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AMENDED & RESTATED

AGREEMENT AND PLAN OF MERGER

among

GCA I ACQUISITION CORP., a Delaware Corporation,

BIXBY ENERGY ACQUISITION CORP., a Delaware Corporation,

BIXBY ENERGY SYSTEMS, INC., a Delaware Corporation

and

ROBERT A. WALKER, an Individual

 

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Dated:  March 27, 2009
 

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TABLE OF CONTENTS

Section
 
Page
     
ARTICLE I - THE MERGER
   
1.1  The Merger
 
2
1.2  Effective Time; Closing
 
2
1.3  Effects of the Merger
 
2
1.4  Post-Merger Actions
 
3
1.5  Further Assurances
 
4
     
ARTICLE II - CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
   
2.1  Conversion of Securities
 
4
2.2  Exchange of Securities and Certificates
 
6
2.3  Dissenters' Rights
 
10
2.4  Withholding
 
10
2.5  Stock Transfer Books
 
10
     
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY PRINCIPAL
STOCKHOLDER
   
3.1  Authority Relative To The Operative Agreements
 
10
3.2  Execution; Enforceability
 
11
3.3  Title to Securities of the Company
 
11
3.4  No Conflicts
 
11
3.5  Governmental Approvals and Filings
 
11
3.6  Legal Proceedings
 
11
     
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
   
4.1  Organization and Qualification; Subsidiaries
 
12
4.2  Certificate of Incorporation and Bylaws
 
12
4.3  Books and Records
 
12
4.4  Capitalization
 
13
4.5  Authority Relative To This Agreement
 
13
4.6  No Conflict; Required Filings and Consents
 
14
4.7  Permits; Compliance
 
15
4.8  Financial Statements
 
15
4.9  Notes and Accounts Receivable
 
16
4.10 Undisclosed Liabilities
 
16
4.11 Taxes
 
16
4.12 Title To Personal Property
 
18
4.13 Condition of Tangible Fixed Assets
 
19
4.14 Inventory
 
19
4.15 Product Warranty
 
19
4.16 Product Liability
 
19
4.17 Real Property
 
19

 
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4.18 Intellectual Property
 
20
4.19 Material Contracts
 
23
4.20 Litigation
 
25
4.21 Employee Benefit Plans
 
26
4.22 Labor and Employment Matters
 
28
4.23 Environmental
 
29
4.24 Related Party Transactions
 
30
4.25 Insurance
 
31
4.26 Absence of Certain Changes or Events
 
31
4.27 Solvency
 
32
4.28 Brokers or Finders
 
32
4.29 No Illegal Payments
 
32
4.30 Information Supplied
 
33
4.31 Antitakeover Statutes
 
33
4.32 Compliance with Securities Laws
 
33
4.33 Change in Control
 
33
4.34 Powers of Attorney
 
33
4.35 Material Disclosures
 
33
     
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
   
5.1  Corporate Organization and Qualification
 
33
5.2  Certificate of Incorporation and Bylaws
 
34
5.3  Books and Records
 
34
5.4  Capitalization
 
34
5.5  Authority Relative To This Agreement
 
35
5.6  No Conflict; Required Filings and Consents
 
35
5.7  SEC Reports; Financial Statements
 
36
5.8  Taxes
 
36
5.9  Absence of Litigation
 
38
5.10 Related Party Transactions
 
39
5.11 Ownership of Merger Sub; No Prior Activities
 
39
5.12 Absence of Certain Changes or Events
 
39
5.13 No Illegal Payments
 
40
5.14 Antitakeover Statutes
 
40
5.15 Compliance with Securities Laws
 
40
5.16 Brokers or Finders
 
40
     
ARTICLE VI - COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE MERGER
   
6.1  Conduct of Business by the Company Pending the Merger
 
41
6.2  Conduct of Business by Parent Pending the Merger
 
42
6.3  Conduct of Company Principal Stockholder Pending the Merger
 
43
 
   
ARTICLE VII - ADDITIONAL AGREEMENTS
   
7.1  Amended & Restated Voting Agreement
 
43

 
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7.2  Parent Stockholder Holdback
 
43
7.3  Certain Corporate and Securities Compliance
 
43
7.4  Regulatory Approvals
 
48
7.5  Public Announcements
 
49
7.6  Tax-Free Reorganization.
 
49
7.7  Affiliates
 
49
7.8  Consents
 
49
7.9  Notification of Certain Matters
 
49
7.10  Conveyance Taxes
 
50
7.11 Dissenters' Rights
 
50
7.12 Post-Closing Current Report Filing on Form 8-K
 
50
7.13 Post-Closing Establishment of Trading Market; Quotation; Listing
 
50
7.14 Certain Registration Obligations
 
50
7.15 Certain Liability & Indemnification
 
53
7.16 Further Assurances
 
54
     
ARTICLE VIII - CONDITIONS TO THE MERGER
   
8.1  Conditions to the Obligations of Each Party to Effect the Merger
 
54
8.2  Conditions to the Obligations of Parent and Merger Sub to Effect the Merger
 
55
8.3  Conditions to the Obligations of the Company to Effect the Merger
 
56
     
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER
   
9.1  Termination
 
57
9.2  Amendment
 
59
9.3  Waiver
 
59
     
ARTICLE X - MISCELLANEOUS
   
10.1  Notices
 
59
10.2  Certain Definitions
 
60
10.3  Index of Other Defined Terms
 
66
10.4  Interpretation
 
70
10.5  Survival
 
70
10.6  Severability
 
70
10.7  Assignment; Binding Effect; Benefit
 
71
10.8  Fees and Expenses
 
71
10.9  Incorporation of Schedules
 
71
10.10 Specific Performance
 
71
10.11 Governing Law
 
72
10.12 Consent to Jurisdiction;Waiver of Jury Trial
 
72
10.13 Headings
 
72
10.14 Counterparts
 
72
10.15 Entire Agreement
 
72
     
EXHIBITS
   

 
Exhibit A
 
Certificate of Incorporation – Parent

 
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Exhibit B
 
Bylaws – Parent
Exhibit C
 
Certificate of Incorporation – Merger Sub
Exhibit D
 
Bylaws – Merger Sub
Exhibit E
 
Certificate of Incorporation – Company
Exhibit F
 
Bylaws – Company
Exhibit G
 
 Form of Amended & Restated Voting Agreement
Exhibit H
 
 Form of Certificate of Merger
Exhibit I
 
Form of Affiliate Agreement
Exhibit J
 
 Form of Convertible Debt Securites Exchange Agreement
Exhibit K
 
 Form of Common Stock Purchase Warrant Exchange Agreement
Exhibit L
 
Form of Series A Convertible Preferred Stock Purchase Warrant Exchange Agreement
Exhibit M
 
Form of Registrable Securities Lock-Up Agreement

 
SCHEDULES
         
Schedule A
 
Company Disclosure Schedule
Organization and Qualification; Subsidiaries
 
Section 4.1
Capitalization
 
Section 4.4
No Conflict; Required Filings and Consents
 
Section 4.6
Permits; Compliance
 
Section 4.7
Financial Statements
 
Section 4.8
Taxes
 
Section 4.11
Inventory
 
Section 4.14
Product Warranty
 
Section 4.15
Real Property
 
Section 4.17
Intellectual Property
 
Section 4.18
Material Contracts
 
Section 4.19
Litigation
 
Section 4.20
Employee Benefit Plans
 
Section 4.21
Environmental
 
Section 4.23
Related Party Transactions
 
Section 4.24
Insurance
 
Section 4.25
Absence of Certain Changes or Events
 
Section 4.26
Change in Control
 
Section 4.33
Conduct of Business by the Company Pending the Merger
 
Section 6.1
     
Schedule B
 
Parent Disclosure Schedule
Capitalization
 
Section 5.4
No Conflict; Required Filings and Consents
 
Section 5.6
Taxes
 
Section 5.8
Absence of Certain Changes or Events
 
Section 5.12
Conduct of Business by Parent Pending the Merger
 
Section 6.2

 
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This AMENDED & RESTATED AGREEMENT AND PLAN OF MERGER, dated as of March 27, 2009
(this “Agreement”), among GCA I Acquisition Corp., a  Delaware corporation
(“Parent”), Bixby Energy Acquisition Corp., a Delaware corporation and a direct,
wholly-owned Subsidiary of Parent (“Merger Sub”), Bixby Energy Systems, Inc., a
Delaware corporation (the “Company”) and Robert A. Walker, the President, Chief
Executive Officer, and a principal shareholder of the Company (the “Company
Principal Stockholder”) (Parent, Merger Sub, Company, and the Company Principal
Stockholder may hereinafter be referred to individually as a “Party” or
collectively as the “Parties”).

