manufacture, perform, license, sell, distribute and/or otherwise make commercially available.

“Pro Rata Share” means, with respect to each Selling Member, the percentage set forth opposite such Selling Member’s names on Exhibit A hereto under the heading “Pro Rata Portion.”

“Publicly Available Software” means any software (in source or object code form) subject to (a) a license or other agreement commonly referred to as an open source, free software, copyleft or community source code license (including but not limited to any code or library licensed under the GNU General Public License, GNU Lesser General Public License, BSD License, Apache Software License, or any other public source code license arrangement) or (b) any other license or other agreement that requires, as a condition of the use, modification or distribution of software subject to such license or agreement, that such software or other software combined or distributed with such software be (i) disclosed, distributed, made available, offered, licensed or delivered in source code form, (ii) licensed for the purpose of making derivative works, (iii) licensed under terms that allow reverse engineering, reverse assembly, or disassembly of any kind, or (iv) redistributable at no charge, including without limitation any license defined as an open source license by the Open Source Initiative as set forth on www.opensource.org.

“Purchase” has the meaning set forth in Section 1.1.

“Purchase Price” has the meaning set forth in Section 1.2.

“Release of Claims” has the meaning set forth in Section 2.2(j).

“Retention Period” has the meaning set forth in Section 1.3(a).

“Retention Payment” means Six Hundred Twenty-Five Thousand Dollars ($625,000), with respect to each Selling Member, subject to the forfeiture provisions set forth in Section 1.3(b).

“S Election” has the meaning set forth in Section 5.7(j).

“Section 338(h)(10) Election” has the meaning set forth in Section 8.2(a).

“Selling Members” has the meaning set forth in the Preamble.

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“Sellers Representative” has the meaning set forth in the Preamble.

“Seller Tax Return” has the meaning set forth in Section 8.2(b)(i).

“Set-off Amount” has the meaning set forth in Section 9.8.

“Set-off Certificate” has the meaning set forth in Section 9.8.

“Software” means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons, (iv) all documentation including user manuals and other training documentation related to any of the foregoing, and (v) all Intellectual Property therein or thereto.

“Straddle Period” means a taxable period beginning before and ending after the Closing Date.

“Straddle Period Returns” means the Tax Returns of the Company that are required to be filed for any Straddle Period.

“Subsequent Earnout Payment” has the meaning set forth in Section 1.4(a)(ii).

“Subsequent Earnout Period” has the meaning set forth in Section 1.4(a)(ii).

“Subsequent Earnout Period Threshold” means [****].

“Subsequent Period Terminated Member” has the meaning set forth in Section 1.4(a)(ii).

“Survival Period” has the meaning set forth in Section 9.1(a).

“Systems” has the meaning set forth in Section 5.10(c)(xvii).

“Tax” (and, with correlative meaning, “Taxes”) means any federal, state, local or foreign income, gross receipts, property, sales, use, license, franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, transfer or excise tax, or any other tax of any kind whatsoever imposed by any Governmental Authority, together with any interest, penalty or addition to tax imposed by such Governmental Authority with respect thereto, including any such amounts attributable to any other Person with respect to which Company may be held liable as a successor, by operation of law, by contract or otherwise.

“Tax Claim” has the meaning set forth in Section 8.2(e)(i).

“Tax Dispute” has the meaning set forth in Section 8.2(h).

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“Tax Return” means any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax and any affiliated, consolidated, combined, unitary or similar return.

“Third Party” means a Person that is not a party to this Agreement, but excluding any Affiliate of a Party.

“Third Party Claim” means any pending or threatened Claim against any Indemnified Person by a Third Party, whether or not involving an Action.

“Third Party IP Assets” has the meaning set forth in Section 5.10(c)(v).

“Trade Secrets” mean rights in trade secrets, know-how, confidential or proprietary business information and other proprietary information including, without limitation, designs, research and development information, technical information, specifications, operating and maintenance manuals, methods, engineering drawings, data, discoveries, inventions, industrial designs (whether or not patentable or subject to copyright, mask work, or trade secret protection).

“Transactions” means the Purchase and the other transactions contemplated by this Agreement and the other Transaction Documents.

“Transaction Document” means any agreement or other document contemplated by this Agreement.

“Transaction Expenses” means (i) the aggregate amount of the fees, expenses and other amounts (including all attorneys’ fees, financial advisory, brokerage and investment banking fees, accountants’ fees, and commitment fees) that become payable or are otherwise incurred by or on behalf of Company and that are unpaid, or any of the Selling Members and/or any of their respective Affiliates in connection with the preparation, negotiation and enforcement of this Agreement, any Transaction Document and otherwise in connection with the Transactions, and (ii) any transfer, documentary, sales, use, stamp, payroll or other Taxes which become payable in connection with, or as a result of, the sale and purchase of the Membership Units. For the avoidance of doubt, all fees and expenses of the Escrow Agent pursuant to the Escrow Agreement shall be borne and paid by Buyer.

“Transfer Taxes” has the meaning set forth in Section 8.2(g).

“True-Up Amount” means an amount equal to the Final Working Capital Adjustment minus the Estimated Closing Working Capital Adjustment, whether a positive or negative number.

“WARN Act” has the meaning set forth in Section 5.13(d).

“Working Capital” has the meaning set forth in Section 3.1.

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“Working Capital Target” means an amount equal to thirty-seven percent (37%) of deferred revenue, as reflected on the Estimated Closing Balance Sheet (in the case of the Estimated Working Capital Target) or the Closing Balance Sheet (in the case of the Closing Working Capital Target).

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Parties have executed or caused this Securities Purchase Agreement to be executed and delivered as of the day and year first above written.

“BUYER”
IMPRIVATA, INC.
By:	/s/ Omar Hussain
Name:	Omar Hussain
Title:	President and Chief Executive Officer

“SELLERS REPRESENTATIVE”
/s/ David Wiener
David Wiener
“SELLING MEMBERS”
/s/ David Wiener
David Wiener
/s/ Carl Bertrams
Carl Bertrams
/s/ Michael Esquinaldo
Michael Esquinaldo
“COMPANY”
Solely with respect to obligations contained in Section 8.3:
HT SYSTEMS, LLC
By:	/s/ David Wiener
Name:	David Wiener
Title:	President and Chief Executive Officer

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Omar Hussain, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Imprivata, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: July 31, 2015	/s/ Omar Hussain
	Omar Hussain,
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeff Kalowski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Imprivata, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2015	/s/ Jeff Kalowski
	Jeff Kalowski
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Imprivata, Inc. (the “Company”) for the period ended June 30, 2015 as filed with the United States Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, that to his or her knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: July 31, 2015	By:	/s/ Omar Hussain
		Omar Hussain
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: July 31, 2015	By:	/s/ Jeff Kalowski
		Jeff Kalowski
		Chief Financial Officer
		(Principal Financial Officer)

XML

Fair Value Measurements - Significant Unobservable Inputs Used in Valuation of Contingent Liability (Detail)	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Level 3 [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount Rate	17.00%	17.00%

XML

Concentration of Risk and Off-Balance Sheet Risk - Additional Information (Detail) - Customer	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Revenues [Member]
Concentration Risk [Line Items]
Number of customers or resellers accounted for 10% or more of revenues or accounts receivable	0	0	0	0
Accounts Receivable [Member]
Concentration Risk [Line Items]
Number of customers or resellers accounted for 10% or more of revenues or accounts receivable			0		0

XML

Stock Award Plans and Stock Based Compensation - Additional Information (Detail) - USD ($)		1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Feb. 27, 2015	May. 31, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options expiration period					10 years
Stock options vesting period					4 years
Employee stock purchase plan fair market value of the common stock		85.00%
Share based compensation unvested stock options			30,625		30,625		40,202
Share based compensation stock options repurchase					$ 142,000		$ 184,000
2014 Stock Option and Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted					1,610,356
Weighted average price					$ 13.68
Common stock, capital shares reserved for future instance			1,995,439		1,995,439
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, capital shares reserved for future instance			627,033		627,033
Common stock, issued	58,793
Common stock, purchase price	$ 11.64
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option associated with early exercise vested			4,375	5,626	9,577	11,252

