AGREEMENT AND PLAN OF MERGER

Exhibit 10.1

AGREEMENT AND PLAN OF MERGER

by and among

AMBERWAVE SYSTEMS CORPORATION,

as Parent,

AONEX ACQUISITION CORPORATION,

as Merger Sub,

AONEX TECHNOLOGIES, INC.

as the Company

and

THE STOCKHOLDERS WHO EXECUTE THE SIGNATURE PAGES HERETO,

as the Stockholders

May 5, 2008

TABLE OF CONTENTS

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AGREEMENT AND PLAN OF MERGER

This Agreement and Plan of Merger (the “ Agreement ”) is made and entered as of May 5, 2008, by and among AmberWave Systems Corporation, a Delaware corporation (“ Parent ”), Aonex Acquisition Corporation, a California corporation (the “ Merger Sub ”), Aonex Technologies, Inc., a California corporation (the “ Company ”) and Arrowhead Research Corporation, a California corporation (the “ Preferred Holder ”).

WHEREAS, the Preferred Holder is the holder of the Company’s Series A Preferred Stock, par value $0.001 per share (the “ Series A Preferred Stock ”) and the Company’s Series B Preferred Stock, par value $0.001 per share (the “ Series B Preferred Stock ” and, collectively, with the Series A Preferred Stock, the “ Preferred Stock ”), and the other Stockholders (the “ Common Holders, ” and together with the Preferred Holder, the “ Stockholders ”) are holders of the Company’s Common Stock, par value $0.001 per share (the “ Common Stock ”);

WHEREAS, Merger Sub is a newly formed wholly-owned subsidiary of Parent that was formed for the purpose of acquiring the Company’s business by means of the merger of Merger Sub with and into the Company (the “ Merger ”) in accordance with the applicable provisions of the California General Corporation Law (the “ CGCL ”), and upon the terms and subject to the conditions set forth herein;

WHEREAS, the Board of Directors of Parent has determined that the Merger is desirable to, and in the best interests of, Parent and its stockholders, and has approved this Agreement, the Merger and the other transactions contemplated by this Agreement;

WHEREAS, the Board of Directors of the Company has determined that the Merger is desirable to, and in the best interests of, the Company and its shareholders, has approved this Agreement, the Merger and the other transactions contemplated by this Agreement and has approved and recommended that the shareholders of the Company adopt this Agreement and approve the Merger; and

WHEREAS, the requisite Stockholders of the Company have approved the Merger and have approved and adopted this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. The Merger .

1.1 The Merger . Upon the terms and subject to the conditions of this Agreement, and in accordance with the applicable provisions of the CGCL, at the Effective Time (as defined below), Merger Sub shall be merged with and into the Company. Following the Merger, the separate corporate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation (sometimes hereinafter referred to as the “ Surviving Corporation ”), and shall continue to be governed by the laws of the State of California. The parties hereby intend that the Merger be treated as a taxable transaction for state and federal income tax purposes and shall report the transaction in a manner consistent therewith.

1.2 Effective Time. As promptly as practicable after the satisfaction or waiver of the conditions set forth in Section 1.10 hereof, the Company and Merger Sub shall cause to be filed an Agreement of Merger (the “ Agreement of Merger ”) with the Secretary of State of the State of California, in such form as required by, and executed in accordance with, the relevant provisions of the CGCL, and the parties shall take such other and further actions and make all other filings or recordings as may be

required by applicable law to make the Merger effective. The date and time the Merger becomes effective in accordance with applicable law is referred to herein as the “ Effective Time .”

1.3 Effects of the Merger. The Merger shall have the effects set forth herein, in the Agreement of Merger and in the CGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.

1.4 Articles of Incorporation and By-Laws of the Surviving Corporation. At the Effective Time, the articles of incorporation of the Company shall be amended to be identical to the articles of incorporation of Merger Sub attached hereto as Exhibit A (other than the name of the corporation, which shall be Aonex Technologies, Inc.), and such articles of incorporation, as so amended, shall be the articles of incorporation of the Surviving Corporation until thereafter amended as provided therein or in accordance with applicable law. At the Effective Time, the by-laws of the Company shall be amended to be identical to the by-laws of Merger Sub attached hereto as Exhibit B , and such by-laws, as so amended, shall be the by-laws of the Surviving Corporation until thereafter amended in accordance with the provisions thereof and applicable law.