WHEREAS, the Parties entered into a certain agreement and plan of merger as of
May 7, 2008 (the “Original Merger Agreement”), which Original Merger Agreement
the Parties now wish to amend and restate in its entirety in the form of this
Agreement, which shall for all purposes be deemed to supercede the Original
Merger Agreement;

WHEREAS, the certificate of incorporation and bylaws of Parent as in effect as
of the date hereof are annexed hereto as Exhibit A and Exhibit B, respectively;

WHEREAS, the certificate of incorporation and bylaws of Merger Sub as in effect
as of the date hereof are annexed hereto as Exhibit C and Exhibit D,
respectively;

WHEREAS, the certificate of incorporation and bylaws of the Company as in effect
as of the date hereof are annexed hereto as Exhibit E and Exhibit F,
respectively;

WHEREAS, upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law (the “DGCL”), Parent,
Merger Sub, and the Company intend to enter into a certain business combination
transaction;

WHEREAS, for federal income tax purposes, it is intended that the acquisition of
the Company by Parent  pursuant to this Agreement qualify as a tax-free
reorganization under the provisions of Section 368(a) of the U.S. Internal
Revenue Code of 1986, as amended (the “Code”);

WHEREAS, the board of directors of the Company (i) has determined that the
Merger (as defined in Section 1.1 below) is in the best interests of the Company
and its shareholders (ii) has approved this Agreement, the Merger, and the other
transactions contemplated hereby (collectively, the “Transactions”) (iii) has
adopted a resolution declaring the Merger advisable, and (iv) has determined to
recommended approval of this Agreement by, and directed that this Agreement be
submitted to a vote of, the shareholders of the Company;

WHEREAS, the board of directors of Parent (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Parent
and fair to, and in the best interests of, Parent and its stockholders, (ii) has
approved this Agreement, the Merger and the Transactions, (iii) has adopted a
resolution declaring the Merger advisable, and (iv) has approved the issuance of
certain shares of the common stock of Parent, $.0001 par value per share
(“Parent Common Stock”), pursuant to the Merger;

WHEREAS, the board of directors of Merger Sub (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Merger Sub, and fair to and in the best interests of Merger Sub and its
stockholders, (ii) has approved this Agreement, the Merger and the Transactions,
(iii) has adopted a resolution declaring the Merger advisable, and (iv) has
determined to recommend that the sole stockholder of Merger Sub adopt this
Agreement;
 
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WHEREAS, contemporaneously with the execution of this Agreement, and as a
condition and inducement to Parent’s willingness to enter into this Agreement,
the Company Principal Stockholder is entering into an amended and restated
voting agreement with Parent in substantially the form annexed hereto as Exhibit
G and made a part hereof (the “Amended & Restated Voting Agreement”); and
 
WHEREAS, capitalized terms used throughout this Agreement shall have the
meanings assigned to them in Section 10.2 or in the Section of this Agreement to
which reference is made within Section 10.3.

NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:

ARTICLE I

THE MERGER

1.1           The Merger.  Upon the terms and subject to the conditions set
forth in this Agreement, and pursuant to the certificate of merger in such form
as is required by and executed in accordance with the relevant provisions of the
DGCL, a form of which is annexed hereto as Exhibit H (the “Certificate of
Merger”), at the Effective Time (as hereinafter defined), Merger Sub shall be
merged with and into the Company and the separate corporate existence of Merger
Sub shall thereupon cease, and the Company shall continue as the surviving
corporation (the “Surviving Corporation”) of the Merger (the “Merger”) (Merger
Sub and the Company are sometimes referred to herein jointly as the “Constituent
Corporations”).  As a result of the Merger, the outstanding shares of capital
stock of the Company and Merger Sub shall be converted or canceled in the manner
provided in Article II of this Agreement.

1.2           Effective Time; Closing.  The closing of the Merger (the
“Closing”) shall take place at the offices of Certilman, Balin, Adler & Hyman.
LLP in East Meadow, NY at 10:00 a.m. on a date to be specified by the Parties
which shall be no later than two (2) Business Days following the satisfaction or
waiver (as provided herein) of the conditions set forth in Article VIII (other
than those conditions that by their nature are to be satisfied at the Closing),
unless another time, date and/or place is agreed to in writing by the Parties
(the date upon which the Closing occurs is referred to hereinafter as the
“Closing Date”).  Simultaneously with, or as soon as practicable following the
Closing, the Company, as the Surviving Corporation, shall file the Certificate
of Merger with the Secretary of State of the State of Delaware (the “Delaware
Secretary of State”) as provided in Section 252(c) of the DGCL.  The Merger
shall become effective at such time as the Certificate of Merger is so filed or
at such later time as may be specifically set forth in the Certificate of
Merger, if different, which time is hereinafter referred to as the “Effective
Time”.

1.3           Effects of the Merger.  At and after the Effective Time:

 (a)           the Merger shall have the effects as set forth in the applicable
provisions of the DGCL, including without limitation Section 259(a)
thereof.  Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the rights, privileges, immunities, powers and
franchises (of a public as well as of a private nature) of the Company and
Merger Sub and all property (real, personal and mixed) of the Company and Merger
Sub and all debts due to either the Company or Merger Sub on any account,
including subscriptions to shares, and all other choses in action, and every
other interest of or belonging to or due to each of the Company and Merger Sub
shall vest in the Surviving Corporation, and all debts, Liabilities, obligations
and duties of each of the Company and Merger Sub shall become the debts,
Liabilities, obligations and duties of the Surviving Corporation and may be
enforced against the Surviving Corporation to the same extent as if such debts,
Liabilities, obligations and duties had been incurred or contracted by the
Surviving Corporation, and all rights of creditors and all Liens upon any
property of the Company or Merger Sub shall be preserved unimpaired in the
Surviving Corporation following the Merger;
 
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(b)           the certificate of incorporation of the Company, a copy of which
is annexed hereto as Exhibit D, shall be the certificate of incorporation of the
Surviving Corporation until such time as it may thereafter be amended in
accordance with applicable Delaware Law;

(c)           the bylaws of the Company shall be the bylaws of the Surviving
Corporation until such time as they may thereafter be amended in accordance with
applicable Delaware Law;

(d)           the directors and officers of the Company immediately prior to the
Effective Time shall remain the directors and officers of the Surviving
Corporation, each to hold office until their respective death, permanent
disability, resignation or removal or until their respective successors are duly
elected and qualified, all in accordance with the certificate of incorporation
and bylaws of the Surviving Corporation and applicable Law.

1.4           Post-Merger Actions.

 (a)          Immediately following the Effective Time:

(i)           the officers of Parent prior to the Effective Time shall resign
their respective positions as officers of Parent;

(ii)           the sole director of Parent (Michael M. Membrado) shall resign
from his seat on the board of directors of Parent; and

 (b)          As soon as practicable following the Effective Time:

(i)           the board of directors of Parent, through appropriate action duly
taken, shall amend the bylaws of Parent to permit a board of directors of not
less than one (1) nor more than twelve (12) directors;

(ii)           the board of directors of Parent, through appropriate action duly
taken, shall appoint as directors to fill some or all of such vacancies such
persons as shall have been holding directorships in the Company immediately
prior to the Merger;

(iii)           the board of directors of Parent, through appropriate action
duly taken, shall elect new officers of Parent who shall be the same officers as
the Company had prior to the Merger.
 