XML

Related Party Transactions - Additional Information (Detail) - USD ($)		3 Months Ended	6 Months Ended
	Apr. 30, 2015	Jun. 30, 2015	Jun. 30, 2015
Related Party Transaction [Line Items]
Amount paid based on achieving certain sales target	$ 5,000,000
Payment period for payments based on achieving certain sales targets	2 years
HT Systems [Member]
Related Party Transaction [Line Items]
Amount paid based on achieving certain sales target	$ 5,000,000
Payment period for payments based on achieving certain sales targets	2 years
Selling Members of HT Systems [Member] | HT Systems [Member]
Related Party Transaction [Line Items]
Payment associated with earn out		$ 0	$ 0
Member of Executive Management Team [Member]
Related Party Transaction [Line Items]
Lease term			1 year
Lease expiration period			Mar. 31, 2016
Rent expense		$ 10,000	$ 10,000

XML

Commitments and Contingencies - Additional Information (Detail)		1 Months Ended
	Jan. 16, 2015 USD ($) ft²	Apr. 30, 2015 USD ($) ft²
Leases Disclosure [Line Items]
Additional rent expense	$ 7,900,000
Landlord contribution for leasehold improvement	$ 735,000
Lease agreement amendment	Jan. 16, 2015
Lease payments		$ 45,000
HT Systems [Member]
Leases Disclosure [Line Items]
Operating lease office space | ft²		3,500
Operating lease termination year		Mar. 31, 2016
Massachusetts [Member]
Leases Disclosure [Line Items]
Operating lease additional office space square feet | ft²	21,000
Operating lease office space square feet | ft²	93,000

XML

Business Combination - Additional Information (Detail) - USD ($)		3 Months Ended		6 Months Ended
	Apr. 30, 2015	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Business Acquisition [Line Items]
Amount paid in cash				$ 18,886,000
Amount paid based on achieving certain sales target	$ 5,000,000
Payment period for payments based on achieving certain sales targets	2 years
Compensation expense associated with earn-out consideration		$ 0		0
Total revenue		29,968,000	$ 23,233,000	55,604,000	$ 42,674,000
HT Systems [Member]
Business Acquisition [Line Items]
Percentage of acquired equity interest	100.00%
Amount paid in cash	$ 19,100,000
Amount paid in cash , net	189,000
Total cash consideration	18,900,000
Amount paid based on achieving certain sales target	$ 5,000,000
Payment period for payments based on achieving certain sales targets	2 years
Amount paid on retention-based payments	$ 1,900,000
Payment period for retention-based payments	2 years
Additional retention payments for employees	$ 341,000
Business combination employee retention payments period, minimum	8 months
Business combination employee retention payments period, maximum	20 months
Business combination, acquisition related costs		546,000		709,000
Total revenue		$ 171,000		$ 171,000

XML

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:

	Fair value measurements at June 30, 2015
(in thousands)	Level 1		Level 2		Level 3		Total carrying value
Assets
Cash equivalents:
Money market funds	$	10,189	$	—	$	—	$	10,189
Certificates of deposit		—		97		—		97
Liabilities
Contingent consideration		—		—		682		682

	Fair value measurements at December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total carrying value
Assets
Cash equivalents:
Money market funds	$	33,184	$	—	$	—	$	33,184
Certificates of deposit		—		97		—		97
Liabilities
Contingent consideration		—		—		632		632

Reconciliation of Contingent Liability Measured at Fair Value

The following table presents a reconciliation of the contingent liability measured at fair value using significant unobservable inputs, and the revaluation amount recorded in the Company’s consolidated statements of operations as a result of the change in fair value:

	June 30,		December 31,
(in thousands)	2015		2014
Beginning balance	$	632	$	1,008
Revaluation recognized in general and administrative expenses in the corresponding statements of operations		50		(376	)
Ending balance	$	682	$	632

Significant Unobservable Inputs Used in Valuation of Contingent Liability

This following table presents the significant unobservable inputs used in the valuation of the contingent liability:

	June 30,			December 31,
	2015			2014
Discount Rate		17	%		17	%

XML

Stock Award Plans and Stock Based Compensation - Schedule of Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 1,080	$ 367	$ 1,781	$ 665
Cost of Maintenance and Professional Services [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	102	29	162	51
Research and Development [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	326	114	549	206
Sales and Marketing [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	253	119	468	208
General and Administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 399	$ 105	$ 602	$ 200

XML

Purchased Intangible Assets - Schedule of Estimated Future Amortization of Intangible Assets (Detail) $ in Thousands	Jun. 30, 2015 USD ($)
HT Systems [Member]
Finite-Lived Intangible Assets [Line Items]
2015 (remaining 6 months)	$ 261
2016	522
2017	522
2018	522
2019	480
Thereafter	897
Total	3,204
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
2015 (remaining 6 months)	24
2016	49
2017	49
2018	49
2019	49
Thereafter	213
Total	$ 433

XML

Fair Value Measurements - Additional Information (Detail) - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Contingent liability	$ 9,800,000
Fair Value, Measurements, Non-recurring [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Fair value measurements on a non-recurring basis		$ 0

XML

Computation of Net Loss Per Share - Summary of Components of Net Loss per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Numerator:
Net loss	$ (5,426)	$ (3,552)	$ (12,125)	$ (10,619)
Accretion of preferred stock		(1,204)		(2,442)
Net loss attributable to common stockholders	$ (5,426)	$ (4,756)	$ (12,125)	$ (13,061)
Denominator:
Weighted average common shares outstanding used in computing basic and diluted net loss per common share	24,144	4,410	24,007	4,021
Net loss per share, basic and diluted	$ (0.22)	$ (1.08)	$ (0.51)	$ (3.25)

XML

Accumulated Other Comprehensive Loss - Schedule of Changes in Accumulated Other Comprehensive Loss Before Taxes (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ (100)
Amounts reclassified from accumulated other comprehensive income:
Net current-period other comprehensive loss	7
Ending balance	(93)	$ (100)
Accumulated Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	(100)	(145)
Other comprehensive loss	41	(100)
Amounts reclassified from accumulated other comprehensive income:
Other income (expense)	(34)	145
Net current-period other comprehensive loss	7	45
Ending balance	$ (93)	$ (100)

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of significant accounting policies

The Company has not made any significant changes in the application of its significant accounting policies as described in Note 2 of its audited consolidated financial statements for the year ended December 31, 2014 included in its 2014 Annual Report on Form 10-K filed with the SEC on March 11, 2015. See Note 2 in the 2014 Annual Report on Form 10-K for information about these critical accounting policies as well as a description of the “Summary of significant accounting policies.”

Recent accounting guidance

Accounting standards or updates not yet effective

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. On July 9, 2015, the FASB voted to delay the effective date of this ASU to annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early adoption permitted as of the original effective date of periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on the Company’s Consolidated Financial Statements upon adoption.

In April 2015, the FASB issued an ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt, consistent with debt discounts. The accounting standard update will be effective for the Company for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years on a retrospective basis, with early adoption permitted. The accounting standard update is a change in balance sheet presentation only and is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its Consolidated Financial Statements.

XML

Accrued Expenses and Other Current Liabilities - Summary of Accrued Expenses and Other Current Liabilities (Detail) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Payables and Accruals [Abstract]
Accrued payroll and related	$ 4,305	$ 7,839
Accrued taxes	979	1,144
Other accrued expenses	2,409	1,582
Total	$ 7,693	$ 10,565

XML

Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2015

Equity [Abstract]

Schedule of Changes in Accumulated Other Comprehensive Loss Before Taxes

The following table presents the changes in accumulated other comprehensive loss before taxes, as the tax effect is not material to the consolidated financial statements:

	Foreign
	Currency			Affected line item in the
	Translation			statement where net
(in thousands)	Adjustments			income is presented
Balance at January 1, 2014	$	(145	)
Other comprehensive loss		(100	)
Amounts reclassified from accumulated other comprehensive income:
Closure of foreign branch		145		Other income (expense)
Net current-period other comprehensive loss		45
Balance at December 31, 2014		(100	)
Other comprehensive loss		41
Amounts reclassified from accumulated other comprehensive income:
Closure of foreign branch		(34	)	Other income (expense)
Net current-period other comprehensive loss		7
Balance at June 30, 2015	$	(93	)

XML

Warranty Obligations (Tables)

6 Months Ended

Jun. 30, 2015

Guarantees [Abstract]

Summary of Allowance for Warranty Obligations

The following table presents the details of the Company’s allowance for warranty obligations:

	June 30,			December 31,
(in thousands)	2015			2014
Beginning balance	$	40		$	93
Provision for estimated claims		29			5
Adjustment to estimate		—			(51	)
Settlement of claims		(20	)		(7	)
Ending balance	$	49		$	40