1.5 Directors and Officers. The directors of Merger Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal in accordance with applicable law and the Surviving Corporation’s Articles of Incorporation and By-Laws. The officers of Merger Sub immediately prior to the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

1.6 Merger Consideration; Effects on Capital Stock of the Company and Merger Sub.

(a) Consideration to Stockholders . In connection with the Merger, the Stockholders shall have the right to receive from Parent the amounts set forth below (the “ Merger Consideration ”):

(i) At the Closing, Parent shall pay to (A) the Stockholders an amount equal to $450,000, minus (1) the Company Transaction Expenses, and (2) $15,625.31 (which is the Trade Payable Deficit set forth on Section 2.5.1 of the Disclosure Schedule ), and (B) the payees of the Company Transaction Expenses, an amount equal to such payee’s portion of the Company Transaction Expenses;

(ii) Within five (5) business days of Parent’s completion of a Successful Laminate Substrate Production at its facilities, Parent shall pay to the Stockholders an amount equal to $500,000;

(iii) For each agreement that Parent enters into with any customer during the twenty-four (24) month period following the Closing Date (each a “ Customer Agreement ”), Parent shall pay to the Stockholders an amount equal to $500,000; provided, that (A) Parent’s aggregate payments under this Section 1.6(a)(iii) shall not exceed $2,000,000, (B) the Customer Agreement includes provisions pursuant to which Parent provides to a customer (1) Layer Transfer Services of at least 1,000 two-inch equivalent wafers per month for at least six (6) consecutive months, (2) Laminate Substrates at a volume of at least 500 two-inch substrate equivalents per month for at least six (6) consecutive months, or (3) a license to Parent’s intellectual property in order to perform or have performed Layer Transfer Services, provided

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such license results in total payments to Parent of at least $1,000,000 during the first two years that such license is in effect, (C) Parent shall use its good faith efforts to enter into the Customer Agreements described in this Section 1.6(a)(iii) as soon as reasonably practicable and consistent with the minimum levels described in this subsection; and (D) Parent will notify the Stockholders in writing promptly upon execution of any Customer Agreement;

(iv) During the period beginning on the Closing Date and ending forty-two (42) months following the payment pursuant to Section 1.6(a)(ii) associated with Successful Laminate Substrate Production, Parent shall pay to the Stockholders, on a quarterly basis, (A) twenty percent (20%) of the Cash Gross Margin Contribution received by Parent or its subsidiaries from its customers during such period for the sale of Laminate Substrates, Layer Transfer Services or devices employing Company’s Intellectual Property Assets and (B) thirty-five percent (35%) of the revenues (including, but not limited to, up front fees and royalties) from the licensing or sale of the Company’s Intellectual Property Assets received by Parent from its customers during such period; provided, that (1) Parent’s aggregate payments under this Section 1.6(a)(iv) shall not exceed $7,000,000, (2) amounts due and payable pursuant to this Section 1.6(a)(iv) shall be determined within twenty (20) business days of the end of each of Parent’s fiscal quarters and paid within ten (10) business days thereafter, (3) Parent shall have the right to adjust any payments made based upon the results of Parent’s annual audit, and (4) the Preferred Holder shall be entitled to a reasonable audit right to assess the accuracy of Parent’s payments; provided that such audit shall take place following Parent’s annual audit and the Preferred Holder shall only be entitled to conduct one audit in any twelve (12) month period (provided, however, that if such audit reveals an underpayment of (a) five percent (5%) or more, Parent shall pay the parties’ reasonable costs associated with such audit, or (b) less than five percent (5%), the Preferred Holder shall pay the parties’ reasonable costs associated with such audit); and

(v) During the ten (10) year period beginning on the Closing Date, royalty payments (the “ Royalty Payments ”), payable on a quarterly basis, equal to one-half of one percent (0.5%) of the revenues associated with the sale of any product incorporating the Company’s Intellectual Property Assets for solar applications or the license of Company’s Intellectual Property Assets for solar applications, provided that (1) amounts due and payable pursuant to this Section 1.6(a)(v) shall be determined within twenty (20) business days of the end of each of Parent’s fiscal quarters and paid within ten (10) business days thereafter, (2) Parent shall have the right to adjust any payments made based upon the results of Parent’s annual audit, and (3) the Stockholders shall be entitled to a reasonable audit right to assess the accuracy of Parent’s payments; provided that such audit shall take place following Parent’s annual audit and the Stockholders shall only be entitled to conduct one audit in any twelve (12) month period (provided, however, that if such audit reveals an underpayment of (a) five percent (5%) or more, Parent shall pay the parties’ reasonable costs associated with such audit, or (b) less than five percent (5%), the Preferred Holder shall pay the parties’ reasonable costs associated with such audit).