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1.5           Further Assurances.  If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation its right, title and interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either Constituent Corporation, all such deeds, bills of sale,
assignments and assurances and to do, in the name and on behalf of either
Constituent Corporation, all such other acts and things as may be necessary,
desirable or proper to vest, perfect or confirm the Surviving Corporation’s
right, title and interest in, to and under any of the rights, privileges,
powers, franchises, properties or assets of such Constituent Corporation and
otherwise to carry out the purposes of this Agreement.

ARTICLE II

CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

2.1          Conversion of Securities.  At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub, the Company or
any shareholders of Parent, Merger Sub or the Company (each stockholder of the
Company being referred to individually hereinafter as a “Company Stockholder”):

(a)           Subject to the other provisions of this Section 2.1 and to Section
2.2:

(i)           Each share of common stock, par value $0.001 per share, of the
Company (“Company Common Stock”) issued and outstanding immediately prior to the
Effective Time (each, a “Cancelable Common Share”) shall be automatically
converted without payment of any consideration (subject to any required
adjustment pursuant to Subsection (c) of this Section 2.1) into the right to
receive one (1) share of fully paid and nonassessable Parent Common Stock (the
“Exchange Ratio”); provided, however, that, in the event that any shares of
Company Common Stock outstanding immediately prior to the Effective Time are
unvested or otherwise subject to a repurchase option, risk of forfeiture, or
other condition under any applicable restricted stock purchase or other
agreement with the Company, then the shares of Parent Common Stock to be issued
in exchange for such shares of Company Common Stock shall also be unvested and
subject to the same repurchase option, risk of forfeiture or other condition
without regard, however, to any provisions regarding the acceleration of vesting
in the event of certain transactions that may otherwise be applicable.  At the
Effective Time, (a) all such shares of Company Common Stock shall be deemed no
longer to be outstanding and shall automatically be canceled and cease to exist,
and each certificate previously evidencing any such shares shall thereafter
represent the right to receive a certificate or certificates representing the
shares of Parent Common Stock into which such shares of Company Common Stock
shall have been converted in the Merger pursuant to this Section 2.1(a)(i), (b)
the holders of certificates previously evidencing shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock except as otherwise
provided herein or under the DGCL, (c) any certificates previously evidencing
shares of Company Common Stock shall be exchanged for certificates representing
whole shares of Parent Common Stock issued in consideration therefor upon the
surrender of such certificates in accordance with the provisions of Section 2.2
of this Agreement, and (d) the certificates representing any shares of Parent
Common Stock which have been exchanged for shares of Company Common Stock which,
immediately prior to the Effective Time, had been unvested or otherwise subject
to a repurchase option, risk of forfeiture, or other condition under any
applicable restricted stock purchase or other agreement with the Company, shall
contain an appropriate legend evidencing such continuing restriction.
 
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(ii)           Each share of Series A convertible preferred stock, $0.001 par
value per share, of the Company (“Company Series A Convertible Preferred Stock”)
issued and outstanding as of the date hereof and which remains issued and
outstanding immediately prior to the Effective Time (each, a “Company Series A
Convertible Preferred Share”) shall remain unchanged as a security of the
Company following the Company becoming a subsidiary of Parent as a result of the
Merger; provided, however, that, if, pursuant to the terms of its certificate of
designations as of the Effective Time, the Series A Convertible Preferred Stock
is to convert to Parent Common Stock in connection with and as a result of the
Merger, then, and in such event, the terms of such Series A Convertible
Preferred Stock (each share of which, under such circumstances, shall be
referred to as a “Cancelable Company Series A Convertible Preferred Share”)
shall govern.

(iii)           Unless otherwise specifically agreed to in writing among the
Company, Parent and the respective holder prior to the Effective Time, each
convertible note and/or debenture of the Company (each, a “Company Convertible
Debenture”) issued and outstanding immediately prior to the Effective
Time  shall remain unchanged as a security of the Company following the Company
becoming a subsidiary of Parent as a result of the Merger;
 
(iv)           Unless otherwise specifically agreed to in writing among the
Company, Parent, and the respective holder prior to the Effective Time, each
warrant to purchase shares of Company Common Stock (each, a “Company Common
Stock Purchase Warrant”) issued and outstanding immediately prior to the
Effective Time, and all obligations arising and existing thereunder, shall
remain unchanged as a security of the Company following the Company becoming a
subsidiary of Parent as a result of the Merger.

(v)           Unless otherwise specifically agreed to in writing among the
Company, Parent, and the respective holder prior to the Effective Time, aach
warrant to purchase shares of Company Series A Convertible Preferred Stock
(each, a “Company Series A Convertible Preferred Stock Purchase Warrant”) issued
and outstanding immediately prior to the Effective Time, and all obligations
arising and existing thereunder, shall remain unchanged as a security of the
Company following the Company becoming a subsidiary of Parent as a result of the
Merger.
 
(vi)            Each option to purchase shares of Company Common Stock issued
and outstanding under the Bixby Energy Systems, Inc. 2001 Stock Option Plan (the
“Bixby Option Plan”) prior to the Effective Time (each, a “Company Stock
Option”), whether or not vested, shall, by virtue of the Merger, be assumed by
Parent; provided, however, that each Company Stock Option so assumed by Parent
under this Agreement (each, a “Replacement Option”) shall (a) continue to have,
and be subject to, the same terms and conditions of such options as shall have
been in effect immediately prior to the Effective Time, including without
limitation any repurchase rights, risk of forfeiture, or vesting provisions and
any related provisions regarding the acceleration of vesting and exercisability
in the event of certain transactions, (b) be exercisable (or become exercisable
in accordance with its terms) for that number of whole shares of Parent Common
Stock for which such Company Stock Option had been exercisable (for shares of
Company Common Stock) immediately prior to the Effective Time, adjusted to give
effect to the Exchange Ratio (rounded down to the nearest whole share), (c) be
exercisable (or become exercisable in accordance with its terms) at a price per
share of Parent Common Stock equal to the exercise price per share of Company
Common Stock at which such Company Stock Option was exercisable immediately
prior to the Effective Time, adjusted to give effect to the Exchange Ratio (the
exercise price per share, as so determined, being rounded up to the nearest full
cent), and (d) be deemed to refer to Parent wherever reference is made to the
Company in and throughout any agreement and/or certificates representing the
Company Stock Option.  No representations or warranties whatsoever are made that
any of the Company Stock Options assumed by Parent hereunder shall qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent the Company Stock Options qualified as incentive
stock options immediately prior to the Effective Time.
 
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(vii)           each share of common stock, par value $.0001 per share, of
Merger Sub (“Merger Sub Common Stock”) issued and outstanding immediately prior
to the Effective Time shall be converted into one (1) validly issued, fully paid
and nonassessable share of common stock of the Surviving Corporation at the
Effective Time, and the Surviving Corporation thereafter shall have no other
equity securities; and
 
(viii)           any options to purchase shares of Parent Common Stock or Parent
Preferred Stock outstanding immediately prior to the Effective Time (each, a
“Parent Preexisting Stock Option”), whether or not vested, and any warrants to
purchase shares of Parent Common Stock or Parent Preferred Stock outstanding
immediately prior to the Effective Time (each, a “Parent Preexisting Warrant”),
whether or not then exercisable, shall, by virtue of the Merger, be cancelled.

(b)           It is expressly understood and acknowledged that no fractional
shares of Parent Common Stock shall be issued in connection with the Merger and
that no holder of Cancelable Common Shares or Cancelable Series A Convertible
Preferred Shares shall be entitled to receive a cash payment in lieu of any
fractional share of Parent Common Stock.

(c)           Except for any changes resulting from the Parent Stock-Split, if
between the date of this Agreement and the Effective Time the outstanding shares
of Parent Common Stock shall have been changed into a different number of shares
or a different class by reason of any stock dividend, reclassification,
recapitalization, split, division, subdivision, combination or exchange of
shares, the Exchange Ratio shall be correspondingly adjusted to reflect such
stock dividend, reclassification, recapitalization, split, division,
subdivision, combination or exchange of shares.

