AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

AMONG

TOLMAR HOLDING, INC.

as Parent

PROJECT Z ACQUISITION SUB, INC.,

as Acquisition Sub, and

ZILA, INC.

as Target

Dated as of June 25, 2009

TABLE OF CONTENTS

Exhibit A—Certificate of Merger
Exhibit B—Form of Bylaws
Disclosure Schedule—Exceptions to Representations and Warranties

AGREEMENT AND PLAN OF MERGER

     This Agreement and Plan of Merger (this “ Agreement ”), dated as of June 25, 2009, is among TOLMAR Holding, Inc. , a Delaware corporation (“ Parent ”), Project Z Acquisition Sub, Inc. , a Delaware corporation (“ Acquisition Sub ”), and Zila, Inc. , a Delaware corporation (“ Target ”). Parent, Acquisition Sub and Target sometimes are referred to collectively herein as the “ Parties .”

Recitals

     A. This Agreement contemplates a transaction in which Parent will acquire all of Target’s outstanding stock for cash through a reverse subsidiary merger of Acquisition Sub with and into Target.

     B. The board of directors of Target has unanimously (other than with respect to one director, who recused himself from the vote) (i) determined that it is fair to and in the best interests of Target and its stockholders, and declared it advisable, to enter into this Agreement with Parent and Acquisition Sub providing for the merger (the “ Merger ”) of Acquisition Sub with and into Target in accordance with the General Corporation Law of the State of Delaware, as amended (the “ DGCL ”), upon the terms and subject to the conditions set forth herein, (ii) approved this Agreement in accordance with the DGCL, upon the terms and subject to the conditions set forth herein and (iii) resolved to recommend the adoption of this Agreement by the stockholders of Target.

     C. Parent has entered into a Senior Note Purchase Agreement (such agreement, as it may be amended, restated, supplemented or otherwise modified from time to time, the “ Note Purchase Agreement ”) with Visium Balanced Master Fund, Ltd. and Atlas Master Fund, Ltd. (collectively, the “ Noteholders ”), whereby, among other things, Parent expects, at the Effective Time (as defined below), to purchase for cash all of the outstanding Third Amended and Restated Senior Secured Convertible Notes, dated November 28, 2006, made by Target (the “ Senior Notes ”).

     D. The current officers and directors of Target who own Target Shares (as defined below) have agreed to enter into transaction support agreements in favor of Parent and Acquisition Sub with respect to, among other things, voting such shares in favor of the Merger.

Agreement

     In consideration of the representations, warranties, covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties agree as follows:

ARTICLE I
Definitions and References

      1.1 General Definitions . As used herein the terms “Agreement,” “Parent,” “Acquisition Sub,” “Target,” “Parties,” “Merger,” “DGCL,” “Note Purchase Agreement,”

“Noteholders” and “Senior Notes” shall have the meanings ascribed thereto above, and the following terms shall have the following meanings:

     “ Acquisition Proposal ” means any proposal or offer (whether or not binding) from any Person (other than Parent, Acquisition Sub or any of their respective Affiliates) or group (as defined in Section 13(d) of the Securities Exchange Act) relating to any direct or indirect acquisition or purchase of 15% or more of the assets of Target and its Subsidiaries, taken as a whole, or 15% or more of the total outstanding voting securities of Target or any of its Subsidiaries then outstanding, any tender offer, exchange offer or equity issuance that if consummated would result in any Person beneficially owning 15% or more of the total outstanding voting securities of Target or any of its Subsidiaries then outstanding, and any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving Target, other than the transactions contemplated by this Agreement.

     “ Affiliate ” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

     “ Available Free Cash ” has the meaning set forth in Section 3.6(b).

     “ Business Day ” means any day on which banks are not required or authorized by Law to close in New York, New York.

     “ Certificate of Merger ” has the meaning set forth in Section 2.3.

     “ Closing ” has the meaning set forth in Section 2.2.

     “ Closing Date ” has the meaning set forth in Section 2.2.

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

     “ Common Stock Merger Consideration ” has the meaning set forth in Section 2.4(e).

     “ Continuing Employees ” has the meaning set forth in Section 5.12.

     “ Contract ” means any contract, subcontract, agreement, commitment, note, bond, mortgage, indenture, lease, license, sublicense or other instrument or binding arrangement or understanding of any kind or character, whether oral or in writing.

     “ Copyrights ” means all registered and unregistered copyrights in both published and unpublished works, rights in mask works and mask works applications, all sui generis rights in data and databases, and any other rights of authorship in any other published and unpublished works, including all moral rights therein.

     “ Covered D&O’s ” has the meaning set forth in Section 5.9(a).

     “ CSA ” has the meaning set forth in Section 3.18(a).

     “ Current Assets ” has the meaning set forth in Section 3.6(b).

     “ Current Liabilities ” has the meaning set forth in Section 3.6(b).

     “ Definitive Proxy Materials ” means the definitive proxy materials relating to the Special Meeting.

     “ Disclosure Schedule ” has the meaning set forth in ARTICLE III.

     “ Dissenting Share ” means any Target Share, issued and outstanding immediately before the Effective Time, and held of record by any holder who or that has properly exercised his, her or its appraisal rights under the DGCL with respect to the proposal for the Merger.

     “ Effective Time ” has the meaning set forth in Section 2.4(a).

     “ Entity ” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.

     “ Environmental Law ” means any Law relating to pollution or protection of the environment (including, without limitation, Laws relating to recycling, reuse, product content and product take-back requirements as well as any carbon emission reduction legislation), worker safety or the exposure of any individual to any hazardous materials including any regulated emissions, discharges or releases of the following which shall all be deemed hazardous materials hereunder: chemicals, pollutants, contaminants, emissions, wastes, hazardous substances and toxic substances, radioactive and biological materials and wastes, and petroleum and petroleum related products and wastes.

     “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder, or any successor statue, rules and regulations thereto.

     “ ERISA Affiliate ” means any trade or business (whether or not incorporated) that, together with Target, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

     “ Facilities ” means any real property or interest in real property that is being used or has ever been used by Target or any of its Subsidiaries and all buildings, structures or other improvements thereon.

     “ FDA ” has the meaning set forth in Section 3.18(b).

     “ FDCA ” has the meaning set forth in Section 3.18(a).

     “ GAAP ” means United States generally accepted accounting principles as in effect from time to time, consistently applied.

     “ Governmental Authorization ” means any permit, license, registration, qualification or authorization granted by any Governmental Entity.

     “ Governmental Entity ” means any Federal, state, local, tribal or foreign government or any court of competent jurisdiction, administrative or regulatory body, agency, bureau or commission, governing body of any national securities exchange or other governmental authority or instrumentality in any domestic or foreign jurisdiction and any appropriate division of any of the foregoing.

     “ Health Care Laws ” has the meaning set forth in Section 3.18(g).

     “ Intellectual Property ” means any intellectual property that may exist under the Laws of any jurisdiction throughout the world, including all Marks, Patents, Copyrights and Trade Secrets, any applications for registration and registrations of the foregoing property and the foregoing rights (whether pending, existing, abandoned or expired), and any physical embodiments of the foregoing property and the foregoing rights.

     “ Knowledge ” means, in the case of Target, the actual awareness by one or more of the current officers of Target of such fact or matter.

     “ Law ” means any applicable Federal, state, local, municipal, foreign, tribal or other law, statute, legislation, constitution, principle of common law, resolution, ordinance, code, edict, decree, proclamation, treaty, convention, rule, regulation, ruling, directive, pronouncement, requirement, specification, determination, decision, opinion or interpretation that is, has been or may in the future be issued, enacted, adopted, passed, approved, promulgated, made, implemented or otherwise put into effect, whether legislative, municipal, administrative or judicial in nature.