XML

Warranty Obligations - Summary of Allowance for Warranty Obligations (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Guarantees [Abstract]
Beginning balance	$ 40	$ 93
Provision for estimated claims	29	5
Adjustment to estimate		(51)
Settlement of claims	(20)	(7)
Ending balance	$ 49	$ 40

XML

Stock Award Plans and Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Estimated Weighted-Average Assumptions Related to Stock Options Used in Calculation of Fair Value of Options Granted and Rights to Acquire Stock Under ESPP

Weighted average assumptions related to stock options used to apply this model were as follows:

	Three Months ended						Six Months ended
	June 30,						June 30,
	2015			2014			2015			2014
Risk-free interest rate(1)		1.77	%		1.93	%		1.77	%		1.91	%
Expected life (years)(2)		6.02			6.03			6.02			6.04
Expected dividend yield(3)		—	%		—	%		—	%		—	%
Expected volatility of underlying stock(4)		47	%		55	%		47	%		55	%

The assumptions used to estimate the fair value of the rights to acquire stock under the ESPP during the initial offering period ending on February 28, 2015 were as follows:

Risk-free interest rate(1)	0.08	%
Expected life (years)(2)	0.68
Expected dividend yield(3)	—	%
Expected volatility of underlying stock(4)	40	%

The assumptions used to estimate the fair value of the rights to acquire stock under the ESPP during the offering beginning on March 1, 2015 were as follows:

Risk-free interest rate(1)	0.07	%
Expected life (years)(2)	0.50
Expected dividend yield(3)	—	%
Expected volatility of underlying stock(4)	55	%

(1) Risk-free interest rate—the yield on zero-coupon U.S. Treasury securities with maturities similar to the expected term of the award being valued is used as the risk-free interest rate.

(2) Expected term—the expected term for stock options granted based on a review of the period that the Company’s stock option awards are expected to be outstanding and is calculated using the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period of the options. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term.

(3) Expected dividend yield—the expected dividend yield was not considered in the option pricing formula since the Company has not declared dividends and does not expect to pay dividends in the foreseeable future.

(4) Expected volatility—the Company is responsible for estimating volatility. The Company has limited trading history as a public company and does not have relevant historical data to develop its volatility assumptions. Therefore, the Company used a weighted average of its volatility and analyzed the volatility of several public peer companies to support the assumptions used in its calculations for the three and six months ended June 30, 2015. The Company analyzed the volatility of several public peer companies to support the assumptions used in its calculations for the three and six months ended June 30, 2014.

Schedule of Stock-Based Compensation Expense

Stock-based compensation included in costs and operating expenses related to the awards of stock options and the employee stock purchase plan are as follows:

	Three Months ended				Six Months ended
	June 30,				June 30,
(in thousands)	2015		2014		2015		2014
Cost of maintenance and professional services	$	102	$	29	$	162	$	51
Research and development		326		114		549		206
Sales and marketing		253		119		468		208
General and administrative		399		105		602		200
Total	$	1,080	$	367	$	1,781	$	665

XML

Computation of Net Loss Per Share (Tables)

6 Months Ended

Jun. 30, 2015

Earnings Per Share [Abstract]

Summary of Components of Net Loss per Share

The components of net loss per share are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net loss	$	(5,426	)	$	(3,552	)	$	(12,125	)	$	(10,619	)
Accretion of preferred stock		—			(1,204	)		—			(2,442	)
Net loss attributable to common stockholders	$	(5,426	)	$	(4,756	)	$	(12,125	)	$	(13,061	)
Denominator:
Weighted average common shares outstanding used in computing basic and diluted net loss per common share		24,144			4,410			24,007			4,021
Net loss per share, basic and diluted	$	(0.22	)	$	(1.08	)	$	(0.51	)	$	(3.25	)

Summary of Common Stock Equivalents Excluded from Computation of Diluted Net Loss per Share

The following common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders because they had an antidilutive impact:

	Three and Six Months Ended June 30,
(in thousands)	2015		2014
Options to purchase common stock		4,757		3,651
Common stock subject to repurchase		31		51
Total		4,788		3,702

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Organization and Business

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Business

1. Organization and business

(a) Description of business

Imprivata, Inc. (the “Company”) is a leading provider of IT security and identity solutions to the healthcare industry that help providers securely and efficiently access, communicate and transact patient information. The Company’s security and identity solutions provide authentication management, fast access to patient information, secure communications and positive patient identification to address critical security and compliance challenges faced by hospitals and other healthcare organizations, while improving provider productivity and the patient experience. The Company believes that its solutions save clinicians significant time to focus on patient care, increase their productivity and satisfaction, and help healthcare organizations comply with complex privacy and security regulations.

The Company was incorporated in the State of Delaware in May 2001.

On June 30, 2014, the Company completed its initial public offering (“IPO”) and is listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “IMPR.”

(b) Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and as required under the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2014. The consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on March 11, 2015. In the opinion of Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial position at June 30, 2015, the result of operations for the three and six months ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, for any other interim period or for any other future year.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Imprivata Securities Corporation and Imprivata International, Inc., and its wholly owned subsidiaries Imprivata UK Limited and Imprivata Australia Pty. Ltd., as well as two branch offices. All intercompany balances and transactions have been eliminated in consolidation. In the first quarter of 2015, the Company closed its Netherlands branch office.

Management believes the Company has sufficient cash and availability under its letter of credit to sustain operations through at least the next 12 months.

(c) Use of estimates

When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

(d) Foreign currency

The foreign subsidiaries and branches use the local currency as the functional currency. The Company translates the assets and liabilities of its foreign operations into U.S. dollars based on the rates of exchange in effect as of the balance sheet date. Revenues and expenses are translated into U.S. dollars using average exchange rates for each period. The resulting adjustments from the translation process are included in accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets.

Certain transactions of the Company are settled in foreign currency, and are thus translated to U.S. dollars at the rate of exchange in effect at the end of each month. Gains (losses) resulting from the translation are included in foreign exchange gains (losses) in the accompanying consolidated statements of operations.

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Organization and Business - Additional Information (Detail) - Jun. 30, 2015 - Branches	Total
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Incorporated state	Delaware
Month and Year of incorporation	2001-05
Number of branches	2
Cash availability, term	12 months

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Purchased Intangible Assets - Schedule of Intangible Assets as a Result of HT Systems Acquisition (Detail) - Jun. 30, 2015 - USD ($) $ in Thousands	Total
Business Acquisition [Line Items]
Acquisition of intangible assets	$ 3,291
Technology [Member]
Business Acquisition [Line Items]
Acquisition of intangible assets	$ 2,199
Acquisition of intangible assets, useful lives	7 years
Trade Name [Member]
Business Acquisition [Line Items]
Acquisition of intangible assets	$ 252
Acquisition of intangible assets, useful lives	4 years
Non-compete Agreements [Member]
Business Acquisition [Line Items]
Acquisition of intangible assets	$ 437
Acquisition of intangible assets, useful lives	5 years
Customer Contracts and Relationships [Member]
Business Acquisition [Line Items]
Acquisition of intangible assets	$ 403
Acquisition of intangible assets, useful lives	7 years

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Computation of Net Loss Per Share - Summary of Common Stock Equivalents Excluded from Computation of Diluted Net Loss per Share (Detail) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per share	4,788	4,788	3,702	3,702
Options to Purchase Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per share	4,757	4,757	3,651	3,651
Common Stock Subject to Repurchase [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net loss per share	31	31	51	51

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Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 54,673	$ 78,524
Accounts receivable, net of allowances	24,639	25,335
Prepaid expenses and other current assets	4,178	3,516
Total current assets	83,490	107,375
Property and equipment, net	7,367	7,640
Goodwill	14,766	1,560
Intangible assets, net	4,951	1,499
Other assets	668	105
Total assets	111,242	118,179
Current liabilities:
Accounts payable	3,936	2,498
Accrued expenses and other current liabilities	7,693	10,565
Current portion of capital lease obligations and long-term debt	549	625
Current portion of other long-term liabilities	240	288
Current portion of deferred revenue	34,954	33,120
Current portion of contingent purchase price liability	374	152
Total current liabilities	47,746	47,248
Deferred revenue, net of current portion	4,737	4,021
Deferred tax liability	694
Capital lease obligations, long-term debt and royalty obligations, net of current portion	374	619
Other long-term liabilities, net of current portion	1,862	1,535
Contingent purchase price liability, net of current portion	308	480
Total liabilities	$ 55,721	$ 53,903
Commitments and contingencies (Note 9)
Stockholders' equity:
Undesignated preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued at June 30, 2015 and December 31, 2014
Common stock, $0.001 par value, 250,000,000 shares authorized at June 30, 2015 and December 31, 2014; 24,289,159 and 23,742,467 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively	$ 24	$ 24
Additional paid-in capital	175,266	171,903
Accumulated other comprehensive loss	(93)	(100)
Accumulated deficit	(119,676)	(107,551)
Total stockholders' equity	55,521	64,276
Total liabilities and stockholders' equity	$ 111,242	$ 118,179