2.2          Exchange of Securities and Certificates.

(a)           Following the execution hereof, and as of or before the Effective
Time, Parent shall enter into an agreement with such transfer agent, bank, or
trust company of recognized standing that may be designated by Parent and is
reasonably satisfactory to the Company (the “Exchange Agent”).  Upon receipt of
notice from the Company to Parent of the Company’s receipt of Company
Stockholder Approval, Parent shall deposit, or shall cause to be deposited, with
the Exchange Agent, for the benefit of the holders of Cancelable Common Shares,
Cancelable Series A Convertible Preferred Shares, any Company Convertible
Debentures  to be exchanged for Parent Common Stock or for convertible debt
securities of Parent (“Parent Convertible Debt Securities”) pursuant to written
agreement as part of the Merger (each, a “Cancelable Company Convertible
Debenture”), any Company Common Stock Purchase Warrants to be exchanged for one
or more warrants to purchase Parent Common Stock (“Parent Common Stock Purchase
Warrants”) pursuant to written agreement as part of the Merger (each, a
“Cancelable Company Common Stock Purchase Warrant”), and any Company Series A
Convertible Preferred Stock Purchase Warrants to be exchanged for one or more
Parent Common Stock Purchase Warrants pursuant to written agreement as part of
the Merger (each, a “Cancelable Company Series A Convertible Preferred Stock
Purchase Warrants”)(collectively, the “Cancelable Securities”) for exchange in
accordance with this Article II, through the Exchange Agent, certificates
representing (i) the whole shares of Parent Common Stock issuable pursuant to
Sections 2.1(a)(i), (ii), and (iii) in exchange for Cancelable Common Shares,
Cancelable Company Series A Convertible Preferred Shares and Cancelable Company
Convertible Debentures, respectively, (ii) Parent Convertible Debt Securities
issuable pursuant to written agreement in exchange for Cancelable Company
Convertible Debentures, and (iii) Parent Common Stock Purchase Agreements
issuable pursuant to written agreement in exchange for Cancelable Company Common
Stock Purchase Warrants and Cancelable Series A Convertible Preferred Stock
Purchase Warrants (such certificates being hereinafter referred to collectively
as the “Exchange Fund”). The Exchange Agent shall, pursuant to irrevocable
instructions from Parent, deliver the various certificates for securities to be
issued pursuant to Section 2.1, or pursuant to agreements entered into pursuant
to Section 2.1, out of the Exchange Fund (collectively, and together with any
Replacement Options, the “Merger Securities”).
 
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(b)           The provisions of Section 2.2(a) notwithstanding, in the event
that the Exchange Agent shall only be willing to accept the assignment as
Exchange Agent to the extent that it excludes from its responsibilities those
relating to the exchange of Cancelable Company Convertible Debentures for Parent
convertible debentures pursuant to written agreement, then, and, in such event,
any responsibilities relating to the exchange of Cancelable  Company Convertible
Debentures for Parent convertible debentures  shall be assigned to a separate
third-party agent to be reasonably agreed upon between Parent and the Company,
who will be subject to the same responsibilities in relation to the exchange of
Cancelable Company Convertible Debentures for Parent convertible debentures as
Exchange Agent bears in relation to the exchange of all other securities under
this Article II.

(c)           As promptly as reasonably practicable after the Effective Time,
Parent (following the change in control contemplated by the Merger) will
instruct the Exchange Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time evidenced Cancelable
Securities (i) a letter of transmittal, and (ii) instructions for use in
effecting the surrender of such certificates for Cancelable Securities in
exchange for certificates evidencing the Merger Securities, which instructions
shall be in customary form and shall specify that delivery shall be effected,
and risk of loss and title to the Merger Securities shall pass, only upon proper
delivery of the certificates representing the Merger Securities to the Exchange
Agent for use in exchanging the Cancelable Securities for the Merger Securities.
Upon surrender of a certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may be reasonably required
pursuant to such instructions, the holder of such Cancelable Securities shall be
entitled to receive certificates evidencing the Merger Securities due to such
holder in accordance with Section 2.1(a), together with any dividends or
distribution to which such holder may otherwise be entitled, and the
certificate(s) so surrendered shall immediately be canceled.  Subject to Section
2.2(h), under no circumstances will any holder of a certificate representing
Cancelable Securities be entitled to receive any of the Merger Securities or
certificates evidencing the same until such holder shall have surrendered any
and all certificates reflecting the corresponding Cancelable Securities from
which such entitlement derives.

(d)           In the event of a transfer of ownership of Cancelable Securities
which has not been registered in the transfer records of the Company, the Merger
Securities into which the Cancelable Securities were converted in the Merger may
be delivered by the Exchange Agent in accordance with this Article II to the
Person other than the Person in whose name the surrendered certificate is
surrendered if (i) the certificate(s) evidencing such Cancelable Securities
is/are presented to the Exchange Agent, properly endorsed and accompanied by all
documents required to evidence and effect such transfer, including without
limitation an opinion of counsel for the Company that such transfer was effected
in compliance with all federal and state securities Laws, and (ii) evidence is
presented in form satisfactory to Exchange Agent that any applicable Taxes have
been duly paid, or, if not paid, the Person requesting such issuance pays to the
Exchange Agent any and all Taxes required as a result of the issuance to a
Person other than the registered holder of the certificate.  Until surrendered
or transferred as contemplated by this Section 2.2, each certificate
representing Cancelable Securities, other than any certificates representing
Dissenting Shares, shall represent at all times after the Effective Time solely
the right to receive, upon such surrender or transfer, in accordance with the
terms hereof, the Merger Securities, together with any amounts payable pursuant
to Section 2.1(e) of this Agreement.
 
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(e)           Notwithstanding any other provisions of this Agreement, no
dividends or other distributions declared or made after the Effective Time with
respect to the Merger Securities with a record date after the Effective Time
shall be paid to the holder of any unsurrendered certificate(s) evidencing
Cancelable Securities until the holder of such Cancelable Securities shall
surrender such certificate(s) to the Exchange Agent in accordance with Section
2.2(c).  Subject to the effect of applicable Laws, following surrender of any
such certificate(s) reflecting Cancelable Securities, there shall be paid to the
holder of such certificate(s), in addition to the Merger Securities to which
such holder is entitled pursuant to Section 2.1(a), without interest, the
corresponding amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to any of such Merger
Securities, less the amount of any withholding Taxes which may be required
thereon.  No holder of Cancelable Securities shall be entitled, until the
surrender of any certificate for any such Cancelable Securities, to vote any
shares of Parent Common Stock or other capital stock which such holder shall
have the right to receive pursuant to this Article II.

(f)           All Merger Securities issued upon conversion of the Cancelable
Securities in accordance with Section 2.1(a), and any cash paid or other
distributions made pursuant to Section 2.2(e), shall be deemed to have been
issued or paid, respectively, in full satisfaction of all rights pertaining to
such Cancelable Securities.  From and after the Effective Time, holders of
Cancelable Securities shall cease to have any rights with respect to such
Cancelable Securities outstanding immediately prior to the Effective Time,
except as otherwise provided in this Agreement or by Law.

(g)           Any portion of the Exchange Fund which remains undistributed to
the holders of Cancelable Securities for six (6) months after the Effective Time
shall be returned to Parent, and, subject to Section 2.2(h), any holders of
Cancelable Securities which have not theretofore complied with this Article II
shall thereafter look only to Parent for the Merger Securities and any dividends
or other distributions to which they are entitled pursuant to Section
2.1(a).  Any portion of the Exchange Fund remaining unclaimed by holders of
Cancelable Securities as of a date that is immediately prior to such time as
such amounts would otherwise escheat to or become property of any government
entity shall, to the extent permitted by applicable Law, become the property of
Parent free and clear of any claims or interest of any Person previously
entitled thereto.  To the fullest extent permitted by Law, neither Parent nor
the Surviving Corporation shall be liable to any holders of Cancelable
Securities for any Merger Securities, cash or other property delivered from the
Exchange Fund to a public official pursuant to any applicable abandoned
property, escheat or similar Law.