     “ Legal Proceeding ” means any action, claim, counterclaim, suit, litigation, hearing, arbitration, grievance, proceeding (public or private), criminal prosecution or investigation by or before any Governmental Entity.

     “ License-In Contract ” means any Contract under which Target or any of its Subsidiaries has acquired, obtained, or been granted any license, permission or any other right to utilize or otherwise exploit any Intellectual Property.

     “ License-Out Contract ” means any Contract under which Target or any of its Subsidiaries has licensed, permitted or otherwise granted any right to any Person to utilize or otherwise exploit any Intellectual Property.

     “ Licensed-In IP ” means the rights or permissions to any Intellectual Property acquired, obtained or granted under or through a License-In Contract.

     “ Lien ” means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge, preference, restriction on the right of possession or use, encroachment, negative pledge, right of first refusal or offer, preemptive right, community or other marital property interest, imperfection of title, or other encumbrance of any kind, including any conditional sales Contract, title retention Contract or other Contract to give any of the foregoing.

     “ Marks ” means all registered or unregistered trademarks, service marks, trade names, fictitious business names, and general intangibles of a similar nature (including corporate names, logos, trade dress, slogans, and product names), and the goodwill associated therewith, and all rights in internet web sites, internet domain names, uniform resource locators, and keywords and purchased search terms.

     “ Material Adverse Change ” means any effect, change, condition, event or development that, individually or in the aggregate, would be (or could reasonably be expected to be) materially adverse, whether in the near-term or the long-term, to the business, properties, assets, liabilities, capitalization, stockholders’ equity, condition (financial or otherwise), operations, licenses, results of operations or prospects of Target or any of its Subsidiaries, as determined from the perspective of a reasonable person in the Parent’s position, excluding any adverse effect, change, condition, event or development (unless such effect, change, condition, event or development adversely impacts Target and its Subsidiaries disproportionately compared to other companies operating in the same industry) arising from or relating to: (a) any general social, political or economic condition or event, including stock market fluctuations, acts of war or terrorism or the consequences of any of the foregoing, (b) any change in currency exchange rates or interest rates, (c) any legislative changes or other changes in Law and (d) natural disasters.

     “ Merger Consideration ” has the meaning set forth in Section 2.4(e).

     “ Most Recent Balance Sheet ” means the balance sheet as of the Most Recent Fiscal Quarter End included in the financial statements Target has filed with the SEC on Form 10-Q for the fiscal quarter ended as of the Most Recent Fiscal Quarter End.

     “ Most Recent Fiscal Quarter End ” has the meaning set forth in Section 3.5.

     “ Net Working Capital ” has the meaning set forth in Section 3.6(b).

     “ Option Proceeds ” has the meaning set forth in Section 2.5(b).

     “ Ordinary Course of Business ” means an action taken by Target or any of its Subsidiaries if such action is (a) consistent in nature, scope and magnitude with the past practices of such Person, (b) taken in the ordinary course of the normal day-to-day operations of such Person, (c) taken in accordance with sound and prudent business practices and (d) not required to be authorized by the stockholders or other equity owners of such Person, the board of directors of such Person or any committee of the board of directors of such Person, and does not require any other separate or special authorization of any nature.

     “ Organizational Documents ” means the articles or certificate of incorporation or formation, articles of incorporation, organization or association, general or limited partnership agreement, limited liability company or operating agreement, bylaws and other agreements, documents or instruments relating to the organization, management or operation of any Person that is an entity or relating to the rights, duties and obligations of the equityholders of any such Person, including any equityholders’ agreements, voting agreements, voting trusts, joint venture agreements, registration rights agreements or similar agreements.

     “ Parent-owned Share ” means any Target Share, issued and outstanding immediately before the Effective Time, that Parent or Acquisition Sub owns of record.

     “ Patents ” means any United States and non-United States patents, patent applications, patent disclosures, invention disclosures or other rights relating to the protection of inventions throughout the world (and all rights related thereto, including any continuations, continuations in part, divisionals, extensions, renewals, reissues or reexaminations of any of the foregoing).

     “ Paying Agent ” has the meaning set forth in Section 2.6(a).

     “ Payment Fund ” has the meaning set forth in Section 2.6(a).

     “ Permitted Investments ” means investments in short-term obligations of the United States with maturities of no more than 30 days or guaranteed by the United States and backed by the full faith and credit of the United States or in commercial paper obligations rated A-1 or P-1 or better by Moody’s Investors Service, Inc. or Standard & Poor’s Corporation, respectively.

     “ Permitted Lien ” means (a) with respect to any capital stock, membership interests or other similar equity interests of any Subsidiary of Target, (i) the provisions of the Governing Documents of such Subsidiary and (ii) the restrictions on the transfer of securities provided in the Securities Act and any state or “blue sky” securities Laws, and (b) with respect to any other asset, property or right, (i) Liens for Taxes not yet due or delinquent and (ii) statutory Liens arising in the Ordinary Course of Business by operation of Law, including mechanic’s, materialmen’s, repairmen’s, employee’s, contractor’s, operator’s and other similar liens to the extent relating to an obligation that is not yet due or delinquent.

     “ Person ” means an individual, an Entity or a Governmental Entity.

     “ PHSA ” has the meaning set forth in Section 3.18(a).

     “ Prime Rate ” means a rate per annum equal to the floating commercial loan rate as published in the Wall Street Journal (Western Edition) from time to time as the “Prime Rate,” adjusted in each case as of the banking day in which a change in the Prime Rate occurs, as reported in The Wall Street Journal (Western Edition); provided, however , that if such rate is no longer published in The Wall Street Journal, then it shall mean an annual rate of interest which equals the floating commercial loan rate of Citibank N.A., or its successors and assigns, announced from time to time as its “base rate,” adjusted in each case as of the banking day in which a change in the base rate occurs.

     “ Product ” has the meaning set forth in Section 3.9(a).

     “ Requisite Stockholder Approval ” means the affirmative vote in favor of this Agreement and the Merger of the holders of a majority of the outstanding Target Common Stock on the record date for the Special Meeting.

     “ SEC ” means the Securities and Exchange Commission.

     “ Securities Act ” means the Securities Act of 1933, as amended.

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

     “ Software ” means all computer software and all versions, forms and embodiments thereof, including all source code, object code, executable code, binary code, files, objects, comments, screens, user interfaces, report formats, templates, menus, buttons and icons and all data, materials, manuals, design notes and other items and documentation related thereto or associated with the foregoing.

     “ Special Meeting ” has the meaning set forth in Section 5.4(b).

     “ Specified Representations ” has the meaning set forth in Section 6.1(e).

     “ Subsidiary ” means, with respect to any Person at any time of determination, any corporation, limited liability company, partnership, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof or (b) if a limited liability company, partnership, association or other business entity (other than a corporation), a majority of the membership, partnership or other similar ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof and for this purpose, such Person, Subsidiaries or combination owns a majority ownership interest in such a business entity (other than a corporation) if such Person, Subsidiaries or combination is allocated a majority of such business entity’s gains or losses or is or controls any managing director or general partner of such business entity (other than a corporation). The term “Subsidiary” shall include all Subsidiaries of such Subsidiary.

     “ Superior Proposal ” means any bona fide written Acquisition Proposal not solicited or initiated in violation of Section 5.8 that (a) relates to an acquisition by a Person or group (as defined in Section 13(d) of the Securities Exchange Act) of either (i) more than 50% of the voting securities of Target pursuant to a tender offer, equity issuance, merger or otherwise or (ii) more than 50% of the assets used in the conduct of the business of Target, (b) Target’s board of directors determines in its good faith judgment (after consultation with its financial advisors and, after considering, among other things, the financial, legal and regulatory aspects of such Acquisition Proposal) would, if consummated, result in a transaction that is more favorable to Target’s stockholders from a financial point of view than the transactions contemplated by this Agreement (taking into account any alterations to this Agreement agreed to by Parent in response thereto in accordance with Section 7.1(f) as well as any payments resulting from the termination of this Agreement), (c) the potential acquirer has the financial wherewithal to consummate without having to obtain new financing other than financing as to which it has obtained binding commitments from reputable sources and (d) Target’s board of directors determines in good faith (after consultation with its financial advisors and its outside legal counsel) is reasonably capable of being consummated.