Any payments made pursuant to subsections (a)(ii)-(v) above may hereinafter be referred to as “ Earnout Payments .” The Earnout Payments shall be made in accordance with the liquidation preferences set forth in the articles of incorporation of the Company, including the Certificate of Determination with respect to the Series A Preferred Stock and the Certificate of Determination with respect to the Series B Preferred Stock. Any payments made by Parent in accordance with this Section 1.6 shall be made as follows: (A) first, to the Preferred Holder with respect to the Preferred Holder’s shares of Series B Preferred Stock as of immediately prior to the Effective Time until such time as the Preferred Holder has received an amount equal to $1,298,000; (B) second, to the Preferred Holder with

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respect to the Preferred Holder’s shares of Series A Preferred Stock as of immediately prior to the Effective Time until such time as the Preferred Holder has received an amount equal to $5,000,000 and (C) third, to the Preferred Holder and the Common Stock Holders on a Pro Rata Basis; provided, however, that notwithstanding anything contained in this Agreement to the contrary, no payments shall be made by Parent to any Stockholder unless and until Parent receives from such Stockholder an executed Certificate of Acknowledgement with respect to each such payment in substantially the form attached hereto as Exhibit C (the “ Certificate of Acknowledgement ”).

Notwithstanding the foregoing, in no event shall the aggregate payments made by Parent to the Stockholders pursuant to Sections 1.6(a)(i)-(iv) exceed $7,950,000. For the avoidance of doubt, any Royalty Payments made by Parent to the Stockholders shall not be subject to the $7,950,000 cap.

(b) Acceleration of Payment of Merger Consideration .

(i) Upon the occurrence of a Company Sale Event, any acquirer of, or successor to, Parent shall assume all remaining obligations of Parent to make payments to the Stockholders under Sections 1.6(a)(i)-(v) (for the avoidance of doubt, an exclusive licensee shall not be considered an acquirer or successor and Parent shall continue to be obligated to make payments to the Stockholders under Sections 1.6(a)(i)-(v)); provided , however , that if such Company Sale Event results in aggregate proceeds payable to Parent or its stockholders in excess of $10,000,000, Parent shall, upon the closing of such Company Sale Event, pay to the Stockholders an amount equal to the sum of (A) the difference between (i) $7,950,000, less (ii) the aggregate amount of all payments made by Parent to the Stockholders or the payees of the Company Transaction Expenses pursuant to Sections 1.6(a)(i)-(v) plus (B) one percent (1.0%) of the aggregate proceeds payable to Parent in excess of $10,000,000 (the “ Accelerated Payment Amount ”), and neither Parent nor an acquirer or successor or assign of Parent shall thereafter have any further obligations to make any payments to the Stockholders pursuant to this Agreement.

(ii) At any time after the Closing Date, Parent may, in its sole discretion, pay to the Stockholders the Accelerated Payment Amount, and Parent shall thereafter have no further obligations to make any payments to the Stockholders pursuant to Sections 1.6(a)(i)-(iv).

(c) Imputed Interest . Parent and the Preferred Holder acknowledge that a portion of the payments made under Section 1.6(a) and 1.6(b) shall be reportable as imputed interest under Section 483 or 1274 of the Code.

(d) Conversion of Shares . At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub, or any security holder of the Company or Merger Sub:

(i) Each share of Common Stock and Preferred Stock that is issued and outstanding immediately prior to the Effective Time shall no longer be outstanding and shall automatically be canceled and shall cease to exist, and each holder of a certificate or certificates representing any such shares shall cease to have any rights with respect thereto, except that the Stockholders shall have the right to receive the Merger Consideration upon surrender of such certificate or certificates in accordance with Section 1.10 hereof, without interest; and

(ii) Each share of common stock, $0.01 par value per share, of Merger Sub (the “ Merger Sub Common Stock ”) issued and outstanding immediately prior to the Effective Time shall be converted into one (1) validly issued, fully paid and non-assessable share of

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common stock, $0.01 par value per share, of the Surviving Corporation (the “ Surviving Corporation Common Stock ”), and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. Each certificate that, immediately prior to the Effective Time, represented issued and outstanding shares of Merger Sub Common Stock shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent the shares of the Surviving Corporation capital stock into which such shares have been converted pursuant to the terms hereof; provided, however, that the record holder thereof shall receive, upon surrender of any such certificate, a certificate representing the shares of Surviving Corporation Common Stock into which the shares of Merger Sub Common Stock formerly represented thereby shall have been converted pursuant to the terms hereof.

1.7 Dissenting Shares .

(a) Notwithstanding any provision of this Agreement to the contrary, any shares of capital stock of the Company held by a holder who has demanded and perfected appraisal rights for such shares in accordance with the CGCL and who, as of the Effective Time, has not effectively withdrawn or lost such appraisal rights (“ Dissenting Shares ”) shall not be converted into or represent a right to receive the Merger Consideration pursuant to Section 1.6, but the holder thereof shall only be entitled to such rights as are granted by the CGCL.