(h)           If any certificate representing Cancelable Securities shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the party claiming such certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation or the Exchange Agent, the posting by such
party of a bond, in such reasonable amount as the Surviving Corporation or the
Exchange Agent may direct, as indemnity against any claim that may be made
against it with respect to such certificate and the amount of any fee charged by
the Exchange Agent for such service, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed certificate the Merger Securities, together
with any unpaid dividends and distributions deliverable in respect thereof.
 
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(i)           Notwithstanding anything to the contrary contained herein, each
Person entitled to receive shares of Parent Common Stock under this Section 2.2
shall receive them on the condition and subject to the requirements that:

(1)           whether or not registered or otherwise eligible for resale,
(i) ninety percent (90%) of such shares may not be sold (but may be transferred
(A) by gift to an immediate family member, (B) by will or intestacy or
distribution, or (C) to a trust for the benefit of the transferor or a family
member) except in accordance with the following schedule (calculated on a
cumulative basis):

Up to five percent (5%)
Ninety (90) days following  the date such shares of Parent Common Stock are, as
a class, first duly authorized, qualified, and listed or quoted for trading on
the NASDAQ Capital Market and/or the OTCBB (the “Listing Date”)
Up to additional five percent (5%)
One hundred and eighty (180) days following the Listing Date
Up to additional five percent (5%)
Two hundred and seventy (270) days following the Listing Date
Up to additional five percent (5%)
Three hundred and sixty-five (365) days following the Listing Date
Up to additional ten percent (10%)
Four hundred and fifty-five (455) days following the Listing Date
Up to additional fifteen percent (15%)
Five hundred and forty-five (545) days following the Listing Date
Up to additional twenty percent (20%)
Six hundred and thirty-five (635) days following the Listing Date
Up to additional twenty-five percent (25%)
Seven hundred and thirty (730) days following the Listing Date

and the certificates evidencing such shares shall have a legend reflecting such
restriction, and (ii) the remaining ten percent (10%) of such shares may be
freely sold or transferred at any time following the  Listing Date; and

(2)           notwithstanding anything contained in the schedule set forth above
in subsection (1) to the contrary, if the Listing Date shall not have occurred
as of the date one (1) year following the Closing Date, then, and in such event,
for purposes of the schedule set forth above in subsection (1), the Listing Date
shall be deemed to be the date one (1) year following the Closing Date; and
(3)             if sold pursuant to Rule 144 or 145 under the Securities Act,
such Person shall have first obtained an opinion of counsel for Parent that
substantially provides that the sale of such shares will be exempt from the
registration requirements of the Securities Act based on the provisions of
Section 4(1) thereof and Rule 144 and/or Rule145 promulgated thereunder.

(j)           Notwithstanding anything to the contrary contained herein, no
certificates representing Merger Securities shall be delivered to a Person who,
in the exclusive discretion of Parent, may be deemed an “affiliate” of the
Company for purposes of Rule 145 under the Securities Act until such Person
shall have executed and delivered to Parent a written agreement substantially in
the form attached hereto as Exhibit I (the “Affiliate Agreement”).
 
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2.3           Dissenters’ Rights.

(a)           Notwithstanding anything in this Agreement to the contrary, any
shares of Company Common Stock or other Cancelable Securities which, under the
DGCL entitle the holder to appraisal rights (“Dissentable Shares”), and which
are held by any holder (a “Dissenting Holder”) who shall have demanded and not
lost or withdrawn, or who shall be eligible to demand, appraisal rights with
respect to such Dissentable Shares in the manner provided in the DGCL
(“Dissenting Shares”) shall not represent the right to receive any portion of
the Merger Securities (or any dividends or distributions associated therewith).
If any holder of Dissentable Shares shall fail to perfect or shall effectively
withdraw or lose its right to appraisal and payment under the DGCL, as the case
may be, all Dissentable Shares held by such holder shall thereupon, in
accordance with and subject to the provisions set forth in this Article II,
represent the right to receive  those Merger Securities to which it would
otherwise be entitled, together with any dividends or distributions due in
connection therewith pursuant to Section 2.2(e).

(b)           Both the Company and Parent, as the case may be, shall give one
another prompt notice of any demands for appraisal received by the Company or
Parent, withdrawals of such demands and any other communications received by the
Company or Parent in connection with any demands for appraisal. The Company may
voluntarily make any payment with respect to any such demands. The Company shall
have the right to control all negotiations and Proceedings with respect to
demands for appraisal, including the right to settle any such demands.

2.4           Withholding.  Each of the Surviving Corporation, Parent and the
Exchange Agent shall be entitled to deduct and withhold from the consideration
payable pursuant to this Agreement to any holder of Cancelable Securities or
Dissenting Shares such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of
applicable state, local or foreign Tax Law.  To the extent that amounts are so
withheld by the Surviving Corporation, Parent or the Exchange Agent, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of Cancelable Securities or
Dissenting Shares in respect of which such deduction and withholding was made by
the Surviving Corporation, Parent or the Exchange Agent, as the case may be.

2.5           Stock Transfer Books.  At 5:00 pm on the day immediately preceding
the Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers of Cancelable Securities
thereafter on the records of the Company.  On or after the Effective Time, any
certificates reflecting Cancelable Securities presented to the Exchange Agent or
Parent for any reason shall carry only those rights as expressly stated in this
Article II.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY PRINCIPAL STOCKHOLDER

The Company Principal Stockholder represents and warrants to Parent and Merger
Sub that the statements contained in this Article III are true and correct.

3.1           Authority Relative To The Operative Agreements.  He has all legal
right, power and capacity to execute and deliver and to perform his obligations
under this Agreement and the Operative Agreements to which he is a party and to
consummate the Transactions.
 
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3.2           Execution; Enforceability.  He has duly and validly executed and
delivered this Agreement and the other Operative Agreements and, assuming the
due authorization, execution and delivery of this Agreement and the other
Operative Agreements by Parent, Merger Sub, and the Company, as required,
constitutes his legal, valid and binding obligations, enforceable against him in
accordance with their respective terms, except as the enforceability thereof may
be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
or other similar Laws affecting or relating to creditors’ rights generally, and
(ii) the availability of injunctive relief and other equitable remedies.

3.3           Title to Securities of the Company.  He is the record and
Beneficial Owner of the securities of the Company as specifically reflected in
the Amended & Restated Voting Agreement which he has executed and delivered in
connection and contemporaneously herewith, and immediately prior to the
Effective Time, he will own such securities free and clear of any Liens.

3.4           No Conflicts.  To the best of his knowledge, the execution and
delivery by him of this Agreement and each of the other Operative Agreements to
which he is a party does not, and the performance by him of his obligations
under this Agreement and such other Operative Agreements, and the consummation
of the Transactions do not and will not:

(a)           subject to obtaining the consents, approvals and actions, making
the filings and providing the notices referred to in Section 3.5 below, if any,
conflict with or result in a violation or breach of any term or provision of any
Law or Order applicable to him or any of his assets and properties; or

(b)           (i) conflict with or result in a violation or breach of,
(ii) constitute (with or without notice or lapse of time or both) a default
under, (iii) require him to obtain any consent, approval or action of, make any
filing with or give any notice to any Person as a result or under the terms of,
(iv) result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (vi) result in the creation or
imposition of any Lien upon him or any of his assets and properties under, any
Contract to which he is a party or by which any of his assets and properties is
bound.

3.5           Governmental Approvals and Filings.  Except as may otherwise be
set forth in this Agreement, to the best of his knowledge, no consent, approval
or action of, filing with or notice to, any Governmental Authority on his part
is required in connection with the execution, delivery and performance of this
Agreement or any of the other Operative Agreements.

3.6           Legal Proceedings.  To the best of his knowledge, there are no
Proceedings pending or threatened against, relating to or affecting either him
or any of his assets and properties which could reasonably be expected to result
in the issuance of an Order restraining, enjoining or otherwise prohibiting or
making illegal any of the Transactions or otherwise result in a material
diminution of the benefits contemplated by this Agreement or any of the other
Operative Agreements to Parent, Merger Sub, the Company, or the Surviving
Corporation.
 