     “ Surviving Corporation ” has the meaning set forth in Section 2.1.

     “ Target Benefit Plans ” has the meaning set forth in Section 3.14.

     “ Target Black Diamond Warrant ” means that certain amended and restated warrant to purchase 171,429 shares of Target Common Stock at an exercise price of $15.54 per share issued to BDC Finance, L.L.C. by Target on June 6, 2006.

     “ Target Bylaws ” has the meaning set forth in Section 3.1.

     “ Target Certificate of Incorporation ” has the meaning set forth in Section 3.1.

     “ Target Common Stock ” means the common stock, $0.001 par value per share, of Target.

     “ Target Equity Plans ” means Target’s 1997 Stock Award Plan, as amended and restated, and any other compensatory option plans or Contracts of Target, including any employee stock purchase plan and any option plans or Contracts assumed by Target pursuant to a merger or acquisition.

     “ Target Expense Reimbursement Amount ” means an amount in cash equal to Parent’s expenses (including legal fees and expenses) incurred in connection with this Agreement (not to exceed $200,000).

     “ Target Intellectual Property ” means any Intellectual Property (or portion thereof): (a) owned or licensed by Target or any of its Subsidiaries or which Target or any of its Subsidiaries otherwise has rights in or to; or (b) utilized in, necessary for, useful in, or incident to the conduct of the business of Target or any of its Subsidiaries in any manner as currently conducted or as proposed to be conducted.

     “ Target Material Contracts ” has the meaning set forth in Section 3.11.

     “ Target Non-Disclosure and Invention Assignment Contract ” has the meaning set forth in Section 3.9(i).

     “ Target Options ” means any outstanding options to purchase Target Shares, whether granted by Target pursuant to the Target Equity Plans or otherwise.

     “ Target PIPE Warrants ” means those certain warrants to purchase an aggregate of 1,212,995 shares of Target Common Stock at an exercise price of $14.63 per share issued to various investors by Target on or about November 29, 2006 and December 14, 2006.

     “ Target Preferred Stock ” means the preferred stock, $0.001 par value per share, of Target.

     “ Target Restricted Stock ” means the Target Common Stock issued pursuant to, and that is subject to vesting and other restrictions set forth in, Target’s 1997 Stock Award Plan, as amended and restated.

     “ Target SEC Documents ” has the meaning set forth in Section 3.5.

     “ Target Series B Convertible Preferred Stock ” means the Target Preferred Stock designated as Series B Convertible Preferred Stock.

     “ Target Share ” means any share of Target Common Stock (including the Target Restricted Stock) or Target Preferred Stock (including Target Series B Convertible Preferred Stock).

     “ Target Software ” means all Software, (a) owned or licensed by Target or any of its Subsidiaries, or (b) utilized in, necessary for, useful in, or incident to the conduct of the business of Target or any of its Subsidiaries in any manner, as currently conducted or as proposed to be conducted.

     “ Target Stockholder ” means any Person who or that holds any Target Share.

     “ Target Termination Fee ” means an amount in cash equal to $300,000.

     “ Target Warrants ” means the Target PIPE Warrants and the Target Black Diamond Warrant.

     “ Tax ” or “ Taxes ” means all forms of taxation or duties imposed, or required to be collected or withheld, including without limitation any United States federal, state or local, or non-United States, income, gross receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, withholding, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, net worth, intangibles, social security, unemployment, disability, payroll, license, employee or other tax or similar levy, of any kind whatsoever, together with any interest, penalties or additions to tax in respect of the foregoing and any transferee liability in respect of the foregoing payable by reason of contract, assumption, transferee liability, operation of Law, Section 1.1502-6(a) of the Treasury Regulations (or any predecessor or successor thereof or any analogous or similar provision under Law) or otherwise.

     “ Tax Authority ” means any Governmental Entity having jurisdiction over the assessment, determination, collection or imposition of any Tax.

     “ Tax Return ” means any return, declaration, report, claim for refund, information return or other document (including any related or supporting estimates, elections, schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Tax or the administration of any Law relating to any Tax, and where permitted or required, combined or consolidated returns for any group of entities.

     “ Trade Secrets ” means all information that derives economic value from not being generally known to other Persons, and any other information that is proprietary or confidential to Target or any of its Subsidiaries, including trade secrets, know-how, ideas, inventions, processes, documentation, information, data, information, customer lists, Software (in both object code and source code form), data, products, processes, technology, plans, drawings, designs, systems and specifications.

     “ Treasury Regulations ” means the regulations issued by the U.S. Department of Treasury under the Code.

     “ United States ” and “ U.S. ” means the United States of America.

     “USPTO” has the meaning set forth in Section 3.9(m).

     “WARN” has the meaning set forth in Section 3.15.

      1.2 References, Titles and Construction . All references in this Agreement to Exhibits, Schedules, Articles, Sections and other subdivisions refer to the Exhibits, Schedules, Articles, Sections and other subdivisions of this Agreement unless expressly provided otherwise. All Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part of this Agreement. Titles and section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. The words “this Agreement,” “herein,” “hereby,” “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The word “or” is not exclusive, and “including” (and its various derivatives), means “including without limitation.” Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender. Words in the singular form shall be construed to include the plural and words in the plural form shall be construed to include the singular, unless the context otherwise requires. A reference to a federal, state, local or non-U.S. statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring a Party by virtue of the authorship of any of the provisions of this Agreement.

ARTICLE II
The Merger

      2.1 Merger . On and subject to the terms and conditions of this Agreement, Acquisition Sub will merge with and into Target at the Effective Time. Target shall be the corporation surviving the Merger (the “ Surviving Corporation ”).

      2.2 Closing . The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Holme Roberts & Owen LLP, 1700 Lincoln Street, Suite 4100, Denver, Colorado commencing at 9:00 a.m. local time on the second Business Day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as the Parties may mutually determine (the “ Closing Date ”).

      2.3 Actions at Closing . At the Closing, (a) Target will deliver to Parent and Acquisition Sub the various certificates, instruments and documents referred to in Section 6.1, (b) Parent and Acquisition Sub will deliver to Target the various certificates, instruments and documents referred to in Section 6.2, (c) Target and Acquisition Sub will file with the Secretary of State of the State of Delaware a Certificate of Merger in the form attached hereto as Exhibit A (the “ Certificate of Merger ”), and (d) Parent will cause Surviving Corporation to deliver the Payment Fund to the Paying Agent in the manner provided below in Section 2.6.

      2.4 Effect of Merger .

          (a) General . The Merger shall become effective at the time (the “ Effective Time ”) Target and Acquisition Sub file the Certificate of Merger with the Secretary of State of the State of Delaware. The Merger shall have the effect set forth in the DGCL. Surviving Corporation may, at any time after the Effective Time, take any action (including executing and delivering any document) in the name and on behalf of either Target or Acquisition Sub in order to carry out and effectuate the transactions contemplated by this Agreement.

          (b) Certificate of Incorporation . The certificate of incorporation of Target shall be the certificate of incorporation of Surviving Corporation.

          (c) Bylaws . The bylaws of Surviving Corporation shall be amended and restated at and as of the Effective Time to conform to the bylaws attached hereto as Exhibit B .