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Debt - Additional Information (Detail) - Revolving Credit Facility [Member] - USD ($)		6 Months Ended
	Apr. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Line of Credit Facility [Line Items]
Credit facility maturity date	Apr. 30, 2016	Feb. 28, 2015
Current borrowings on accounts receivable	$ 10,000,000
Increase borrowing limit on accounts receivable	$ 15,000,000
Outstanding borrowings, interest rate		0.75%
Outstanding borrowings, interest rate, description		prime rate plus 0.75%
Extended maturity date for the debt instrument		Apr. 30, 2015
Maturity date for the debt instrument		Feb. 28, 2015
Outstanding revolving credit facility		$ 0	$ 0

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Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - 6 months ended Jun. 30, 2015 - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Accumulated Deficit [Member]
Beginning balance at Dec. 31, 2014	$ 64,276	$ 24	$ 171,903	$ (100)	$ (107,551)
Beginning balance, Shares at Dec. 31, 2014		23,742
Exercise of common stock options	899		899
Exercise of common stock options, Shares		487
Stock-based compensation expense	1,781		1,781
Employee stock purchase plan	684	$ 1	683
Employee stock purchase plan, Share		59
Common stock grants	(1)	$ (1)
Common stock grants, Shares		1
Net loss	(12,125)				(12,125)
Other comprehensive income (loss)	7			7
Ending balance at Jun. 30, 2015	$ 55,521	$ 24	$ 175,266	$ (93)	$ (119,676)
Ending balance, Shares at Jun. 30, 2015		24,289

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Business Combination - Schedule of Pro Forma Results of Operations (Detail) - HT Systems [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Business Acquisition [Line Items]
Pro forma revenue	$ 30,262	$ 25,008	$ 56,791	$ 45,987
Pro forma operating expenses	25,967	20,636	50,394	41,420
Pro forma net loss	$ (5,734)	$ (2,965)	$ (12,668)	$ (9,441)
Pro forma net loss per share basic and diluted	$ (0.24)	$ (0.95)	$ (0.53)	$ (2.96)

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Related Party Transactions

6 Months Ended

Jun. 30, 2015

Related Party Transactions [Abstract]

Related Party Transactions

15. Related Party Transactions

The Company completed its acquisition of HT Systems on April 30, 2015. The Company may pay up to $5.0 million of potential additional earn-out consideration to the selling equity-holders, which will be determined based upon the achievement of certain sales targets over the two-year period following the transaction. The earn-out consideration will be paid to each of the selling equity-holders of HT Systems, based on their equity ownership of HT Systems prior to the acquisition, provided that such selling equity-holder remains an employee of the Company at the time the earn-out becomes payable. Each of the selling equity-holder has become employees of the Company effective upon close of the acquisition. One selling equity-holder is a member of the Company’s executive management team, but is not a director, executive officer or five percent holder of the Company’s equity securities. No payments associated with the earn-out have been made during the three and six months ended June 30, 2015.

The Company leases office space, located in Florida, under an operating lease agreement with a separate entity owned by the selling equity-holders of HT Systems. The lease is at a market rate with a one year term expiring on March 31, 2016. The Company made rental payments totaling $10,000 during the three and six month ended June 30, 2015.

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Fair Value Measurements - Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Dec. 31, 2013
Liabilities
Contingent consideration	$ 9,800
Fair Value Measurements on a Recurring Basis [Member]
Liabilities
Contingent consideration	682	$ 632
Money Market Funds [Member] | Fair Value Measurements on a Recurring Basis [Member]
Assets
Cash equivalents fair value on a recurring	10,189	33,184
Certificates of Deposit [Member] | Fair Value Measurements on a Recurring Basis [Member]
Assets
Cash equivalents fair value on a recurring	97	97
Level 1 [Member] | Money Market Funds [Member] | Fair Value Measurements on a Recurring Basis [Member]
Assets
Cash equivalents fair value on a recurring	10,189	33,184
Level 2 [Member] | Certificates of Deposit [Member] | Fair Value Measurements on a Recurring Basis [Member]
Assets
Cash equivalents fair value on a recurring	97	97
Level 3 [Member]
Liabilities
Contingent consideration	682	632	$ 1,008
Level 3 [Member] | Fair Value Measurements on a Recurring Basis [Member]
Liabilities
Contingent consideration	$ 682	$ 632

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Business Combination (Tables)

6 Months Ended

Jun. 30, 2015

Business Combinations [Abstract]

Schedule of Purchase Consideration to Assets Acquired and Liabilities Assumed

Under the acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair value, which was determined by management using the best information available as of the date of the acquisition (Level 3 inputs). The allocation of the HT Systems purchase consideration to the identifiable assets acquired and liabilities assumed was as follows:

				Useful lives
(dollars in thousands)	Amount			(in years)
Assets:
Accounts receivable	$	4,328
Prepaid expenses and other current assets		33
Property and equipment		59		3
Intangible assets		3,291		4 to 7
Liabilities assumed:
Accrued expenses		(85	)
Deferred revenue		(1,946	)
Net assets acquired		5,680
Goodwill		13,206
Total fair value consideration	$	18,886

Schedule of Pro Forma Results of Operations

The following unaudited pro forma results of operations have been presented as if the HT Systems acquisition occurred on January 1, 2014:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands, except per share data)	2015			2014			2015			2014
Pro forma revenue (1)	$	30,262		$	25,008		$	56,791		$	45,987
Pro forma operating expenses		25,967			20,636			50,394			41,420
Pro forma net loss		(5,734	)		(2,965	)		(12,668	)		(9,441	)
Pro forma net loss per share basic and diluted	$	(0.24	)	$	(0.95	)	$	(0.53	)	$	(2.96	)

(1) HT Systems defers all revenue related to a customer engagement until PatientSecure is fully implemented and in production. The revenue patterns can fluctuate between periods due to customers delaying the start of implementation. Consequently, comparisons between the interim periods may not be indicative of future revenue patterns.

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net loss	$ (12,125)	$ (10,619)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense	1,684	1,458
Provision for doubtful accounts	(19)	13
Stock-based compensation	1,781	665
Loss on disposal of fixed assets	14	12
Change in value of contingent purchase price liability	50	(464)
Deferred income taxes	694
Changes in operating assets and liabilities:
Accounts receivable	4,479	5,763
Prepaid expenses and other current assets	(616)	(544)
Deferred revenue	604	1,338
Accounts payable	1,028	(897)
Accrued expenses and other current liabilities	(2,955)	(1,549)
Other liabilities	279	82
Net cash used in operating activities	(5,102)	(4,742)
Cash flows from investing activities:
Purchases of property and equipment	(644)	(1,354)
Purchases of intangible assets	(437)
Acquisition of business	(18,886)
Net cash used in investing activities	(19,967)	(1,354)
Cash flows from financing activities:
Proceeds from initial public offering, net of underwriting discounts and commissions		80,213
Deferred offering costs		(1,748)
Repayments for capital lease obligations, long-term debt and other	(322)	(348)
Proceeds from employee stock purchase plan	684
Proceeds from exercise of stock options	853	389
Net cash provided by financing activities	1,215	78,506
Effect of exchange rates on cash and cash equivalents	3	100
Net (decrease) increase in cash and cash equivalents	(23,851)	72,510
Cash and cash equivalents, beginning of period	78,524	13,284
Cash and cash equivalents, end of period	54,673	85,794
Supplemental disclosures of non-cash investing and financing activities:
Equipment purchases under capital leases		690
Property and equipment purchases included in accounts payable and accrued expenses	$ 445	224
Deferred offering costs included in accounts payable, accrued expenses, and other current liabilities		1,557
Conversion of preferred stock to common stock		94,049
Accretion of preferred stock		$ 2,442

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Statement of Financial Position [Abstract]
Undesignated preferred stock, par value	$ 0.001	$ 0.001
Undesignated preferred stock, authorized	20,000,000	20,000,000
Undesignated preferred stock, issued	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	250,000,000	250,000,000
Common stock, issued	24,289,159	23,742,467
Common stock, outstanding	24,289,159	23,742,467