(b) Notwithstanding the provisions of subsection (a) above, if any holder of shares of the capital stock of the Company who demands appraisal rights for such shares under the CGCL shall effectively withdraw or lose (through failure to perfect or otherwise) the right to appraisal rights, then, as of the later of (i) the Effective Time or (ii) the occurrence of such event, such holder’s shares shall automatically be converted into and represent only the right to receive the Merger Consideration as provided in Section 1.6, without interest thereon, upon surrender of the certificate representing such shares.

(c) The Company shall give Parent (i) prompt notice of its receipt of any written demands for dissenters’ rights for any shares of capital stock of the Company, withdrawals of such demands, and any other instruments relating to the Merger served pursuant to the CGCL and received by the Company and (ii) the opportunity to participate in all negotiations and proceedings with respect to demands for appraisal rights under the CGCL. The Company shall not, except with the prior written consent of Parent or as may be required under applicable law, voluntarily make any payment with respect to any demands for appraisal rights for the capital stock of the Company or offer to settle or settle any such demands.

1.8 Approval of the Stockholders . On or prior to the execution of this Agreement, all of the Company’s stockholders shall have approved and adopted this Agreement and the transactions contemplated hereby by written consent (the “ Written Consent ”) as provided by the CGCL, the Company’s articles of incorporation and its by-laws.

1.9 Closing . The closing of the Merger (the “ Closing ”) shall be held at the offices of Goodwin Procter LLP, Exchange Place, Boston, Massachusetts, within one (1) Business Day after all conditions to closing contained in Section 1.10 have been satisfied or waived. The date on which the Closing actually occurs is sometimes referred to herein as the “ Closing Date .” At the Closing, Parent, Merger Sub and the Company shall cause the Agreement of Merger to be filed with the Secretary of State of the State of California, in accordance with the relevant provisions of the CGCL (the time of filing with the Secretary of State of the State of California of such filing or such later time as may be agreed to by Parent and the Company in writing (and set forth in the Agreement of Merger) being referred to herein as the “ Effective Time ”).

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1.10 Conditions to Closing; Deliveries at Closing.

(a) The obligations of Parent and Merger Sub to consummate the Merger and the transactions contemplated hereby shall be subject to the following conditions:

(i) Sean Olson shall have entered into a consulting services agreement with Parent in substantially the form attached hereto as Exhibit D (the “ Olson Consulting Agreement ”);

(ii) Tom Pinnington shall have accepted the Company’s offer of continued employment pursuant to the terms of the offer letter attached hereto as Exhibit E (the “ Pinnington Offer Letter ”);

(iii) Harry Atwater shall have joined the advisory board of Parent;

(iv) the Written Consent shall have been obtained;

(v) the Company shall have terminated any Tax allocation or Tax sharing agreements to which the Company is a party, and the Company shall have no liability under such agreements following the Closing; and

(vi) the Company shall have no outstanding debt other than the Trade Payable Deficit set forth on Section 2.5.1 of the Disclosure Schedule .

(b) At the Closing, the Preferred Holder or the Company, as applicable, will deliver or cause to be delivered to Parent each of the following:

(i) copies of this Agreement and each other Transaction Document to which such Stockholder or the Company, as applicable, is a party, executed by such Stockholder or the Company, as applicable;

(ii) copies of the authorizations, orders, approvals, releases, filings and consents of the third-parties set forth on Section 1.10(b)(ii) of the Disclosure Schedules , all on terms and conditions reasonably satisfactory to Parent;

(iii) a certificate dated as of the Closing Date affirming that shares of the Company’s stock do not constitute United States real property interests within the meaning of Section 897(c) of the Code. Such certificate is intended to comply with the withholding exemption provided in Treasury Regulations Section 1.1445-2(c) and shall be substantially in the form provided in Exhibit F hereto;

(iv) a certificate of the Secretary of the Company certifying (i) the Articles of Incorporation of the Company, (ii) the bylaws of the Company, (iii) resolutions of the Board of Directors of Company and the Stockholders approving this Agreement and the Merger and the transactions contemplated by this Agreement, and (iv) the names of the officers of the Company authorized to sign this Agreement and the instruments or certificates to be delivered pursuant to this Agreement by the Company or any of its officers, together with the true signatures of such officers;

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(v) a certificate from the Secretary of State of the State of California that the Company is in good standing in the State of California;

(vi) a Certificate of Acknowledgement;

(vii) a certificate confirming all Company Transaction Expenses are being paid at Closing pursuant to Section 1.6(a)(ii) (the “ Company Transaction Expense Certificate ”); and

(viii) such other documents reasonably requested by Parent.