          (d) Directors and Officers . The directors of Acquisition Sub immediately before the Effective Time shall become the directors of Surviving Corporation at the Effective Time. The officers of Acquisition Sub immediately before the Effective Time shall become the initial officers of the Surviving Corporation at the Effective Time, each to hold office until the earlier of his or her resignation or removal.

          (e) Conversion of Target Shares . At the Effective Time and by virtue of the Merger and without any action by any of the Parties or the holders of Target Shares, (i) each share of Target Common Stock issued and outstanding immediately before the Effective Time (other than any Dissenting Share, Parent-owned Share or Target Share held in the treasury of Target) shall be converted into the right to receive an amount equal to $0.38 in cash, without interest (the “ Common Stock Merger Consideration ”), (ii) each share of Target Series B Convertible Preferred Stock issued and outstanding immediately before the Effective Time (other than any Dissenting Share, Parent-owned Share or Target Share held in the treasury of Target) shall be converted into the right to receive an amount equal to $0.44 in cash, without interest (together with the Common Stock Merger Consideration, the “ Merger Consideration ”), (iii) each Dissenting Share shall be converted into the right to receive payment from Surviving Corporation with respect thereto in accordance with the provisions of the DGCL, (iv) each Parent-owned Share issued and outstanding immediately before the Effective Time and each Target Share held in the treasury of Target immediately before the Effective Time shall be cancelled, and (v) Target Shares issued and outstanding immediately before the Effective Time held of record by wholly-owned Subsidiaries of Target shall remain outstanding; provided, however, that the Merger Consideration shall be subject to equitable adjustment in the event of any stock split, stock dividend, reverse stock split or other change in the number of outstanding Target Shares (or securities convertible or exchangeable into or exercisable for Target Shares) between the date of this Agreement and the Effective Time. For the avoidance of doubt, any fractional share of Target Common Stock shall be entitled to the same rights as whole shares of Target Common Stock with respect to conversion into Common Stock Merger Consideration, provided that a fractional share of Target Common Stock shall be converted into a pro rata amount of Common Stock Merger Consideration. No Target Share shall be deemed to be outstanding or to have any rights other than those set forth above in this Section 2.4(e) after the Effective Time.

          (f) Conversion of Acquisition Sub’s Capital Stock . At the Effective Time, each share of Acquisition Sub’s common stock, $0.0001 par value per share, shall be converted into one share of Surviving Corporation’s common stock, $0.001 par value per share.

      2.5 Treatment of Warrants, Options and Restricted Stock .

          (a) Treatment of Warrants . Target shall use its reasonable best efforts to cause all of the outstanding Target PIPE Warrants to be terminated and cancelled at or before the Effective Time. In exchange for such cancellation, Target shall not pay any holder of a Target PIPE Warrant any amount in excess of the Black-Scholes valuation thereof and no consideration for the cancellation thereof shall be payable by Parent, Acquisition Sub, Target or the Surviving Corporation after the Effective Time. Each unexercised Target Black Diamond Warrant outstanding immediately prior to the Effective Time shall, in accordance with and subject to its terms, cease to represent a right to acquire Target Common Stock and, as of and following the Effective Time no consideration shall be payable by Parent, Acquisition Sub, Target or the Surviving Corporation therefor.

          (b) Cancellation of Options . No outstanding Target Options shall be assumed, continued or substituted for by Parent. Target shall take all action necessary under the applicable Target Equity Plans to ensure that as of no later than immediately before the Effective Time, and contingent upon the effectiveness of the Merger, each then outstanding Target Option shall become immediately vested and exercisable in full. At the Effective Time, each then outstanding Target Option shall, by virtue of the Merger, be converted into and shall become a right to receive an amount in cash, without interest, with respect to each share subject thereto, equal to the excess, if any, of the Common Stock Merger Consideration over the per share exercise price of such Target Option (such amount being hereinafter referred to as the “ Option Proceeds ”), and each such Target Option shall terminate at the Effective Time. Surviving Corporation shall pay the Option Proceeds to the holders of Target Options promptly following the Effective Time. Prior to the Effective Time, Target shall provide all notices, obtain all necessary consents or releases from the holders of Target Options and shall take all other lawful action as may be necessary to provide for and give effect to the transactions contemplated by this Section 2.5(b).

          (c) Treatment of Restricted Stock . At the Effective Time and by virtue of the Merger and without any action by any of the Parties or the holders of Target Restricted Stock, the restrictions on the Target Restricted Stock issued and outstanding immediately before the Effective Time shall lapse, and such Target Restricted Stock shall be treated in accordance with Section 2.4(e).

      2.6 Procedure for Payment .

          (a) Immediately after the Effective Time, (i) Parent will cause Surviving Corporation to furnish to Computershare Trust Company (the “ Paying Agent ”) an amount of cash (the “ Payment Fund ”) sufficient for the Paying Agent to make full payment of the Merger Consideration to the record holders of Target Shares issued and outstanding immediately before the Effective Time (other than any Dissenting Shares, Parent-owned Shares and Target Shares held in the treasury of Target) and (ii) Parent will cause the Paying Agent to mail a letter of transmittal (which shall be in customary form and shall provide instructions for its use) to each

record holder of Target Shares issued and outstanding immediately before the Effective Time (other than any Dissenting Shares, Parent-owned Shares and Target Shares held in the treasury of Target) for the holder to use in surrendering the certificates that represented his, her or its Target Shares against payment of the Merger Consideration. Upon surrender of such Target Shares, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Paying Agent, the Paying Agent shall promptly pay to the holders thereof the aggregate Merger Consideration into which such Target Shares shall have been converted pursuant to Section 2.4(e). No interest will accrue or be paid to the holder of any outstanding Target Shares.

          (b) Surviving Corporation may cause the Paying Agent to invest the cash included in the Payment Fund in one or more Permitted Investments, provided that the terms and conditions of the investments shall be such as to permit the Paying Agent to make prompt payment of the Merger Consideration as necessary. Surviving Corporation may cause the Paying Agent to pay over to Surviving Corporation any net earnings with respect to the investments, and Surviving Corporation shall replace promptly any portion of the Payment Fund that the Paying Agent loses through the investments.

          (c) Surviving Corporation may cause the Paying Agent to pay over to Surviving Corporation any portion of the Payment Fund (including any earnings thereon) remaining 180 days after the Effective Time, and thereafter all former stockholders shall be entitled to look to Surviving Corporation (subject to abandoned property, escheat, and other similar Laws) as general creditors thereof with respect to the cash payable upon surrender of their certificates. Any Merger Consideration remaining unclaimed as of a date which is immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Entity shall, to the extent permitted by applicable Law, become the property of Surviving Corporation free and clear of any claims or interests of any Person previously entitled thereto.

          (d) Surviving Corporation shall pay all charges and expenses of the Paying Agent.

          (e) Notwithstanding anything in this Agreement to the contrary, Parent, Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable to any former holder of Target Shares or Target Options pursuant to this Agreement any amount as may be required to be deducted and withheld with respect to the making of such payment under applicable Tax Laws. To the extent that amounts are so properly withheld by Parent, Surviving Corporation or the Paying Agent, as the case may be, and are paid over to the appropriate Governmental Entity in accordance with applicable Law, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Target Shares or Target Options in respect of which such deduction and withholding was made by Parent, Surviving Corporation or the Paying Agent, as the case may be.

      2.7 Closing of Transfer Records . After the Effective Time, the stock transfer books of Target shall be closed and thereafter there shall be no further registration of transfers of Target Shares that were outstanding prior to the Effective Time.