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2015

Equity [Abstract]

Accumulated Other Comprehensive Loss

10. Accumulated other comprehensive loss

The following table presents the changes in accumulated other comprehensive loss before taxes, as the tax effect is not material to the consolidated financial statements:

	Foreign
	Currency			Affected line item in the
	Translation			statement where net
(in thousands)	Adjustments			income is presented
Balance at January 1, 2014	$	(145	)
Other comprehensive loss		(100	)
Amounts reclassified from accumulated other comprehensive income:
Closure of foreign branch		145		Other income (expense)
Net current-period other comprehensive loss		45
Balance at December 31, 2014		(100	)
Other comprehensive loss		41
Amounts reclassified from accumulated other comprehensive income:
Closure of foreign branch		(34	)	Other income (expense)
Net current-period other comprehensive loss		7
Balance at June 30, 2015	$	(93	)

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 24, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Trading Symbol	IMPR
Entity Registrant Name	Imprivata Inc
Entity Central Index Key	0001328015
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		24,405,382

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Stock Award Plans and Stock Based Compensation

6 Months Ended

Jun. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Award Plans and Stock Based Compensation

11. Stock award plans and stock based compensation

(a) Equity incentive plan

In May 2014, the Company’s 2014 Stock Option and Incentive Plan (“2014 Plan”), was adopted by the Company’s board of directors and approved by its stockholders and became effective in June 2014. The 2014 Plan replaces the Amended and Restated 2002 Stock Option and Incentive Plan (“2002 Plan”) as the Company’s board of directors has determined not to make additional awards under the 2002 Plan. The 2014 Plan allows the compensation committee to make equity-based incentive awards to the Company’s officers, employees, directors and other key persons (including consultants).

Stock options expire no later than 10 years from the date of grant and generally vest over a period of four years. At the discretion of the Board of Directors, certain option grants may be immediately exercisable but subject to a right to repurchase, at cost, pursuant to the vesting schedule of the individual grant.

During the six months ended June 30, 2015, the Company granted 1,610,356 options to purchase common stock at a weighted average exercise price of $13.68.

At June 30, 2015, there were 1,995,439 shares available for future grant under the 2014 Plan.

(b) Employee stock purchase plan

In May 2014, the Company’s board of directors adopted and its stockholders approved the Employee Stock Purchase Plan (“ESPP”). Each employee who is a participant in the ESPP may purchase shares by authorizing payroll deductions of his or her base compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions will be used to purchase ordinary shares on the last business day of the offering period at a price equal to 85% of the fair market value of the common stock on the first business day or the last business day of the offering period, whichever is lower. All offering periods will be for six months and begin on March 1^st and September 1^st of each year.

At February 27, 2015, the Company issued 58,793 shares of common stock at a purchase price of $11.64.

At June 30, 2015, there were 627,033 shares available for future grant under the ESPP.

(c) Early exercise of stock options

The Company issues stock option agreements to Company executives and members of the Board of Directors, which may permit options to be exercised at any time. The Company may also include an early exercise provision for incentive stock option agreements at its discretion. The unvested shares of common stock exercised are subject to the Company’s right to repurchase at the original exercise price upon termination of employment or other relationship.

At June 30, 2015 and December 31, 2014, a total of 30,625 and 40,202 shares of unvested stock options exercised were subject to repurchase at an aggregate price of $142,000 and $184,000, respectively. These amounts are recorded as accrued and other current liabilities in the Company’s Consolidated Balance Sheets and will be reclassified to equity as the Company’s repurchase right lapses.

During the three months ended June 30, 2015 and 2014, 4,375 and 5,626 stock options associated with the early exercise vested, respectively. During the six months ended June 30, 2015 and 2014, 9,577 and 11,252 stock options associated with the early exercise vested, respectively.

(d) Valuation of share-based compensation

The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options awarded to employees and rights to acquire stock under the ESPP, which requires several key assumptions to be made.

Weighted average assumptions related to stock options used to apply this model were as follows:

	Three Months ended						Six Months ended
	June 30,						June 30,
	2015			2014			2015			2014
Risk-free interest rate(1)		1.77	%		1.93	%		1.77	%		1.91	%
Expected life (years)(2)		6.02			6.03			6.02			6.04
Expected dividend yield(3)		—	%		—	%		—	%		—	%
Expected volatility of underlying stock(4)		47	%		55	%		47	%		55	%

The assumptions used to estimate the fair value of the rights to acquire stock under the ESPP during the initial offering period ending on February 28, 2015 were as follows:

Risk-free interest rate(1)	0.08	%
Expected life (years)(2)	0.68
Expected dividend yield(3)	—	%
Expected volatility of underlying stock(4)	40	%

The assumptions used to estimate the fair value of the rights to acquire stock under the ESPP during the offering beginning on March 1, 2015 were as follows:

Risk-free interest rate(1)	0.07	%
Expected life (years)(2)	0.50
Expected dividend yield(3)	—	%
Expected volatility of underlying stock(4)	55	%

(1) Risk-free interest rate—the yield on zero-coupon U.S. Treasury securities with maturities similar to the expected term of the award being valued is used as the risk-free interest rate.

(2) Expected term—the expected term for stock options granted based on a review of the period that the Company’s stock option awards are expected to be outstanding and is calculated using the simplified method, which represents the average of the contractual term of the options and the weighted-average vesting period of the options. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term.

(3) Expected dividend yield—the expected dividend yield was not considered in the option pricing formula since the Company has not declared dividends and does not expect to pay dividends in the foreseeable future.

(4) Expected volatility—the Company is responsible for estimating volatility. The Company has limited trading history as a public company and does not have relevant historical data to develop its volatility assumptions. Therefore, the Company used a weighted average of its volatility and analyzed the volatility of several public peer companies to support the assumptions used in its calculations for the three and six months ended June 30, 2015. The Company analyzed the volatility of several public peer companies to support the assumptions used in its calculations for the three and six months ended June 30, 2014.

(e) Summary of share-based compensation expense

The Company uses the straight-line attribution method to recognize expense for stock-based awards such that the expense associated with awards is evenly recognized throughout the period.

Stock-based compensation included in costs and operating expenses related to the awards of stock options and the employee stock purchase plan are as follows:

	Three Months ended				Six Months ended
	June 30,				June 30,
(in thousands)	2015		2014		2015		2014
Cost of maintenance and professional services	$	102	$	29	$	162	$	51
Research and development		326		114		549		206
Sales and marketing		253		119		468		208
General and administrative		399		105		602		200
Total	$	1,080	$	367	$	1,781	$	665

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Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Revenue
Product	$ 16,305	$ 12,225	$ 29,218	$ 21,499
Maintenance and services	13,663	11,008	26,386	21,175
Total revenue	29,968	23,233	55,604	42,674
Cost of revenue
Product	4,088	2,475	7,511	4,635
Maintenance and services	5,296	4,400	10,223	8,593
Total cost of revenue	9,384	6,875	17,734	13,228
Gross profit	20,584	16,358	37,870	29,446
Operating expenses
Research and development	7,840	6,291	14,711	12,827
Sales and marketing	12,999	11,216	25,018	21,635
General and administrative	4,590	2,311	9,170	5,324
Total operating expenses	25,429	19,818	48,899	39,786
Loss from operations	(4,845)	(3,460)	(11,029)	(10,340)
Other income (expense)
Foreign currency exchange gain (loss)	150	4	(312)	(127)
Interest and other income (expense), net	(4)	(35)	(20)	(65)
Loss before income taxes	(4,699)	(3,491)	(11,361)	(10,532)
Income taxes	727	61	764	87
Net loss	(5,426)	(3,552)	(12,125)	(10,619)
Accretion of redeemable convertible preferred stock		(1,204)		(2,442)
Net loss attributable to common stockholders	$ (5,426)	$ (4,756)	$ (12,125)	$ (13,061)
Net loss per share attributable to common stockholders
Basic and diluted	$ (0.22)	$ (1.08)	$ (0.51)	$ (3.25)
Weighted average common shares outstanding used in computing net loss per share attributable to common stockholders
Basic and diluted	24,144	4,410	24,007	4,021

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Purchased Intangible Assets

6 Months Ended

Jun. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Purchased Intangible Assets

5. Purchased intangible assets

On April 30, 2015, the Company acquired the following intangible assets as a result of its acquisition of HT Systems:

(in thousands)	Amount		Useful lives (in years)
Technology	$	2,199	7
Trade name		252	4
Non-compete agreement		437	5
Customer contracts and relationships		403	7
	$	3,291

During the three and six months ended June 30, 2015, the Company recorded $87,000 of amortization expense, which is included in cost of sales in the Consolidated Statement of Operations.