(c) At the Closing, Parent will deliver or cause to be delivered the following:

(i) to the Preferred Holder, the amount to be paid to the Preferred Holder at the Closing pursuant to the Section 1.6(a)(i);

(ii) to each payee of Company Transaction Expenses, an amount equal to such payee’s portion of all such Company Transaction Expenses, with the result that following the Closing the Company shall have no further obligations or continuing Liabilities with respect to such payee;

(iii) to the Company and the Preferred Holder, copies of this Agreement and each other Transaction Document to which Parent is a party, executed by Parent; and

(iv) a certificate of the Secretary of Parent and Merger Sub certifying (i) the certificate of incorporation of Parent and the articles of incorporation of Merger Sub, (ii) the bylaws of Parent and Merger Sub, (iii) resolutions of the Board of Directors of Parent and Merger Sub approving the Transaction Documents and the Merger and the transactions contemplated by the Transaction Documents, and (iv) the names of the officers of Parent and Merger Sub authorized to sign the applicable Transaction Documents and the instruments or certificates to be delivered pursuant to the applicable Transaction Documents by Parent or Merger Sub or any of its respective officers, together with the true signatures of such officers.

(d) The payments pursuant to Section 1.6 shall be made by wire transfer of immediately available funds to the accounts set forth in written instructions provided by the recipients.

1.11 Transfer Taxes . The Stockholders shall be liable for and shall hold the Company and the Parent harmless against one-half of any transfer, value added, excise, stock transfer, stamp, recording, registration and any similar taxes that become payable in connection with the Merger and the transactions contemplated hereby, and the applicable parties shall file such applications and documents as shall permit any such tax to be assessed and paid on or prior to the Closing Date in accordance with any available pre-sale filing procedure.

1.12 Earnout Payment Provisions . Parent hereby covenants and agrees that from the Effective Time through the date that is forty-two (42) months after the Closing Date:

(a) Parent shall act in good faith in the operation of the Company’s business and the commercialization of the Company Intellectual Property; and

(b) Parent will use good faith reasonable efforts to enter into contracts and perform

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services in a timely manner.

2. Representations and Warranties of the Company . As a material inducement to Parent to enter into and perform its obligations under this Agreement, the Company hereby represents and warrants to Parent that, except as otherwise set forth in the disclosure schedule dated as of the date hereof and delivered to Parent herewith (the “ Disclosure Schedule ”) (which disclosure shall provide an exception to or otherwise qualify the representations and warranties of the Company contained in the section of this Agreement corresponding by number to such disclosure and the other representations and warranties herein to the extent such disclosure is readily apparent on its face to be applicable to such other representations and warranties):

2.1 Existence; Good Standing; Authority .

(a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of California. The Company has all requisite corporate power and authority to own, operate, lease and encumber its properties and carry on its business as currently conducted. The Company is duly licensed or qualified to do business as a foreign corporation under the laws of each other jurisdiction in which the character of its properties or in which the transaction of its business makes such qualification necessary, except where the failure to be so licensed or qualified has not had or is not reasonably likely to have a material adverse effect on the Company. The Company has delivered to Parent correct and complete copies of the articles of incorporation and bylaws (or equivalent organizational or governing documents) of the Company, in each case as amended to date. The minute books (containing the records of meetings of the shareholders, the board of directors, and any committees thereof (or equivalent governing bodies)), the stock certificate books (or their equivalent), and the stock record books (or their equivalent for non-corporate entities) for the Company are correct in all material respects. The Company is not in default under or in violation of any provision of its articles of incorporation or bylaws (or similar governing or formation documents).

(b) The Company has the corporate power and authority to execute and deliver this Agreement and each of the other Transaction Documents to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery of this Agreement and the other Transaction Documents to which the Company is a party, the performance by the Company of its obligations hereunder and thereunder and the consummation of the Merger and the transactions contemplated hereby and thereby have been duly authorized by all requisite corporate action on the part of the Company. No other proceedings on the part of the Company are necessary to approve and authorize the execution and delivery of this Agreement or the other Transaction Documents to which the Company is a party and the consummation of the Merger and the transactions contemplated hereby and thereby. This Agreement and all other Transaction Documents to which the Company is a party have been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery of this Agreement and all other Transaction Documents to which the Company is a party by each party hereto and thereto other than the Company, constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general equitable principles.

(c) The affirmative vote or consent in writing of (a) the holders of a majority of the Preferred Stock, voting as a single class, (b) the holders of a majority of the shares of the Common Stock, voting as a single class, and (c) the holders of a majority of the outstanding shares of the Company’s capital stock, voting as a single class (the “ Requisite Stockholder Approval ”), to approve this Agreement, the Merger and the other transactions contemplated by this Agreement, is the only vote or written consent of the holders of any class or series of the Company’s capital stock necessary to approve this Agreement,

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the Merger, and the other transactions contemplated by this Agreement. By and through the execution and delivery to the Company of the Written Consent, the Company has complied with all applicable provisions of the articles of incorporation and the by-laws of the Company as well as the CGCL in obtaining the stockholders’ approval of the Merger.