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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Disclosure Schedule delivered by the Company and
signed by the Company and Parent for identification prior to the execution and
delivery of this Agreement (the “Company Disclosure Schedule”), which shall
identify exceptions by specific section references, the Company hereby
represents and warrants to Parent and Merger Sub that the statements contained
in this Article IV are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Article IV).

4.1           Organization and Qualification; Subsidiaries.  The Company is a
corporation, and each Subsidiary of the Company is a corporation, in each case
duly organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. The Company and each Subsidiary are duly qualified
or licensed as a foreign corporation to do business, and are in good standing,
in each jurisdiction where the character of the properties owned, leased or
operated by them or the nature of their business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.  As of the date hereof, a true and
correct list of all Subsidiaries, together with the jurisdiction of organization
of each Subsidiary and the percentage of the outstanding capital stock or other
equity interests of each Subsidiary owned by the Company and each other
Subsidiary, is set forth in Section 4.1 of the Company Disclosure
Schedule.  Except as disclosed in Section 4.1 of the Company Disclosure
Schedule, the Company does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable for
any equity or similar interest in, any corporation, partnership, joint venture
or other business association or entity.

4.2           Certificate of Incorporation and Bylaws.  Exhibit E annexed hereto
is a complete and correct copy of the Company’s certificate of incorporation, as
amended to date, and Exhibit F annexed hereto is a complete and correct copy of
the Company’s bylaws, as amended to date.  The Company has previously delivered
to Parent complete and correct copies of the certificates of incorporation and
bylaws of each of the Company’s Subsidiaries.  Neither the Company nor any such
Subsidiary is in violation of any provision of its certificate of incorporation
or bylaws.
 
4.3           Books and Records.

(a)         The books of account, minute books, stock record books, and other
records of the Company and its Subsidiaries are complete and correct and have
been maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls.  The minute books of the
Company and its Subsidiaries contain accurate and complete records of all
meetings held of, consents of, and corporate action taken by, the stockholders,
the boards of directors, and any committees of the boards of directors of each
of Company and such Subsidiaries, and no meeting of such stockholders, boards of
directors or committees has been held for which minutes have not been prepared
and are not contained in such minute books.

(b)         None of the records, systems, data or information of either the
Company or any of its Subsidiaries is recorded, stored, maintained, operated or
otherwise wholly or partly dependent on or held or accessible by any means
(including, but not limited to, an electronic, mechanical or photographic
process computerized or not) which are not under the exclusive ownership and
direct control of either the Company or its Subsidiaries, as the case may be.
 
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4.4          Capitalization.

(a)           The authorized capital stock of the Company consists of one
hundred twenty five million (125,000,000) shares of Company Common Stock, par
value $0.001 per share, and five million (5,000,000) shares of blank-check
preferred stock, par value $0.001 per share.  As of the date of this Agreement,
(A) thirty-six million four hundred forty-three thousand two hundred ninety
(36,443,290) shares of Company Common Stock, and  eight hundred and seventeen
thousand five hundred and thirty-four (817,534) shares of Series A convertible
preferred stock (the “Company Series A Convertible Preferred Stock”), were
issued and outstanding, all of which  were validly issued, fully paid and
nonassessable and not subject to preemptive rights, and there were no other
shares of capital stock issued and outstanding, and (B) five million (5,000,000)
shares of Company Common Stock were reserved for future issuance pursuant to
outstanding stock options or stock incentive rights granted pursuant to any
stock option plan.  Except as set forth in this Section 4.4(a) or as may be
specified in Section 4.4(a) of the Company Disclosure Schedule, as of the date
of this Agreement, (i) there are no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of, or other equity interests in, the Company or any
Subsidiary obligating the Company or any Subsidiary to issue or sell any shares
of capital stock of, or other equity interests in, the Company or any
Subsidiary, (ii) there are no outstanding contractual obligations of the Company
or any Subsidiary to repurchase, redeem or otherwise acquire any shares of
Company Common Stock, Company Series A Convertible Preferred Stock or any other
capital stock of the Company, nor any capital stock of, or any equity interest
in, any of its Subsidiaries, (iii) there are no declared or accrued unpaid
dividends with respect to any of the Company’s outstanding securities, and (iv)
the Company does not have outstanding or authorized any stock appreciation,
phantom stock, profit participation, or similar rights.  Each outstanding share
of capital stock of, or other equity interest in, each Subsidiary is duly
authorized, validly issued, fully paid and nonassessable.

(b)           Except as may be specified in Section 4.4(b) of the Company
Disclosure Schedule, as of the date of this Agreement, of the Company’s
outstanding equity, convertible and/or equity-linked securities (including
options and warrants), only the Company Common Stock and Company Series A
Convertible Preferred Stock provide the holders thereof with any voting rights
of any kind.
(c)           Except as may be specified in Section 4.4(c) of the Company
Disclosure Schedule, as of the date of this Agreement, neither the Company nor
any of its Subsidiaries have outstanding any bonds, debentures, notes or other
obligations or debt securities, and also except as set forth in Section 4.4(c)
of the Company Disclosure Schedule, no outstanding bonds, debentures, notes or
other obligations or debt securities carry with them any voting rights of any
kind.

4.5          Authority Relative To This Agreement.

(a)           The Company has all necessary corporate power and authority to
execute and deliver this Agreement and the other Operative Agreements and, with
respect to the Merger, upon the approval of this Agreement and the Merger by the
Company’s shareholders in accordance with this Agreement and applicable Law, to
perform its obligations hereunder and to consummate the Transactions.  The
execution and delivery of this Agreement and the other Operative Agreements by
the Company and the consummation by the Company of the Transactions have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Transactions, other than, with respect to the
Merger, the approval of this Agreement and the Merger by the Company’s
shareholders in accordance with applicable Law and the filing and recordation of
the Certificate of Merger with the Delaware Secretary of State in accordance
with this Agreement and applicable  Law. This Agreement has been duly and
validly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery of this Agreement by Parent and Merger
Sub, and the Company Principal Stockholder, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as the enforceability thereof may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Laws affecting or relating to creditors’ rights generally, and (ii) the
availability of injunctive relief and other equitable remedies.
 
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(b)           At a meeting duly called and held in compliance with the DGCL and
the bylaws of the Company, or otherwise through unanimous written consent if
permitted pursuant thereto, the board of directors of the Company has duly taken
action (i) approving the Merger, based on a determination that the Merger is
fair to the holders of Company Common Stock  and Series A Convertible Preferred
Stock and in the best interests of such Company Stockholders, and (ii) approving
this Agreement and the Transactions and recommending approval of this Agreement
and the Transactions by the shareholders of the Company.  As of the date hereof,
such action has not been rescinded and is in full force and effect.

(c)           In accordance with the Company’s certificate of incorporation,
bylaws, and the DGCL, the affirmative vote of the combined holders of at least a
majority of a quorum of the then-outstanding shares of Company Common Stock and
Series A Convertible Preferred Stock (voting on an
as-converted-to-Company-Common-Stock basis) is the only vote of the holders of
any class or series of capital stock of the Company necessary to approve the
Merger, and such vote, in accordance with the Company’s certificate of
incorporation, bylaws, and the DGCL, may be duly obtained by written consent in
lieu of a meeting.

4.6          No Conflict; Required Filings and Consents.

(a)  The execution and delivery of this Agreement and the other Operative
Agreements by the Company do not, and the performance of this Agreement and the
other Operative Agreements by the Company will not (in each case, with or
without the giving of notice or lapse of time, or both), subject to (x) with
respect to the Merger, obtaining the requisite approval of this Agreement and
the Merger by the Company’s shareholders in accordance with this Agreement and
applicable Law, and (y) obtaining the consents (the “Required Company
Consents”), approvals, Authorizations and permits and making the filings
described in Section 4.6(b) and Section 4.6(b) of the Company Disclosure
Schedule, (i) conflict with or violate the certificate of incorporation, bylaws
or equivalent organizational documents of the Company or any of its
Subsidiaries, (ii) conflict with or violate any Law applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected, or (iii) except as may be specified in
Section 4.6(a)(iii) of the Company Disclosure Schedule, result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of
termination,  unilateral amendment, acceleration or cancellation of, or result
in the creation of a Lien or other encumbrance on any property or asset of the
Company or any of its Subsidiaries, or require the consent of any third party
pursuant to, any note, bond, mortgage, indenture, Contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any property or asset of the Company or any of its
Subsidiaries is bound or affected, except for such conflicts, violations,
breaches, defaults or other occurrences, which individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect on the
Company or any of its Subsidiaries.
 