ARTICLE III
Target’s Representations and Warranties

     Target represents and warrants to Parent and Acquisition Sub that the statements contained in this ARTICLE III are correct and complete, except as set forth in (i) the disclosure schedule accompanying this Agreement (the “ Disclosure Schedule ”) or (ii) specific disclosures of events, facts or circumstances which have already occurred or already exist and are set forth in reasonable detail in the Target SEC Documents, but only to the extent it is reasonably apparent that any such disclosure set forth in the Target SEC Documents would qualify the representations and warranties contained herein and only to the extent that such disclosure is not deemed to modify any statement contained in this ARTICLE III that includes a specific reference to the Disclosure Schedule (unless the Disclosure Schedule includes a reference to the specific location of the disclosure set forth in the Target SEC Documents), and excluding (A) any exhibits to the Target SEC Documents, (B) any items included therein that are incorporated by reference to other filings or documents, (C) any risk factor disclosures or other predictive or forward-looking disclosures contained therein and (D) any Target SEC Documents that are filed after the date of this Agreement. The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this ARTICLE III.

      3.1 Due Organization; Good Standing; Certificate of Incorporation and Bylaws . Each of Target and its Subsidiaries is duly organized, validly existing and in good standing (with respect to jurisdictions that recognize the concept of good standing) under the Laws of the jurisdiction in which it is organized, and has all the corporate power and authority required to carry on its business as it is now being conducted and to own and use the properties owned and used by it. Each of Target and its Subsidiaries is duly qualified or licensed to do business in each jurisdiction in which the nature of the business conducted by it or the character of the properties owned or used by it makes such qualification or license necessary. Target has delivered or made available to Parent and Acquisition Sub a complete and correct copy of Target’s certificate of incorporation, as amended to date (the “ Target Certificate of Incorporation ”), and Target’s amended and restated bylaws, as currently in effect (the “ Target Bylaws ”). The Target Certificate of Incorporation and the Target Bylaws are in full force and effect and no other Organizational Documents are applicable to or binding on Target. Target is not in violation of any provisions of the Target Certificate of Incorporation or the Target Bylaws.

      3.2 Capitalization, Etc .

          (a) The entire authorized capital stock of Target consists of 32,500,000 shares, divided into 30,000,000 shares of Target Common Stock and 2,500,000 shares of Target Preferred Stock. Of the Target Preferred Stock, 100,000 shares are designated as Target Series B Convertible Preferred Stock. As of June 25, 2009, there are (i) 10,455,821.72 shares of Target Common Stock issued and outstanding, (ii) 31,202 shares of Target Common Stock held in treasury, (iii) 100,000 shares of Target Series B Convertible Preferred Stock issued and outstanding, (iv) an aggregate of 404,809.07 shares of Target Common Stock issuable on the exercise of outstanding Target Options, with a weighted average exercise price of $10.58 per share, (v) an aggregate of 779,221 shares of Target Common Stock issuable on conversion of the Senior Notes, with a conversion price of $15.40 per share, (vi) an aggregate of 1,384,424 shares of Target Common Stock issuable on the exercise of Target Warrants, with a weighted average

exercise price of $14.76 per share and (vii) an aggregate of 100,000 shares of Target Common Stock issuable on conversion of the Target Series B Convertible Preferred Stock. All of the issued and outstanding Target Shares have been duly authorized and are validly issued, fully paid and non-assessable. Target has delivered or made available to Parent and Acquisition Sub a complete and correct copy of the Target Equity Plans, which cover the Target Options and restricted stock awards granted by Target that are outstanding as of the date of this Agreement, and the forms of all Target Option agreements and restricted stock award agreements evidencing such Target Options and stock awards.

          (b) All of the issued and outstanding shares of capital stock, membership interests or other similar equity interests, as applicable, of each of Target’s Subsidiaries are held of record or owned beneficially by one or more of Target and its Subsidiaries free and clear of all Liens, other than Permitted Liens, and have been duly authorized and are validly issued, fully paid and non-assessable. Section 3.2(b) of the Disclosure Schedule lists all Subsidiaries of Target, together with the jurisdiction of organization of each such Subsidiary. Except for the Subsidiaries listed in Section 3.2(b) of the Disclosure Schedule, neither Target nor any of its Subsidiaries owns or has any right to acquire, directly or indirectly, any outstanding capital stock, membership interests or other similar equity interests, as applicable, of any Entity.

          (c) Except as set forth in Section 3.2(a) of the Disclosure Schedule, (i) there are no outstanding or authorized (A) shares of capital stock or other voting securities of Target, except for Target Common Stock issued pursuant to the exercise of Target Options in accordance with their terms, (B) securities of Target convertible into or exchangeable for shares of capital stock or voting securities of Target or any of its Subsidiaries or (C) options, warrants, purchase rights, subscription rights, conversion rights, exchange rights or other contracts or commitments that could require Target or any of its Subsidiaries to issue, sell or otherwise cause to become outstanding any capital stock of Target or any of its Subsidiaries and (ii) there are no outstanding obligations of Target or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of such shares, securities, options, warrants, rights, contracts or commitments. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or similar rights with respect to Target or any of its Subsidiaries. No Target Shares are held by any Subsidiary of Target.

      3.3 Authority; Binding Nature of Agreement . Target has all the power and authority required to execute and deliver this Agreement, to perform its obligations under this Agreement and, subject to obtaining the Requisite Stockholder Approval, to consummate the Merger. The board of directors of Target has unanimously (other than with respect to one director, who recused himself from the vote) (a) determined that the Merger is fair to, and in the best interests of, Target’s stockholders, (b) authorized and approved the execution, delivery and performance of this Agreement by Target, (c) declared that this Agreement is advisable and (d) resolved to recommend the Agreement and Merger to Target’s stockholders. This Agreement has been duly executed and delivered by Target and constitutes the legal, valid and binding obligation of Target, enforceable against Target in accordance with its terms. The Requisite Stockholder Approval is the only vote of the holders of any class or series of Target’s capital stock necessary to adopt this Agreement or approve the Merger.

      3.4 Non-Contravention; Consents . Neither the execution and delivery of this Agreement by Target, nor the consummation of the transactions contemplated hereunder by Target, does or will (a) violate or conflict with any of the provisions of the Organizational Documents of Target or any of its Subsidiaries, (b) violate any Law to which Target or any of its Subsidiaries is subject or (c) (i) materially conflict with, (ii) result in a material breach or default (or cause an event that with or without giving of notice or lapse of time or both would become a material breach or default) under, (iii) result in the termination of, (iv) accelerate the performance required by, (v) result in a right of termination or acceleration under any Target Material Contract (or result in the imposition of any Lien on any of its material assets). Except as may be required by the Securities Exchange Act or the DGCL and except as set forth in Section 3.4 of the Disclosure Schedule, neither Target nor any of its Subsidiaries is required to give any notice to, make any filing with or obtain any authorization, consent or approval from any Person in order for the Parties to consummate the transactions contemplated by this Agreement.

      3.5 SEC Filings; Financial Statements .

          (a) Target has timely filed (after giving effect to any extended time for filing under Rule 12b-25 under the Securities Exchange Act) all forms, reports, statements, certifications and other documents (including all exhibits, amendments and supplements thereto) required to be filed with or furnished to the SEC since July 31, 2007 (collectively the “ Target SEC Documents ”). Each of the Target SEC Documents, as amended before the date of this Agreement, complied in all material respects with the applicable requirements of the Securities Act or the Securities Exchange Act, as in effect when filed. None of the Target SEC Documents contained, when filed, or if amended before the date of this Agreement, as of the date of such amendment, any untrue statement of a material fact or omitted to state a material fact required to be stated in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. True and correct copies of all Target SEC Documents filed before the date of this Agreement have been delivered to Parent or are publicly available in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database of the SEC. None of Target’s Subsidiaries is required to file, or files, any form, report or other document with the SEC.