2.2 Capitalization .

(a) The total authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, of which 1,528,354 shares are issued and outstanding as of the date hereof, and 5,000,000 shares of Preferred Stock, of which 1,000,000 shares are designated Series A Preferred Stock, 1,000,000 of which are issued and outstanding as of the date hereof, and of which 3,000,000 shares are designated Series B Preferred Stock, 2,966,805 shares of which are issued and outstanding as of the date hereof. All of the issued and outstanding shares of Common Stock and Preferred Stock have been duly authorized and validly issued and are fully paid and nonassessable and were not issued in violation of the preemptive rights of any Person or any applicable law. The name as well as the number and class of shares of capital stock of the Company held by each Stockholder and the portion of the Merger Consideration to be received by each Stockholder is set forth on Section 2.2 of the Disclosure Schedule .

(b) Other than as set forth on Section 2.2 of the Disclosure Schedule , the Company has no outstanding subscriptions, options, warrants, rights, calls, commitments, conversion rights, rights of exchange, agreements, arrangements or commitments of any kind, contingent or otherwise, for or relating to the issuance or sale of, any shares of the Company’s capital stock or other equity interests of the Company (the “ Company Derivative Securities ”). The Company has no obligation to purchase, redeem, or otherwise acquire any of its shares of capital stock or other equity interests of the Company and there are no outstanding or authorized stock appreciation, phantom stock, stock plans or similar rights with respect to the Company or the shares of the Company’s capital stock or other equity interests of the Company. There are 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 shares of the Company’s capital stock or other equity interests of the Company, and, there are no agreements to which the Company is a party relating to the voting or restricting the transfer of shares of the Company’s capital stock or other equity interests of the Company.

(c) Any payments made by Parent pursuant Section 1.6 shall be made pursuant to the provisions of the Company’s articles of incorporation, which provide that payments be made as follows: (A) first, to the Preferred Holder with respect to the Preferred Holder’s shares of Series B Preferred Stock as of immediately prior to the Effective Time until such time as the Preferred Holder has received an amount equal to $1,298,000; (B) second, to the Preferred Holder with respect to the Preferred Holder’s shares of Series A Preferred Stock as of immediately prior to the Effective Time until such time as the Preferred Holder has received an amount equal to $5,000,000 and (C) third, to the Preferred Holder and the Common Stock Holders on a Pro Rata Basis.

2.3 Subsidiaries . The Company does not have and never has had any subsidiaries or any ownership or equity interest in or control of (direct or indirect) any other Person.

2.4 No Conflict .

(a) Neither the execution and delivery by the Company of this Agreement and the other Transaction Documents to which the Company is a party, nor the consummation by the Company of the transactions in accordance with the terms hereof and thereof, (i) conflicts with or results in a breach of any provisions of the Company’s articles of incorporation or bylaws or other organizational documents,

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or (ii) will result in the creation of any Encumbrance upon any of the assets or properties owned or used by the Company (including the Company’s Intellectual Property Assets).

(b) Except as set forth on Section 2.4(b) of the Disclosure Schedule , the execution and delivery by the Company of this Agreement and the other Transaction Documents to which the Company is a party and the consummation by the Company of the transactions in accordance with the terms hereof and thereof (i) will not violate, or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default), or give rise to any right of termination, cancellation or acceleration that would have under (A) any of the terms, conditions or provisions of any Company Contract (as defined below), (B) any law, statute, rule or regulation to which the Company is subject, or (C) any judgment, order or decree to which the Company is subject, or (ii) result in (A) the release, disclosure, or delivery of any of the Company’s Intellectual Property Assets by or to any escrow agent or other Person, or (B) the grant, assignment or transfer to any Person of any license or other right or interest to any of the Company’s Intellectual Property Assets.

2.5 Financial Statements . The following financial statements (the “ Financial Statements ”) are attached hereto as Section 2.5 of the Disclosure Schedule :

(a) Unaudited consolidated balance sheets of the Company as of December 31, 2006 and 2007 (the latter, the “ 2007 Balance Sheet ”), and the related unaudited consolidated statements of income, stockholders’ equity and cash flows for each of the respective years then ended;

(b) Unaudited consolidated balance sheet of the Company as of February 29, 2008 (the “ Base Balance Sheet ”), and the related unaudited consolidated statements of income for the two (2) months then ended.

(c) The Company Transaction Expense Certificate reflects all Company Transaction Expenses.