The estimated future amortization of purchased intangible assets, acquired in the acquisition of HT Systems, as of June 30, 2015 are as follows:

(in thousands)	Amount
2015 (remaining 6 months)	$	261
2016		522
2017		522
2018		522
2019		480
Thereafter		897
	$	3,204

On June 3, 2015, the Company acquired three patents with an aggregate purchase price of $437,000, which includes $37,000 of legal fees and $36,364 of brokers fees associated with the procurement of the patents. The patents will be amortized on a straight-line basis over 9 years. During the three months ended June 30, 2015, the Company recorded $4,000 of amortization expense to general and administrative expenses in the Consolidated Statement of Operations.

The estimated future amortization of three patents purchased as of June 30, 2015 are as follows:

(in thousands)	Amount
2015 (remaining 6 months)	$	24
2016		49
2017		49
2018		49
2019		49
Thereafter		213
	$	433

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Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

4. Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

(a) Fair value hierarchy

The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

(b) Assets and liabilities measured at fair value on a recurring basis

The Company’s cash equivalents primarily consist of money market funds recorded at cost, which approximates fair value based on quoted prices for assets traded in active markets. The contingent consideration liabilities are recorded at fair value determined using a probability weighted discounted cash flow model primarily based upon future revenue and sales projections.

The following table sets forth the Company’s assets and liabilities which are measured at fair value on a recurring basis by level within the fair value hierarchy:

	Fair value measurements at June 30, 2015
(in thousands)	Level 1		Level 2		Level 3		Total carrying value
Assets
Cash equivalents:
Money market funds	$	10,189	$	—	$	—	$	10,189
Certificates of deposit		—		97		—		97
Liabilities
Contingent consideration		—		—		682		682

	Fair value measurements at December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total carrying value
Assets
Cash equivalents:
Money market funds	$	33,184	$	—	$	—	$	33,184
Certificates of deposit		—		97		—		97
Liabilities
Contingent consideration		—		—		632		632

(c) Assets and liabilities measured on a non-recurring basis

There were no fair value measurements on a non-recurring basis as of December 31, 2014. During the six months ended June 30, 2015, the Company completed an acquisition of HT Systems. Under the Acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair values which are level 3 inputs. Refer to “Note 3. Business combination” for additional information.

(d) Level 3 fair value measurements

Contingent consideration

The contingent liability associated with the acquisition of Validus is based on an earn-out capped at $9.8 million, to be paid based on revenue generated using the respective purchased intellectual properties.

The Company re-measures the fair value of the contingent liability at each balance sheet date based on the present value of forecasted revenues through December 31, 2016. The changes in the fair value are primarily due to the difference in actual revenue earned to date versus the initial projections and revisions to the timing and amount of forecasted future revenues.

The resulting forecasted revenues are then discounted using a rate that reflects the uncertainty surrounding the expected outcomes, which the Company believes is appropriate and representative of a market participant assumption.

The following table presents a reconciliation of the contingent liability measured at fair value using significant unobservable inputs, and the revaluation amount recorded in the Company’s consolidated statements of operations as a result of the change in fair value:

	June 30,		December 31,
(in thousands)	2015		2014
Beginning balance	$	632	$	1,008
Revaluation recognized in general and administrative expenses in the corresponding statements of operations		50		(376	)
Ending balance	$	682	$	632

This following table presents the significant unobservable inputs used in the valuation of the contingent liability:

	June 30,			December 31,
	2015			2014
Discount Rate		17	%		17	%

(e) Other financial instruments

The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents (which are comprised primarily of deposit accounts), accounts receivable, prepaid expenses, other current assets, accounts payable, and accrued expenses approximate fair value due to their short-term maturities.

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Organization and Business (Policies)

6 Months Ended

Jun. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of presentation and principles of consolidation

(b) Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and as required under the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and on a basis substantially consistent with the audited consolidated financial statements of the Company as of and for the fiscal year ended December 31, 2014. The consolidated balance sheet at December 31, 2014 has been derived from the audited financial statements at that date, but does not include all of the disclosures required by U.S. GAAP. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s 2014 Annual Report on Form 10-K filed with the SEC on March 11, 2015. In the opinion of Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to fairly present the financial position at June 30, 2015, the result of operations for the three and six months ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014. Operating results for the six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015, for any other interim period or for any other future year.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Imprivata Securities Corporation and Imprivata International, Inc., and its wholly owned subsidiaries Imprivata UK Limited and Imprivata Australia Pty. Ltd., as well as two branch offices. All intercompany balances and transactions have been eliminated in consolidation. In the first quarter of 2015, the Company closed its Netherlands branch office.

Management believes the Company has sufficient cash and availability under its letter of credit to sustain operations through at least the next 12 months.

Use of estimates

(c) Use of estimates

When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Foreign currency

(d) Foreign currency

The foreign subsidiaries and branches use the local currency as the functional currency. The Company translates the assets and liabilities of its foreign operations into U.S. dollars based on the rates of exchange in effect as of the balance sheet date. Revenues and expenses are translated into U.S. dollars using average exchange rates for each period. The resulting adjustments from the translation process are included in accumulated other comprehensive (loss) income in the accompanying consolidated balance sheets.

Certain transactions of the Company are settled in foreign currency, and are thus translated to U.S. dollars at the rate of exchange in effect at the end of each month. Gains (losses) resulting from the translation are included in foreign exchange gains (losses) in the accompanying consolidated statements of operations.

Recent accounting guidance

Recent accounting guidance

Accounting standards or updates not yet effective

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09). ASU 2014-09 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. On July 9, 2015, the FASB voted to delay the effective date of this ASU to annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2017, with early adoption permitted as of the original effective date of periods beginning after December 15, 2016. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. This update could impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on the Company’s Consolidated Financial Statements upon adoption.

In April 2015, the FASB issued an ASU No. 2015-03, “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt, consistent with debt discounts. The accounting standard update will be effective for the Company for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years on a retrospective basis, with early adoption permitted. The accounting standard update is a change in balance sheet presentation only and is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05, “Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” This ASU provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. ASU 2015-05 is effective for interim and annual reporting periods beginning after December 15, 2015. The Company anticipates that the adoption of this ASU will not have a material impact on its Consolidated Financial Statements.

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Income Taxes

6 Months Ended

Jun. 30, 2015

Income Tax Disclosure [Abstract]

Income Taxes

12. Income taxes

The Company operates in several tax jurisdictions and are subject to taxes in each country or jurisdiction in which it conducts business. Earnings from its activities outside of the United States are subject to local country income tax and may be subject to U.S. income tax. To date, the Company has incurred cumulative net losses and maintain a full valuation allowance on its net deferred tax assets. Therefore, the Company has not recorded any U.S. federal tax provisions for its earnings to date and its effective tax rate differs from statutory rates. The Company’s tax expense for earnings primarily relates to foreign income taxes, mainly from its international operations, and to a lesser extent, state income tax provisions.

As of December 31, 2014, the Company’s valuation allowance related to income taxes was approximately $27.5 million. The Company is in a three year cumulative loss position in the United States. As a result, the Company maintains a full valuation allowance to reduce the carrying value of the related deferred tax assets to zero. The Company will continue to maintain a full valuation allowance for such tax assets until sustainable future levels of profitability are evident. The Company does not consider deferred tax liabilities related to indefinite lived assets to be sources of income, which can support the realizability of deferred tax assets, and has provided for tax expense and a corresponding deferred tax liability associated with these naked credits.

Income tax expense related to the fair value of contingent consideration

During the preparation of the Company’s financial statements for the three months ended June 30, 2015, the Company identified an error in its accounting for deferred income taxes in prior periods related to the Company’s deferred income tax accounting for its 2011 acquisition of Validus. Specifically, the Company should have, but did not, record deferred income tax expense in connection with post acquisition adjustments made to the contingent consideration recorded in connection with the acquisition. The Company has corrected this error by recording an out of period adjustment for the cumulative amount of deferred tax expense associated with these adjustments totaling $535,000, in its quarter ended June 30, 2015 financial statements. Had these tax amounts been recorded timely the Company would have recorded a reduction of tax expense of $5,700 and $13,500 in the three and six month interim periods ended June 30, 2015.