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(b)           The execution and delivery of this Agreement and the other
Operative Agreements by the Company do not, and the performance of this
Agreement and the other Operative Agreements by the Company will not, require
any consent, approval, Authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) the filing of the Form S-4 Registration Statement with the SEC in
connection with the issuance of the Merger Securities pursuant to the Merger,
(ii) the filing and recordation of the Certificate of Merger with the Delaware
Secretary of State as required by the DGCL, (iii) as may be specified in Section
4.6(b) of the Company Disclosure Schedule, and (iv) where failure to obtain any
such consents, approvals, Authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent the Company from performing its obligations under this
Agreement or the other Operative Agreements.

4.7           Permits; Compliance.  Except as may be specified in Section 4.7 of
the Company Disclosure Schedule, each of the Company and its Subsidiaries is in
possession of all franchises, grants, Authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Authority necessary for the Company or any such Subsidiaries
to own, lease and operate its properties or to carry on its business as it is
now being conducted, except for those which the failure to possess would not
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect on the Company (the “Company Permits”) and, as of the date
hereof, no suspension or cancellation of any of the Company Permits is pending
or, to the Knowledge of the Company, threatened, except such suspension or
termination as would not reasonably be expected to have a Material Adverse
Effect on the Company.  Except as disclosed in Section 4.7 of the Company
Disclosure Schedule or as would not reasonably be expected to have a Material
Adverse Effect on the Company, neither the Company nor any of its Subsidiaries
is in conflict with, or in default or violation of, or, with the giving of
notice or the passage of time, would be in conflict with, or in default or
violation of, (a) any Law applicable to the Company or any of its Subsidiaries
or by which any property or asset of the Company or any of its Subsidiaries is
bound or affected, or (b) any of the Company Permits.

 
4.8          Financial Statements.
 
(a)           Section 4.8(a) of the Company Disclosure Schedule contains true
and complete copies of the following consolidated financial statements: (i)
audited consolidated income statement for the fiscal year ended May 31, 2008,
(ii) audited consolidated balance sheet at May 31, 2008, (ii) audited
consolidated statement of stockholders’ equity for the fiscal year ended May 31,
2008, (iv) audited consolidated cash flow statement for the fiscal year ended
May 31, 2008, (v) reviewed consolidated income statement for the six month
period ending November 30, 2008 (the “Most Recent Company Income Statement”),
(vi) reviewed consolidated balance sheet for at November 30, 2008 (the “Most
Recent Company Balance Sheet”), (vii) reviewed consolidated statement of
stockholders’ equity for the six month period ending November 30, 2008 (the
“Most Recent Company Statement of Stockholders’ Equity”), and (viii) reviewed
consolidated cash flow statement for the six month period ending November 30,
2008 (the “Most Recent Company Cash Flow Statement”), in each case internally
prepared by the Company (the Most Recent Company Income Statement, the Most
Recent Company Balance Sheet, the Most Recent Company Statement of Stockholders’
Equity, and the Most Recent Company Cash Flow Statement shall be referred to
collectively as the “Most Recent Company Financial Statements”).  Each of the
Most Recent Company Financial Statements (including, in each case, any notes
thereto), as well as all of the audited financial statements identified above,
are true, complete and correct, and fairly presented in all material respects
the financial position, results of operations and changes in shareholders’
equity and cash flows of the Company and its Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein (subject to
normal and recurring year-end adjustments which were not and are not expected,
individually or in the aggregate, to have a Material Adverse Effect on the
Company or any of its Subsidiaries).
 
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(b)           Except (i) to the extent set forth on the Most Recent Company
Balance Sheet, including the notes thereto, or (ii) as may be specified in
Section 4.8(b) of the Company Disclosure Schedule, neither the Company nor any
Subsidiary has any Liability which would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with GAAP,
applied on a consistent basis, which would not, individually or in the
aggregate, be reasonably expected to have a Material Adverse Effect on the
Company.

4.9           Notes and Accounts Receivable.  All notes and accounts receivables
of the Company and its Subsidiaries appearing on the Most Recent Company Balance
Sheet and all of the receivables which have arisen or been acquired by the
Company or its Subsidiaries since the date thereof (collectively, the “Company
Receivables”), are bona fide trade receivable and have arisen or were acquired
in the Ordinary Course of Business of the Company or its Subsidiaries and in a
manner consistent with their normal past credit practices.  Since the date of
the Most Recent Company Balance Sheet, neither the Company nor any of its
Subsidiaries has cancelled or agreed to cancel, in whole or in part, any Company
Receivables except in the Ordinary Course of Business consistent with
demonstrated past practices.  All of the Company Receivables are reflected
properly on the books and records of the Company or its Subsidiaries, and,
except as set forth on Section 4.9 of the Company Disclosure Schedule, are
current and collectible and not subject to set-off or counterclaim, and will be
collected in accordance with their terms at their recorded amounts, subject only
to reserve for bad debts or doubtful accounts set forth on the Most Recent
Company Balance Sheet (as opposed to the notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company and its Subsidiaries.   For purposes of the foregoing,
Company Receivables shall be deemed to be “collected in accordance with their
terms at their recorded amounts” if they are collected in full within one
hundred and twenty (120) days of the date such receivables are billed.

4.10           Undisclosed Liabilities.  None of the Company and its
Subsidiaries has any material Liability, except for (i) Liabilities set forth on
the face of the Most Recent Company Balance Sheet (rather than in any notes
thereto), and (ii) Liabilities which have arisen since the date of the Most
Recent Company Balance Sheet in the Ordinary Course of Business.

4.11           Taxes.

    (a)           Except as may be specified in Section 4.11(a) of the Company
Disclosure Schedule, (i) each of the Company and its Subsidiaries has duly and
timely filed all Tax Returns required to have been filed by or with respect to
the Company or such Subsidiary, (ii) each such Tax Return correctly and
completely reflects all liability for Taxes and all other information required
to be reported thereon, (iii) all Taxes owed by the Company and each Subsidiary
of the Company (whether or not shown on any Tax Return) have been timely paid,
and (iv) each of the Company and its Subsidiaries has adequately provided for,
in its books of account and related records, all Liability for unpaid Taxes,
being current Taxes not yet due and payable.

    (b)           Except as may be specified in Section 4.11(b) of the Company
Disclosure Schedule, each of the Company and its Subsidiaries has withheld and
timely paid all Taxes required to have been withheld and paid by it and has
complied with all information reporting and backup withholding requirements,
including maintenance of required records with respect thereto.
 
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(c)           Except as may be specified in Section 4.11(c) of the Company
Disclosure Schedule, neither Company nor any of its Subsidiaries (i) is the
beneficiary of any extension of time within which to file any Tax Return, nor
has Company or any of its Subsidiaries made (or had made on its behalf) any
requests for such extensions, or (ii) has waived (or is subject to a waiver of)
any statute of limitations in respect of Taxes or has agreed to (or is subject
to) any extension of time with respect to a Tax assessment or deficiency.

(d)           Section 4.11(d) of the Company Disclosure Schedule indicates those
Tax Returns that have been audited and those Tax Returns that currently are the
subject of audit.  Except as set forth in Section 4.11(d) of the Company
Disclosure Schedule (i) there is no Action now pending or threatened against or
with respect to the Company or any of its Subsidiaries in respect of any Tax or
any assessment or deficiency, and (ii) there are no liens for Taxes (other than
current Taxes not yet due and payable) upon the assets of the Company.

(e)           Section 4.11(e) of the Company Disclosure Schedule lists, as of
the date of this Agreement, all jurisdictions in which the Company or any of its
Subsidiaries currently files Tax Returns.  No claim has been made by any Taxing
Authority in a jurisdiction where the Company or any of its Subsidiaries does
not file Tax Returns that any of them is or may be subject to taxation by that
jurisdiction or that any of them must file Tax Returns.