Subject to the absence of footnotes and year-end audit adjustments with respect to any unaudited Financial Statements, to the Company’s knowledge, the Financial Statements (i) have been prepared in accordance with GAAP and (ii) present fairly in all material respects the consolidated financial condition and results of operations of the Company as of the respective dates of, and for the respective periods presented in, such Financial Statements; and

(d) As of the Closing, the Company shall have no outstanding indebtedness other than the Trade Payable Deficit set forth on Section 2.5.1 of the Disclosure Schedule .

2.6 Absence of Certain Changes . Except as expressly contemplated by this Agreement, since the date of the Base Balance Sheet, the Company has operated only in the Ordinary Course of Business and there has not been any:

(a) change in the Company’s authorized or issued shares of capital stock or membership interests, as applicable; grant of any option, right to purchase or similar right regarding the capital stock or membership interests of the Company; purchase, redemption, retirement, or other acquisition by the Company of any such capital stock or membership interests; or declaration or payment of any dividend or other distribution or payment in respect of the capital stock or membership interests of the Company;

(b) grant or promise of any bonus, or increase in salaries or other compensation, by the Company, to any of their respective directors, officers, managers, employees, sales representatives,

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consultants, former employees or Insiders (as defined herein) except for bonus awards, increases in salaries or other compensation made in the Ordinary Course of Business, or grant or promise of any material increase in any employee benefit plan or arrangement, or amendment or termination of any existing employee benefit plan or arrangement (other than an amendment required by law), or adoption of any new material employee benefit plan or arrangement;

(c) theft of, damage to or destruction or loss in excess of $25,000 for any occurrence or $50,000 in the aggregate of any tangible asset or tangible property of the Company, whether or not covered by insurance;

(d) incurrence by the Company of indebtedness;

(e) material change in the accounting methods or principles used by the Company, other than write-downs or write-offs in the value of assets as required by GAAP;

(f) sale, lease, assignment or transfer (including, without limitation, transfers to any Insider or Stockholder) of any of its tangible or intangible material assets (including material Intellectual Property Assets) (except for sales of inventory in the Ordinary Course of Business to unaffiliated third Persons on an arm’s length basis), or disclosure of any confidential information (other than pursuant to agreements requiring the Person to whom the disclosure was made to maintain the confidentiality of, and preserving all rights of the Company in, such confidential information);

(g) waiver, cancellation, compromise or release of any individual rights or claims with a value in excess of $25,000, whether or not in the Ordinary Course of Business;

(h) (i) entry into, amendment or termination of any Company Contract other than in the Ordinary Course of Business, (ii) entry into any other transaction involving amounts in excess of $25,000, other than in the Ordinary Course of Business, or (iii) material change in any business practice;

(i) change in the conduct of its cash management customs and practices (including, without limitation, with respect to maintenance of working capital balances and inventory levels, collection of accounts receivable, payment of accounts payable, accrued Liabilities and other Liabilities and credit policies);

(j) capital expenditure of more than $25,000 or commitment therefor;

(k) loans or advances to, or guarantees for the benefit of, any Persons, other than (i) advances to employees for travel and business expenses in the Ordinary Course of Business which do not exceed $5,000 in the aggregate or (ii) in connection with the purchase or sale of products, ingredients, packaging, raw materials and finished products in the Ordinary Course of Business;

(l) change or authorization of any change in its articles of incorporation or by-laws;

(m) institution or settlement of any claim (excluding accounts payable) or lawsuit for an amount involving in excess of $25,000 or involving equitable or injunctive relief;

(n) acquisition of any other business or Person (or any significant portion or division thereof), whether by merger, consolidation or reorganization or by purchase of its assets or stock;

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(o) sale, assignment, transfer, abandonment or permitted lapse of any of the Company’s Intellectual Property Assets or other intangible assets, or grant of any license or sublicense to any Person of any rights under or with respect to any Company’s Intellectual Property Assets, other than in the Ordinary Course of Business; or

(p) commitment or agreement by the Company to any of the foregoing.

2.7 Litigation . There is no litigation or governmental or administrative proceeding or investigation pending or, to the Company’s knowledge, threatened in writing against the Company or affecting the properties or assets of the Company, or, as to matters related to the Company, against any officer, director, stockholder or key employee of the Company in their respective capacities in such positions. Section 2.7 of the Disclosure Schedule includes a description of all litigation, claims, proceedings or, to the Company’s knowledge, investigations involving the Company or any of its officers, directors, stockholders or key employees in connection with the business of the Company occurring, arising or existing during the past three (3) years. The Company is not subject to any outstanding order, judgment or decree issued by any Governmental Authority or, to the Company’s knowledge, any arbitrator. This Section 2.7 does not apply to any matters with respect to the Company’s Intellectual Property Assets.