Income tax expense related to tax-deductible goodwill

During the three months ended June 30, 2015, the Company recorded U.S. tax expense of $173,000 which is primarily related to the tax expense associated with indefinite lived deferred tax liabilities related to tax basis in acquired goodwill. The Company does not consider deferred tax liabilities related to indefinite lived assets to be sources of income which can support the realizability of deferred tax assets, and has provided for tax expense and a corresponding deferred tax liability associated with these indefinite lived deferred tax liabilities.

As of June 30, 2015 and December 31, 2014, the Company had no uncertain positions or unrecorded liabilities for uncertain tax positions.

Interest and penalty charges, if any, related to uncertain tax positions would be classified as income tax expense in the accompanying consolidated statements of operations. As of June 30, 2015 and December 31, 2014, the Company had no accrued interest or penalties related to uncertain tax positions.

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Debt

6 Months Ended

Jun. 30, 2015

Debt Disclosure [Abstract]

Debt

8. Debt

Bank credit facility

The Company has a revolving credit facility with a bank pursuant to a Loan and Security Agreement dated January 30, 2009 (the “Revolving Credit Facility”). In February 2014, the Company modified the revolving credit agreement that had expired in October 2013 and extended the maturity date to February 2015. In February 2015, the Company amended its revolving credit facility to extend the maturity through April 2015. In April 2015, the Company further amended its revolving credit facility to extend the maturity through April 2016 and increased the borrowing limit from $10.0 million to $15.0 million based primarily on accounts receivable, and is subject to certain financial covenants requiring the Company to maintain minimum levels of liquidity. Outstanding borrowings accrue interest at the Wall Street Journal published prime rate plus 0.75%. Substantially all of the assets of the Company are pledged as collateral.

At June 30, 2015 and December 31, 2014, there was no outstanding balance under the revolving credit facility.

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Accrued Expenses and Other Current Liabilities

6 Months Ended

Jun. 30, 2015

Payables and Accruals [Abstract]

Accrued Expenses and Other Current Liabilities

6. Accrued expenses and other current liabilities

The following table presents the details of the Company’s accrued expenses and other current liabilities:

	June 30,		December 31,
(in thousands)	2015		2014
Accrued payroll and related	$	4,305	$	7,839
Accrued taxes (1)		979		1,144
Other accrued expenses		2,409		1,582
	$	7,693	$	10,565

(1) Accrued taxes consist of accruals for foreign and state taxes, sales and use taxes, value added taxes due in foreign jurisdictions and franchise taxes.

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Warranty Obligations

6 Months Ended

Jun. 30, 2015

Guarantees [Abstract]

Warranty Obligations

7. Warranty obligations

The Company maintains an allowance for warranty obligations that may be incurred under its limited warranty. Factors that affect the Company’s allowance for warranty obligations include the number of installed units currently under warranty, historical and anticipated rates of warranty claims on those units, and the cost per claim to satisfy the Company’s warranty obligation.

The following table presents the details of the Company’s allowance for warranty obligations:

	June 30,			December 31,
(in thousands)	2015			2014
Beginning balance	$	40		$	93
Provision for estimated claims		29			5
Adjustment to estimate		—			(51	)
Settlement of claims		(20	)		(7	)
Ending balance	$	49		$	40

The warranty obligations are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets presented.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. Commitments and contingencies

(a) Operating lease obligations

On January 16, 2015, the Company amended its lease agreement for its corporate headquarters in Lexington, Massachusetts to lease approximately 21,000 of additional square footage. The amendment increased the total square footage leased to approximately 93,000 and extended the term through December 2021. The additional rent expense is approximately $7.9 million and the landlord has agreed to contribute approximately $735,000 towards leasehold improvements.

On April 30, 2015, the Company assumed a lease for approximately 3,500 square feet with a term expiring on March 31, 2016 as a result of its acquisition of HT Systems. The leased property is located in Tampa, Florida and is between HT Systems and a separate entity owned by the selling equity-holders of HT Systems. The remaining lease payments are $45,000.

(b) Litigation

The Company is not presently a party to any litigation that it believes might have a material adverse effect on its business operations or financial statements.

(c) Indemnifications

As permitted under Delaware law, the Company’s Certificate of Incorporation and By Laws provide that the Company indemnify its stockholders, officers, directors, and partners, and each person controlling the stock held for certain events or occurrences that happen by reason of the relationship with or position held at the Company. The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third-party patents, copyrights, or trademarks, and indemnify against product liability matters.

As of June 30, 2015 and December 31, 2014, the Company had not experienced any material losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

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Business Combination - Schedule of Purchase Consideration to Assets Acquired and Liabilities Assumed (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Dec. 31, 2014
Business Acquisition [Line Items]
Goodwill	$ 14,766	$ 1,560
Assets:
Intangible assets	3,291
HT Systems [Member]
Business Acquisition [Line Items]
Goodwill	13,206
Total fair value consideration	18,886
Assets:
Accounts receivable	4,328
Prepaid expenses and other current assets	33
Property and equipment	59
Intangible assets	3,291
Liabilities assumed:
Accrued expenses	(85)
Deferred revenue	(1,946)
Net assets acquired	$ 5,680
HT Systems [Member] | Property and Equipment [Member]
Assets:
Finite lived intangible assets, useful life	3 years
HT Systems [Member] | Minimum [Member]
Assets:
Finite lived intangible assets, useful life	4 years
HT Systems [Member] | Maximum [Member]
Assets:
Finite lived intangible assets, useful life	7 years

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Income Taxes - Additional Information (Detail) - USD ($)	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Valuation allowance related to income taxes			$ 27,500,000
Cumulative loss position in United States			3 years
Deferred tax assets			$ 0
Deferred tax expense	$ 535,000	$ 694,000
Reduction in tax expense	5,700	13,500
U.S. tax expense	173,000
Liability for uncertain tax positions	0	0	0
Accrued interest or penalties related to uncertain tax positions	$ 0	$ 0	$ 0

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Concentration of Risk and Off-Balance Sheet Risk

6 Months Ended

Jun. 30, 2015

Text Block [Abstract]

Concentration of Risk and Off-Balance Sheet Risk

14. Concentration of risk and off-balance sheet risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains substantially all of its cash and cash equivalents in institutional money market mutual funds. The fund provides daily liquidity and invests in a portfolio of short-term money market instruments. To manage accounts receivable credit risk, the Company continuously evaluates the creditworthiness of its customers and resellers and maintains allowances for potential credit losses.

No customers or resellers accounted for 10% or more of revenues for the three and six months ended June 30, 2015 and 2014, respectively.

No customers or resellers accounted for 10% or more of accounts receivable at June 30, 2015 and December 31, 2014, respectively.

The Company does not have any off-balance sheet arrangements and did not have any such arrangements during the six months ended June 30, 2015 and the year ended December 31, 2014.

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Purchased Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2015

Schedule of Intangible Assets as a Result of HT Systems Acquisition

On April 30, 2015, the Company acquired the following intangible assets as a result of its acquisition of HT Systems:

(in thousands)	Amount		Useful lives (in years)
Technology	$	2,199	7
Trade name		252	4
Non-compete agreement		437	5
Customer contracts and relationships		403	7
	$	3,291

HT Systems [Member]

Schedule of Estimated Future Amortization of Intangible Assets

The estimated future amortization of purchased intangible assets, acquired in the acquisition of HT Systems, as of June 30, 2015 are as follows:

(in thousands)	Amount
2015 (remaining 6 months)	$	261
2016		522
2017		522
2018		522
2019		480
Thereafter		897
	$	3,204

Patents [Member]

Schedule of Estimated Future Amortization of Intangible Assets

The estimated future amortization of three patents purchased as of June 30, 2015 are as follows:

(in thousands)	Amount
2015 (remaining 6 months)	$	24
2016		49
2017		49
2018		49
2019		49
Thereafter		213
	$	433

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Stock Award Plans and Stock Based Compensation - Schedule of Estimated Weighted-Average Assumptions Related to Stock Options Used in Calculation of Fair Value of Options Granted and Rights to Acquire Stock Under ESPP (Detail)	1 Months Ended	3 Months Ended			6 Months Ended
	Feb. 28, 2015	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate		1.77%		1.93%	1.77%	1.91%
Expected life (years)		6 years 7 days		6 years 11 days	6 years 7 days	6 years 15 days
Expected dividend yield		0.00%		0.00%	0.00%	0.00%
Expected volatility of underlying stock		47.00%		55.00%	47.00%	55.00%
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	0.08%		0.07%
Expected life (years)	8 months 5 days		6 months
Expected dividend yield	0.00%		0.00%
Expected volatility of underlying stock	40.00%		55.00%