          (b) Target is in compliance with, and has complied, in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 and the related rules and regulations promulgated under such Act or the Securities Exchange Act. The management of Target has (i) implemented disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act) to ensure that material information relating to Target and its Subsidiaries is made known to the management of Target by others within those Entities and (ii) disclosed, based on its most recent evaluation, to Target’s outside auditors and the audit committee of the board of directors of Target (A) all significant deficiencies and material weaknesses in the design or operation of internal controls (as defined in Rule 13a-15(f) of the Securities Exchange Act) that are reasonably likely to materially affect Target’s ability to record, process summarize and report financial data and (B) any fraud, whether or not material, that involves management or other employees who, in each case, have a significant role in Target’s internal controls.

          (c) Since January 31, 2009, none of Target, Target’s board of directors of Target nor any committee of such board has received any oral or written notification of any (i) “significant deficiency” in the internal controls over financial reporting of Target, (ii) “material weakness” in the internal controls over financial reporting of Target or (iii) fraud, whether or not material, that involves management or other employees of Target or any of its Subsidiaries who have a significant role in the internal controls over financial reporting.

          (d) Target has filed quarterly reports on Form 10-Q for the fiscal quarters ended as of January 31, 2009 (the “ Most Recent Fiscal Quarter End ”) and October 31, 2008 and an annual report on Form 10-K for the fiscal year ended July 31, 2008. The financial statements (including related notes and schedules) included in or incorporated by reference into these Target SEC Documents have been prepared in accordance with GAAP applied on a consistent basis (except as may be disclosed in the notes to such financial statements) throughout the periods and at the dates covered thereby and fairly present the financial position of Target and its Subsidiaries as of the respective dates thereof and the results of operations, stockholders’ equity and cash flows of Target and its Subsidiaries for the periods covered thereby; provided, however, that the financial statements included in the quarterly reports are subject to normal year-end adjustments.

          (e) Neither Target nor any of its Subsidiaries has any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes, except for (i) liabilities set forth on the face of the balance sheet as of the Most Recent Fiscal Quarter End (rather than in any notes thereto) and (ii) liabilities that have arisen after the Most Recent Fiscal Quarter End in the Ordinary Course of Business (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement or violation of a Law).

      3.6 Absence of Certain Changes .

          (a) Since the Most Recent Fiscal Quarter End, (i) there has not been any Material Adverse Change, (ii) Target and its Subsidiaries have conducted their business in the Ordinary Course of Business and (iii) neither Target nor any of its Subsidiaries has (A) suffered any material loss, damage or destruction to any of its assets or (B) except as expressly contemplated by this Agreement, taken any action that, if taken after the date hereof, would have constituted a breach of Section 5.5(b).

          (b) Since the Most Recent Fiscal Quarter End, Target has maintained a positive Net Working Capital balance of at least $1,000,000 and has maintained a positive Available Free Cash balance of at least $1,000,000. The Parties agree that Net Working Capital, Current Assets, Current Liabilities and Available Free Cash shall be calculated using accounting principles, methodologies and practices consistent with GAAP as applied on a consistent basis with the principles, methodologies and practices used with respect to the Most Recent Balance Sheet. For purposes of this Agreement, “ Net Working Capital ” means the aggregate amount of Current Assets, minus the aggregate amount of Current Liabilities. For purposes of this Agreement, “ Current Assets ” means all current assets of Target and its Subsidiaries, including trade receivables (net of allowances), inventories (net), prepaid expenses, other current assets,

cash and cash equivalents. For purposes of this Agreement, “ Current Liabilities ” means all current liabilities of Target and its Subsidiaries, including accounts payable and accrued liabilities, but excluding all other current liabilities (including deferred gain on sale leaseback, deferred revenue, short-term borrowings, current portion of long-term debt (including the Senior Notes) and current liabilities of discontinued operations). For purposes of this Agreement, “ Available Free Cash ” means the aggregate amount of all cash and cash equivalents of Target and its Subsidiaries.

      3.7 Legal Proceedings; Orders . There is no Legal Proceeding pending or, to the Knowledge of Target, threatened against Target or any of its Subsidiaries or any of its or their respective properties or rights or any of its or their respective officers or directors in their capacity as such, nor any internal investigations (other than investigations in the ordinary course of Target’s or any of its Subsidiaries’ compliance programs) being conducted by Target or any of its Subsidiaries nor have any acts of alleged misconduct by Target or any of its Subsidiaries been reported to Target or any of its Subsidiaries. Neither Target nor any of its Subsidiaries, nor any of its or their respective properties is subject to any order, judgment, injunction, ruling, charge or decree related to the conduct of the respective businesses of Target and its Subsidiaries. To the Knowledge of Target, no Person is challenging the right of Target or any Subsidiary to design, manufacture, license, offer or sell any Products.

      3.8 Brokers; Schedule of Fees and Expenses . Neither Target nor any of its Subsidiaries has any liability or obligation to pay any brokerage, finder’s or other similar fee or commission to any broker, finder, agent or investment banker with respect to the transactions contemplated by this Agreement. A good faith estimate, as the date of this Agreement, of all third party fees and expenses, including any fees that may be payable upon the consummation of the transactions contemplated by this Agreement, such as success fees and the like, of any accountant, broker, financial advisor, consultant, legal counsel or other person retained by Target in connection with this Agreement or the transactions contemplated hereby incurred or to be incurred or expected to be incurred by Target or any of its Subsidiaries with respect to this Agreement and the transactions contemplated by this Agreement is set forth on Section 3.8 of the Disclosure Schedule.

      3.9 Intellectual Property .

          (a) Each product developed, manufactured, marketed, distributed, performed, licensed, sold, rendered, provided, offered, performed or planned in writing by Target or any of its Subsidiaries (“ Product ”) since January 1, 2005 through Closing is set forth in Section 3.9(a) of the Disclosure Schedule.

          (b) All Target Intellectual Property owned in whole or in part at any time by Target, and to the Knowledge of Target all other Target Intellectual Property, that is or at any time has been subject to an application or registration for protection under the Laws of any jurisdiction throughout the world (whether now pending, existing, abandoned or expired) are set forth in Section 3.9(b) of the Disclosure Schedule, specifying as to all such Target Intellectual Property:

               (i) the type of the Target Intellectual Property;

               (ii) the owner of the Target Intellectual Property (and, in the case that Target or any of its Subsidiaries is not the owner, the nature of the rights held by Target or its Subsidiaries, as applicable);

               (iii) the jurisdictions by or in which such Target Intellectual Property has been issued or registered or in which an application for such issuance or registration has been filed, including the respective registration or application numbers and dates of issuance, registration or filing; and

               (iv) each Product to which the Target Intellectual Property relates.

     Other than the Target Intellectual Property set forth on Section 3.9(b) of the Disclosure Schedule, there are no other Intellectual Property material to or necessary for the conduct of the business of Target or any of its Subsidiaries as currently conducted and as proposed to be conducted that is or at any time has been subject to an application or registration for protection under the laws of any jurisdiction throughout the world (whether now pending, existing, abandoned or expired).

          (c) In Section 3.9(c) of the Disclosure Schedule, Target has accurately identified and described each filing, payment, and action that must be made or taken on or before the date that is 120 days after the date of this Agreement in order to maintain any applications and registrations for all Target Intellectual Property owned by Target or any of its Subsidiaries. Target has provided to Parent complete and accurate copies of all applications, registrations, correspondence and other material documents filed, or to be filed, with the applicable Governmental Entity related to the Target Intellectual Property during such 120-day period. All registrations and applications for Target Intellectual Property owned by Target or any of its Subsidiaries are registered in the name of Target or one of its Subsidiaries, and Target or one of its Subsidiaries is in possession of all applications, registrations (and certificates of registration and letters patent), renewals, reissues, extensions and all other instruments evidencing ownership of the Target Intellectual Property.