2.8 Taxes . Except as set forth on Section 2.8 of the Disclosure Schedule :

(a) The Company has timely filed all income and other Tax Returns required to be filed by the Company, taking into account any extension of time to file, and all such Tax Returns are true, correct and complete in all respects;

(b) All Taxes due and payable before the date hereof by the Company have been paid, unless such Taxes are being contested in good faith and for which adequate reserves have been accounted for in accordance with GAAP;

(c) Neither the Internal Revenue Service (the “ IRS ”) nor any other Governmental Authority has asserted or assessed in writing any deficiency or claim for any material amount of additional Taxes;

(d) To the Company’s knowledge, no federal, state, local or foreign audits or other administrative proceedings or court proceedings are pending as of the date of this Agreement with regard to any Taxes or Tax Returns of the Company and the Company has not received a written notice prior to the date of this Agreement of any actual or threatened audits or proceedings or is otherwise aware of any such audits or proceedings;

(e) The Company has properly withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any shareholder, employee, creditor, independent contractor or other third party;

(f) The Company is not a party to or bound by any Tax allocation or Tax sharing agreement with any person other than the Company or the Preferred Holder;

(g) The Company (i) has never been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was the Preferred Holder) and (ii) has no Liability under Treasury Regulation Section 1.1502-6 for the Taxes of

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any other Person (or any similar provision of state, local, or foreign law), as a transferee or successor, by Contract, or otherwise;

(h) The Company has not received written notice of any claim by a taxing authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation in such jurisdiction;

(i) The Company has not consented to extend the time, or is the beneficiary of any extension of time, in which any Tax may be assessed or collected by any taxing authority;

(j) There are no liens for Taxes (other than for Taxes not yet due and payable) upon the assets of the Company;

(k) 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 under Code § 481(c) (or any corresponding or similar provision of state, local or foreign income Tax law); (ii) “closing agreement” as described in Code § 7121 (or any corresponding or similar provision of state, local or foreign income Tax law); (iii) deferred intercompany gain or any excess loss account described in Treasury Regulations under Code § 1502 (or any corresponding or similar provision of state, local or foreign income Tax law); (iv) installment sale made prior to the Closing Date; or (v) prepaid amount received on or prior to the Closing Date;

(l) The Company is not a party to any Contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any “excess parachute payment” within the meaning of Code § 280G (or any corresponding provision of state, local or foreign income Tax law);

(m) The Company has not constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock to which Section 355 of the Code (or so much of Section 356 of the Code as relates to Section 355 of the Code) applies and which occurred within two years of the date of this Agreement;

(n) The Company has made available to Parent correct and complete copies of (i) all of its Tax Returns filed within the past five (5) years, (ii) all audit reports, letter rulings, technical advice memoranda and similar documents issued by the IRS or any other Governmental Authority within the past five (5) years relating to the federal, state, local or foreign Taxes due from or with respect to the Company, and (iii) any closing letters or agreements entered into by the Company with the IRS or any other Governmental Authority within the past three (3) years with respect to Taxes; and

(o) The Company is not and has not been a party to a “reportable transaction” as defined in Treasury Regulations Section 1.6011-4(b).

(p) For the purposes of this Agreement:

(i) “ Affiliated Group ” means an affiliated group as defined in Section 1504 of the Code (or any similar combined, consolidated or unitary group defined under state, local or foreign income Tax law).

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(ii) “ Tax ” or “ Taxes ” shall mean any and all federal, state, local or foreign income, gross receipts, capital gains, franchise, alternative or add-on minimum, estimated, sales, use, goods and services, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, employment, disability, payroll, license, employee or other withholding, contributions or other tax, charges, fees, levies or other assessments, of any kind whatsoever, imposed by the IRS or any taxing authority, and such term shall include any interest whether paid or received, fines, penalties or additional amounts attributable to, or imposed upon, or with respect to, any such taxes, charges, fees, levies or other assessments.

(iii) “ Tax Returns ” shall mean any report, declaration, return, claim for refund, information return, document or other filing and amendments thereto (including any related or supporting schedules, statements or information) supplied or required to be supplied to any taxing authority or jurisdiction (foreign or domestic) in connection with the determination, assessment or collection of Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes.

2.9 Employee Benefit Plans . (a) Each Benefit Plan and any related trust intended to be qualified under Section 401(a) and 501(a) of the Code, utilizes a prototype plan that has received a favorable opinion letter from the IRS on the form of such plan and, to the Company’s knowledge, no events have occurred that would adversely affect such qualified status; (b) each Benefit Plan has been maintained and operated substantially in accordance with its terms and the requirements of applicable law, including, without limitation, ERISA and the Code; (c) none of the Benefit Plans is subject to Title IV of ERISA or is a multiemployer plan within the meaning of Section 3(37) of ERISA; (d) none of the Benefit Plans provide post-employment health, life or other w