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Purchased Intangible Assets - Additional Information (Detail)		3 Months Ended	6 Months Ended
	Jun. 03, 2015 USD ($) Patents	Jun. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)
Finite-Lived Intangible Assets [Line Items]
Number of patents acquired | Patents	3
Amount paid in cash			$ 437,000
Legal fees	$ 37,000
Payments for brokerage fees	$ 36,364
Patents amortized on a straight-line basis	9 years
Cost of Sales [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization expense		$ 87,000	$ 87,000
General and Administrative [Member]
Finite-Lived Intangible Assets [Line Items]
Amortization expense		$ 4,000

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Statement of Comprehensive Income [Abstract]
Net loss	$ (5,426)	$ (3,552)	$ (12,125)	$ (10,619)
Other comprehensive income:
Foreign currency translation adjustments	51	2	7	146
Comprehensive loss	$ (5,375)	$ (3,550)	$ (12,118)	$ (10,473)

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Business Combination

6 Months Ended

Jun. 30, 2015

Business Combinations [Abstract]

Business Combination

3. Business combination

HT Systems, LLC Acquisition

On April 30, 2015, the Company acquired 100% of the equity of HT Systems, LLC. (“HT Systems”), a provider of palm-vein based biometric patient identification systems, to enter into the positive patient identification market for a purchase price of $19.1 million less $189,000 of working capital adjustments, for total cash consideration paid of $18.9 million.

The acquisition of HT Systems and its PatientSecure biometric patient identification technology supports the Company’s long-term vision to be the leading provider of healthcare IT security solutions that increase provider productivity, enable patient engagement, and improve patient safety.

The Company may pay up to $5.0 million of potential additional earn-out consideration to the selling equity-holders, which will be determined based upon the achievement of certain sales targets over the two-year period following the transaction, provided, that the selling equity-holder remains an employee of the Company when the earn-out consideration becomes payable. The earn-out consideration will be recognized in the Company’s Consolidated Financial Statements as compensation expense as earned. For the three and six month ended June 30, 2015, the Company has not recorded any compensation expense associated with the earn-out consideration.

In addition, the Company will pay up to $1.9 million in retention-based payments to the selling equity-holders payable in cash two years from the closing date of April 30, 2015, contingent upon continued employment as of the payment date. Additional retention-based payments of $341,000, payable in cash, are payable to other employees 8 to 20 months following the date of acquisition, contingent upon their continued employment on the payment dates. The retention-based payments will be recognized in the Company’s Consolidated Statements of Operations as compensation expense over the employment period.

During the three and six months ended June 30, 2015, $546,000 and $709,000, respectively, of acquisition-related costs were incurred due to the HT Systems acquisition, which are included in general and administrative expenses in the Consolidated Statement of Operations.

Purchase Price Allocation

Under the acquisition method of accounting, the Company allocated the purchase price to the identifiable assets and liabilities based on their estimated fair value, which was determined by management using the best information available as of the date of the acquisition (Level 3 inputs). The allocation of the HT Systems purchase consideration to the identifiable assets acquired and liabilities assumed was as follows:

				Useful lives
(dollars in thousands)	Amount			(in years)
Assets:
Accounts receivable	$	4,328
Prepaid expenses and other current assets		33
Property and equipment		59		3
Intangible assets		3,291		4 to 7
Liabilities assumed:
Accrued expenses		(85	)
Deferred revenue		(1,946	)
Net assets acquired		5,680
Goodwill		13,206
Total fair value consideration	$	18,886

Methodologies used in valuing the intangible assets include, but are not limited to the relief from royalty method and multi-period excess earnings method. The excess of the purchase price over the total net identifiable assets has been recorded as goodwill, which includes synergies expected from the expanded service capabilities and the value of the assembled work force in accordance with GAAP. The Company made an election under Internal Revenue Code section 338 to treat the acquisition of the stock as an asset purchase. As a result, the Company will be entitled to corporate level tax deductions associated with the fair market value of net tangible assets, intangible assets, and goodwill.

The fair value estimates for the assets acquired and liabilities assumed were based upon preliminary calculations and valuations, and the Company’s estimates and assumptions for the acquisition are subject to change as the Company obtains additional information during the measurement periods, up to one year from the acquisition date. As of June 30, 2015, substantially all of the Company’s purchase accounting adjustments are preliminary and not yet finalized.

Pro Forma Results of Operations (unaudited)

The Consolidated Financial Statements include the operating results of HT Systems from the date of acquisition. The following unaudited pro forma results of operations have been presented as if the HT Systems acquisition occurred on January 1, 2014:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(dollars in thousands, except per share data)	2015			2014			2015			2014
Pro forma revenue (1)	$	30,262		$	25,008		$	56,791		$	45,987
Pro forma operating expenses		25,967			20,636			50,394			41,420
Pro forma net loss		(5,734	)		(2,965	)		(12,668	)		(9,441	)
Pro forma net loss per share basic and diluted	$	(0.24	)	$	(0.95	)	$	(0.53	)	$	(2.96	)

(1) HT Systems defers all revenue related to a customer engagement until PatientSecure is fully implemented and in production. The revenue patterns can fluctuate between periods due to customers delaying the start of implementation. Consequently, comparisons between the interim periods may not be indicative of future revenue patterns.

This information is based on historical results of operations, adjusted for the allocations of purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what the Company’s results would have been had it operated the businesses since January 1, 2014.

For the three and six months ended June 30, 2015, the Company’s consolidated revenues includes revenues from HT Systems of $171,000. Due to the continued integration of the combined business, it is impractical to determine the earnings of HT Systems beyond the measure of revenue.

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Accrued Expenses and Other Current Liabilities (Tables)

6 Months Ended

Jun. 30, 2015

Payables and Accruals [Abstract]

Summary of Accrued Expenses and Other Current Liabilities

The following table presents the details of the Company’s accrued expenses and other current liabilities:

	June 30,		December 31,
(in thousands)	2015		2014
Accrued payroll and related	$	4,305	$	7,839
Accrued taxes (1)		979		1,144
Other accrued expenses		2,409		1,582
	$	7,693	$	10,565

(1) Accrued taxes consist of accruals for foreign and state taxes, sales and use taxes, value added taxes due in foreign jurisdictions and franchise taxes.

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Fair Value Measurements - Reconciliation of Contingent Liability Measured at Fair Value (Detail) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Business Acquisition, Contingent Consideration [Line Items]
Revaluation recognized in general and administrative expenses in the corresponding statements of operations	$ (50)	$ 464
Ending balance	9,800
Level 3 [Member]
Business Acquisition, Contingent Consideration [Line Items]
Beginning balance	632	$ 1,008	$ 1,008
Revaluation recognized in general and administrative expenses in the corresponding statements of operations	50		(376)
Ending balance	$ 682		$ 632

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Computation of Net Loss Per Share

6 Months Ended

Jun. 30, 2015

Earnings Per Share [Abstract]

Computation of Net Loss Per Share

13. Computation of net loss per share

The Company calculates basic and diluted net loss per common share by dividing the net loss adjusted for the accretion on the redeemable convertible preferred stock by the weighted average number of common shares outstanding during the period. The Company has excluded all potentially dilutive shares, which include redeemable convertible preferred stock, warrant for common stock, common stock subject to repurchase and outstanding common stock options, from the weighted average number of common shares outstanding as their inclusion in the computation for all periods would be anti-dilutive due to net losses. The Company’s redeemable convertible preferred stock are participating securities as defined under the authoritative guidance, but are excluded from the earnings per share calculation as they do not have an obligation to share or fund in the Company’s net losses.

The components of net loss per share are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2015			2014			2015			2014
Numerator:
Net loss	$	(5,426	)	$	(3,552	)	$	(12,125	)	$	(10,619	)
Accretion of preferred stock		—			(1,204	)		—			(2,442	)
Net loss attributable to common stockholders	$	(5,426	)	$	(4,756	)	$	(12,125	)	$	(13,061	)
Denominator:
Weighted average common shares outstanding used in computing basic and diluted net loss per common share		24,144			4,410			24,007			4,021
Net loss per share, basic and diluted	$	(0.22	)	$	(1.08	)	$	(0.51	)	$	(3.25	)

The following common stock equivalents were excluded from the computation of diluted net loss per share attributable to common stockholders because they had an antidilutive impact:

	Three and Six Months Ended June 30,
(in thousands)	2015		2014
Options to purchase common stock		4,757		3,651
Common stock subject to repurchase		31		51
Total		4,788		3,702