          (d) Target has provided Parent with accurate and complete copies of all License-In Contracts, all of which are set forth on Section 3.9(d) of the Disclosure Schedule. For each License-In Contract, Section 3.9(d) of the Disclosure Schedule further specifies the parties to, and the nature of the rights held by Target or any of its Subsidiaries in the Target Intellectual Property subject to, the License-In Contract. Each License-In Contract is binding against all parties to such License-In Contract, fully exercisable and enforceable by Target or its applicable Subsidiary, and in full force and effect. The License-In Contracts provide Target or its applicable Subsidiary with all rights, licenses, authorizations and other permissions to any Intellectual Property owned by any Person other than Target or its applicable Subsidiary necessary for the conduct the business of Target and its Subsidiaries in any manner, as currently conducted or as proposed to be conducted. The rights acquired under each License-In Contract will be fully exercisable and enforceable by Parent on and after the Closing to the same extent as by Target and its Subsidiaries prior to the Closing. Neither Target nor any of its Subsidiaries have any obligation to compensate or account to any Person an amount in excess of $10,000 for the use of any Intellectual Property.

          (e) Target has provided Parent with accurate and complete copies of all License-Out Contracts, all of which are set forth on Section 3.9(e) of the Disclosure Schedule. For each License-Out Contract, Section 3.9(e) of the Disclosure Schedule further specifies the parties to, and the nature of the rights held by Target and its Subsidiaries in the Target Intellectual Property subject to, the License-Out Contract. Each License-Out Contract is binding against all parties to such License-Out Contract, fully exercisable and enforceable by Target or its applicable Subsidiary, and in full force and effect. Each License-Out Contract will be fully exercisable and enforceable by Parent on and after the Closing to the same extent as by Target or its applicable Subsidiary before the Closing.

          (f) Except for the Licensed-In IP subject to a License-In Contract set forth on Section 3.9(d) of the Disclosure Schedule, (i) Target or one of its Subsidiaries is the sole and exclusive owner of all right, title and interest in and to the Target Intellectual Property free and clear of all Liens or other rights, licenses, equities or claims; (ii) all Target Intellectual Property (or portion thereof) are valid, fully enforceable, and in full force and effect, and following Closing will remain, to the Knowledge of Target, valid, fully enforceable, and in full force and effect; and (iii) the Surviving Corporation will be the sole and exclusive owner free and clear of all Liens or other rights, licenses, equities or claims, of all right, title and interest in and to all of the Target Intellectual Property (or portion thereof) on and after the Closing, to the Knowledge of Target, without seeking the authorization, consent or approval of any Person and without payments to any Person other than as set forth in this Agreement.

          (g) (i) Neither Target nor any of its Subsidiaries has received any notice of any claim or allegation of infringement, misappropriation or other violation from any Person with respect to the Target Intellectual Property; (ii) the Target Intellectual Property and the operation of the business of Target and its Subsidiaries as currently conducted and as proposed to be conducted are not currently infringing on, in conflict with, misappropriating, or otherwise violating any Intellectual Property of any Person and, to the Knowledge of Target, are not subject to any pending or threatened litigation or other adverse claim of infringement or misappropriation by any Person; (iii) except for as listed in Section 3.9(g) of the Disclosure Schedule, within the last 10 years, neither Target nor any of its Subsidiaries has threatened, initiated or contemplated any claim or allegation against any Person alleging that the Person infringes, misappropriates or otherwise violates any Target Intellectual Property; (iv) to the Knowledge of Target, no Person has infringed or otherwise misappropriated or is now infringing or misappropriating any Target Intellectual Property; (v) to the Knowledge of Target, all of the Target Intellectual Property is valid, subsisting and enforceable on the Closing; (vi) there have been no threats received by Target or any of its Subsidiaries alleging that any Target Intellectual Property is invalid or unenforceable; and (vii) to the Knowledge of Target, there has been no prior use of any Target Intellectual Property (or portion thereof) by any Person that would confer upon such Person superior rights in such Target Intellectual Property (or portion thereof). Each of Target and its Subsidiaries has taken reasonable steps to preserve and maintain records relating to the Target Intellectual Property.

          (h) No interference, opposition, reissue, reexamination or other proceeding of any nature is or has been pending or threatened, in which the scope, validity or enforceability of any Target Intellectual Property is being, has been or could reasonably be expected to be contested or challenged.

          (i) Each of Target and its Subsidiaries has used best efforts to protect and preserve the security, confidentiality and value of the Target Intellectual Property. Without limiting the foregoing, each of Target and its Subsidiaries has at all times enforced a policy requiring each of its employees, consultants and contractors, and any other Person involved in the creation or development of any Target Intellectual Property, to enter into a valid and enforceable non-disclosure and invention assignment agreement with Target or its applicable Subsidiary substantially in Target’s standard form, a copy of which is included as Section 3.9(i) of the Disclosure Schedule (“ Target Non-Disclosure and Invention Assignment Contract ”). All current and former employees, consultants and contractors of Target or any of its Subsidiaries, and any other Person involved in the creation or development of any Target Intellectual Property (or portion thereof), have executed a valid and enforceable Target Non-Disclosure and Invention Assignment Contract and a copy of each such Target Non-Disclosure and Invention Assignment Contract has been delivered to Parent. No Person other than Target and its Subsidiaries has any claim, right (whether or not currently exercisable) or interest to or in any Target Intellectual Property (or portion thereof). There has been no misappropriation of confidential information of Target or any of its Subsidiaries.

          (j) Neither Target nor any of its Subsidiaries is utilizing in its business, nor will Surviving Corporation be required to utilize in the business of the Surviving Corporation after Closing: (i) any inventions of any employees of Target or any of its Subsidiaries made, or any Trade Secrets (including confidential information) of any Person to which such employees were exposed, prior to their employment by Target or any of its Subsidiaries; and (ii) any Trade Secrets (including confidential information) of another Person to which any independent contractors or consultants of Target or any of its Subsidiaries have been exposed.

          (k) None of the Target Software: (i) contains, to the Knowledge of Target, any bug, defect or error (including any bug, defect or error relating to or resulting from the display, manipulation, processing, storage, transmission or use of date data) that materially and adversely affects the use, functionality or performance of such Target Software or any product or system containing or used in conjunction with such Target Software; or (ii) fails to comply with any applicable warranty or other contractual commitment relating to the use, functionality or performance of the Target Software or any product or system containing or used in conjunction with such Target Software. No Target Software is, in whole or in part, subject to the provisions of any open source, quasi-open source or any other Contract obligating Target or any of its Subsidiaries to make source code available to third parties or to publish source code under any circumstances. No source code for any Target Software has been delivered, licensed or made available to any escrow agent or other Person who is not, as of the date of this Agreement an employee of Target or any of its Subsidiaries. Neither Target nor any of its Subsidiaries has any duty or obligation (whether present, contingent or otherwise) to deliver, license or make available the source code for any Target Software to any escrow agent or other Person who is not, as of the date of this Agreement, an employee of Target or one of its Subsidiaries.

          (l) Neither Target nor any of its Subsidiaries has made any submission or suggestion to, or otherwise participated in, and is not subject to any Contract with, any standards bodies or other entities that could obligate Target or any of its Subsidiaries to grant licenses or rights with respect to or otherwise impair its control of Target Intellectual Property. No funding,

facilities or personnel of any Governmental Entity or educational institution were used, directly or indirectly, to develop or create, in whole or in part, any of the Target Intellectual Property.

          (m) Target and its Subsidiaries exercised reasonable diligence with respect to the filing, prosecution and maintenance of all Intellectual Property owned or exclusively licensed by Target or any of its Subsidiaries. For each patent or patent application owned by Target or any of its Subsidiaries, (i) all inventors have been properly identified and named; (ii) all inventors have executed an assignment of rights to Target or its applicable Subsidiary and, at Closing, Target or its applicable Subsidiary shall be the sole assignee; and (iii) to the Knowledge of Target, the United States Patent and Trademark Office (the “ USPTO ”) has been provided full disclosure, including prior art (in accordance with 37 C.F.R. § 1.56) and best mode at the time of filing (in accordance with 35 U.S.C. § 112). For each patent or patent application licensed by Target or any of its Subsidiaries, (1) to the Knowledge of Target, all inventors have been properly identified and named; (2) to the Knowledge of Target, the USPTO has been provided full disclosure, including prior art (in accordance with 37 C.F.R. § 1.56) and best mode at the time of filing (in accordance with 35 U.S.C. § 112); and (3) any royalties due to third parties have been fully set forth in Section 3.9(m) of the Disclosure Schedule.

          (n) Any filing, registration, issuance, maintenance and renewal fees due in connection with the Target Intellectual Property (or portion thereof) have been paid on or before the final deadline for paying such fees and all documents, certificates and other material necessary to maintain such Target Intellectual Property (or portion thereof) have been filed on or before the final deadline for paying such fee with the relevant Governmental Entity. Target and its Subsidiaries have complied with any and all obligations pertaining to listing any relevant Patents included in the Target Intellectual Property in the FDA Orange Book and have also complied with any and all obligations under the Bayh-Dole Act. Except as set forth in Section 3.9(n) of the Disclosure Schedule, no Person has submitted and, to the Knowledge of Target, no Person has indicated any plan to submit, an Abbreviated New Drug Application that includes a certification as defined in 21 U.S.C. 355(j)(2)(A)(vii)(IV) citing any Patent listed in the FDA Orange Book for any Product.

      3.10 Title to Assets; Real Property .

          (a) One or more of Target and its Subsidiaries has good title to, or a valid leasehold interest in, the properties and assets used by them, located on their premises or reflected on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of any Liens, other than Permitted Liens, except for property and assets disposed of in the Ordinary Course of Business since the Most Recent Fiscal Quarter End. One or more of Target and its Subsidiaries own or lease all buildings, machinery, equipment and other tangible assets necessary for the conduct of their business as presently conducted.

          (b) Section 3.10(b) of the Disclosure Schedule contains a complete and accurate list of all of the existing leases, subleases, licenses or other agreements (collectively, the “ Real Property Leases ”) under which Target or any of its Subsidiaries uses or occupies or has the right to use or occupy, now or in the future, any real property (the “Leased Real Property ”). Target has delivered or otherwise made available to Parent true, correct and complete copies of all Real Property Leases (including all modifications and side agreements in connection

therewith). Except as set forth in the Real Property Leases, neither Target nor any of its Subsidiaries have transferred or assigned any interest in any Real Property Lease, nor have they subleased or otherwise granted rights of use or occupancy of any of the premises described therein to any other Person. Section 3.10(b) of the Disclosure Schedule contains a complete and accurate list of all of the real property owned in fee by Target or its Subsidiaries (the “ Owned Real Property ”). Neither Target nor any of its Subsidiaries have subleased or otherwise granted rights of use or occupancy to any other Person of any Owned Real Property. There are no outstanding agreements, options, rights of first offer or rights of first refusal on the part of any Person to purchase any Owned Real Property. The Leased Real Property, the Owned Real Property and the personal property owned or leased by Target or any of its Subsidiaries are in good operating condition and repair and free from any material defects, reasonable wear and tear excepted, and are suitable for the uses for which they are being used in all material respects.

      3.11 Contracts . Section 3.11 of the Disclosure Schedule contains a complete and accurate list of all Contracts to which Target or any of its Subsidiaries is a party or by which Target, any of its Subsidiaries or any of their respective assets is bound that (a) is a “material contract” (as defined in Item 601(b)(10) of Regulation S-K of the SEC), (b) restricts or limits in any way the ability of Target or any of its Subsidiaries to conduct business, including to compete in any geographic area or line of business, (c) is a partnership, joint venture, product development, research and development or other agreement involving an allocation or sharing of profits, losses, costs or liabilities, (d) is a Contract to allocate, share or otherwise indemnify for Taxes, (e) involves aggregate payments of more than $100,000 annually, (f) is between one or more of Target and its Subsidiaries and any director or officer of Target or any Person beneficially owning five percent or more of any class of the outstanding Target Shares, (g) is an employment or consulting Contract, (h) provides for benefits (including severance pay, accelerated vesting, bonuses and relocation expenses) to be provided to any employee, director or officer upon or in connection with a change in control of Target or any of its Subsidiaries, (i) provides for indemnification or a guaranty by Target or any of its Subsidiaries to any Person, (j) is a loan or credit agreement, indenture, mortgage, note, guaranty or other Contract evidencing indebtedness for money borrowed, (k) grants “most favored nation or customer” status that, following the Merger, would apply to Parent or its Affiliates (including Target and Target’s Subsidiaries), (l) prohibits or limits the right of Target or any of its Subsidiaries (or, after the Effective Time, Parent or its Affiliates) to make, develop, sell or distribute any Products or use, transfer, license, distribute or enforce any of the Target Intellectual Property, (m) would prevent or impair Target’s ability to consummate the Merger, (n) could require the disposition of any material assets or line of business of Target or any of its Subsidiaries (or, after the Effective Time, Parent or its Affiliates), (o) contains a put, call or similar right pursuant to which Target or any of its Subsidiaries (or, after the Effective Time, Parent or its Affiliates) could be required to purchase or sell, as applicable, any equity interests of any Person, (p) is a Real Property Lease, (q) is a Contract the term of which exceeds one year and is not terminable by Target or any of its Subsidiaries, as applicable, on notice of 60 days or less, (r) relates to the acquisition, sale or disposition of any material business unit or product line of Target or any of its Subsidiaries, (s) relates to the creation of a Lien on any asset of Target or any of its Subsidiaries, (t) is a commercial Contract with any Governmental Entity, (u) is a non-disclosure, confidentiality, standstill, non-solicitation, non-hire or similar agreement or (v) was not negotiated and entered into on an arm’s-length basis. The foregoing Contracts, together with the License-In Contracts, the License-Out Contracts and the Target Non-Disclosure and Invention Assignment

Agreements, are collectively referred to herein as “ Target Material Contracts .” Neither Target nor any of its Subsidiaries is, or has received any notice or has any Knowledge that any other party is, in breach or default in any respect under any Target Material Contract, and there has not occurred any event that with the lapse of time, the giving of notice or both would constitute such breach or default. Each Target Material Contract is valid, binding and enforceable in accordance with its terms and is in full force and effect with respect to one or more of Target and its Subsidiaries, as applicable. Target has delivered or otherwise made available to Parent true, correct and complete copies (or in the case of oral Contracts, a true and correct written summary of the material terms) of each Target Material Contract, together with all amendments and supplements thereto.

      3.12 Compliance with Laws . Without limiting the generality of any other provision herein, each of Target and its Subsidiaries is currently in compliance, and since January 1, 2005 has complied, in all material respects with all Laws and Governmental Authorizations applicable to their business or respective assets, and, since January 1, 2005, no Legal Proceeding has been filed or commenced and no complaint, claim, demand or notice has been made against Target or any of its Subsidiaries alleging any failure to so comply.

      3.13 Tax Matters . Notwithstanding any information set forth in any Target SEC Document:

          (a) All Tax Returns required to have been filed by Target and its Subsidiaries (i) have been filed on or before the applicable due date (as such due date may have been extended), and (ii) have been prepared in compliance with applicable Laws. All Taxes due and owing by Target and its Subsidiaries (whether or not shown on any Tax Return) have been paid. Target is not and has never been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code.

          (b) The Most Recent Balance Sheet fully reflects all a