(f)           None of the assets or properties of the Company or any of its
Subsidiaries constitutes tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code.  Neither the Company nor
any of its Subsidiaries is a party to any “safe harbor lease” within the meaning
of Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982, or to any “long-term contract”
within the meaning of Section 460 of the Code. Neither the Company nor any of
its Subsidiaries has ever been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code. Company is not a “foreign
person” within the meaning of Section 1445 of the Code.

(g)           Neither the Company nor any of its Subsidiaries has agreed to or
is required to make by reason of a change in accounting method or otherwise, or
could be required to make by reason of a proposed or threatened change in
accounting method or otherwise, any adjustment under Section 481(a) of the
Code.  Neither the Company nor any of its Subsidiaries has been the
“distributing corporation” (within the meaning of Section 355(c)(2) of the Code)
with respect to a transaction described in Section 355 of the Code within the
5-year period ending as of the date of this Agreement.

(h)           No Subsidiary of the Company that is incorporated in a non-U.S.
jurisdiction has, or at any time has had, an investment in “United States
property” within the meaning of Section 956(c) of the Code.  No Subsidiary of
the Company is, or at any time has been, a passive foreign investment company
within the meaning of Section 1297 of the Code and neither Company nor any of
its Subsidiaries is a shareholder, directly or indirectly, in a passive foreign
investment company.  No Subsidiary of the Company that is incorporated in a
non-U.S. jurisdiction is, or at any time has been, engaged in the conduct of a
trade or business within the United States, or treated as or considered to be so
engaged.
 
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(i)           Neither the Company nor any of its Subsidiaries (i) has ever been
a party to any Tax allocation or sharing agreement or Tax indemnification
agreement, (ii) has ever been a member of an affiliated, consolidated, condensed
or unitary group, or (iii) has any Liability for or obligation to pay Taxes of
any other Person under Treas. Reg. 1.1502-6 (or any similar provision of Tax
Law), or as transferee or successor, by Contract or otherwise.  Neither the
Company nor any of its Subsidiaries is a party to any joint venture,
partnership, or other arrangement that is treated as a partnership for federal
income tax purposes.
 
(j)           Neither the Company nor any of its Subsidiaries will 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 Effective
Time as a result of any: (i) intercompany transactions or excess loss accounts
described in Treasury regulations under Section 1502 of the Code (or any similar
provision of state, local, or foreign Tax Law), (ii) installment sale or open
transaction disposition made on or prior to the Effective Time, or (iii) prepaid
amount received on or prior to the Effective Time.

(k)           The Company has not entered into any transaction that constitutes
a “reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b).

(l)           Section 4.11(l) of the Company Disclosure Schedule lists each
person who the Company reasonably believes is, with respect to the Company or
any Affiliate of the Company, a “disqualified individual” within the meaning of
Section 280G of the Code and the Regulations thereunder.

(m)           Neither the Company nor, to the Knowledge of Company, any of its
Affiliates has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would reasonably be expected to prevent the
Merger from constituting a “reorganization” under Section 368 of the Code. The
Company is not aware of any agreement or plan to which the Company or any of its
Affiliates is a party or other circumstances relating to the Company or any of
its Affiliates that could reasonably be expected to prevent the Merger from so
qualifying as a “reorganization” under Section 368 of the Code.

(n)           Except as may be specified in Section 4.11(l) of the Company
Disclosure Schedule, the unpaid Taxes of the Company (i) did not, as of the date
of the Most Recent Company Balance Sheet, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Most
Recent Company Balance Sheet (rather than in any notes thereto), and (ii) will
not exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of the Company in filing
its Tax Returns.  Since the date of the Most Recent Company Balance Sheet, the
Company has not incurred any liability for Taxes arising from extraordinary
gains or losses, as that term is used in GAAP, outside the Ordinary Course of
Business consistent with past custom and practice.

4.12        Title to Personal Property.

(a)           With respect to personal properties and assets that are purported
to be owned by the Company and its Subsidiaries, including all properties and
assets reflected as owned on the Most Recent Company Balance Sheet (other than
inventory sold and items of obsolete equipment disposed of in the Ordinary
Course of Business since the date thereof), the Company or one of its
Subsidiaries has good and valid title to all of such properties and assets, free
and clear of all Liens other than Permitted Liens.

(b)             With respect to personal properties and assets that are leased,
the Company or one of its Subsidiaries has a valid leasehold interest in such
properties and assets and all such leases are in full force and effect and
constitute valid and binding obligations of the other party(ies) thereto.
Neither the Company nor any of its Subsidiaries nor any other party thereto is
in violation of any of the terms of any such lease.
 
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4.13           Condition of Tangible Fixed Assets.  All buildings, plants,
leasehold improvements, structures, facilities, equipment and other items of
tangible property and assets which are owned, leased or used by the Company or
any of its Subsidiaries are structurally sound, free from material defects
(patent and latent), have been maintained in accordance with normal industry
practice, are in good operating condition and repair (subject to normal wear and
tear given the use and age of such assets), are usable in the regular and
Ordinary Course of Business and conform in all material respects to all Laws and
Authorizations relating to their construction, use and operation.

4.14           Inventory.  Except as may be specified in Section 4.14 of the
Company Disclosure Schedule, the inventory of the Company and its Subsidiaries
consists of raw materials and supplies, manufactured and processed parts,
work-in-process, and finished goods, all of which is merchantable and fit for
the purpose for which it was procured or manufactured, and none of which is
slow-moving, obsolete, damaged, or defective, subject only to the reserve for
inventory writedown set forth on the face of the Most Recent Company Balance
Sheet (rather than in any notes thereto) as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of the Company and its Subsidiaries.

4.15           Product Warranty.  Except as may be specified in Section 4.15 of
the Company Disclosure Schedule, substantially all of the products manufactured,
sold, leased, and delivered by the Company and its Subsidiaries have conformed
in all material respects with all applicable contractual commitments and all
express and implied warranties, and none of the Company and its Subsidiaries has
any material 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) for
replacement or repair thereof or other damages in connection therewith, subject
only to the reserve for product warranty claims set forth on the face of the
Most Recent Company Balance Sheet (rather than in any notes thereto) as adjusted
for operations and transactions through the Closing Date in accordance with the
past custom and practice of the Company and its Subsidiaries.  Substantially all
of the products manufactured, sold, leased, and delivered by the Company and its
Subsidiaries are subject to standard terms and conditions of sale or
lease.  Section 4.15 of the Company Disclosure Schedule includes copies of the
standard terms and conditions of sale or lease for each of the Company and its
Subsidiaries (containing applicable guaranty, warranty, and indemnity
provisions).

4.16           Product Liability.  None of the Company and its Subsidiaries has
any material 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) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
any of the Company and its Subsidiaries.

4.17          Real Property.

   (a)           Section 4.17(a) of the Company Disclosure Schedule contains
(i) a list of all real property and interests in real property owned in fee by
the Company or any of its Subsidiaries (the “Company-Owned Real Property”), and
(ii) a list of all real property and interests in real property leased by
Company or any of its Subsidiaries with respect to each of which the annual
rental payments exceed $80,000 (the “Company-Leased Real Property”).
 
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(b)           With respect to each parcel of Company-Owned Real Property, the
Company or one of its Subsidiaries has good and marketable title to each such
parcel of Company-Owned Real Property free and clear of all Liens, except
(A) Permitted Liens and (B) zoning and building restrictions, easements,
covenants, rights-of-way and other similar restrictions of record, none of which
materially impairs the current or proposed use of such Company-Owned Real
Property.  There are no outstanding options or rights of first refusal to
purchase such parcel of Company-Owned Real Property, or any portion thereof or
interest therein.

(c)           Each lease with respect to Company-Leased Real Property (each, a
“Company Lease”) is in full force and effect.  Neither the Company nor any of
its Subsidiaries is in default under any such Company Lease and, to the
Company’s Knowledge, no other party thereto is in default under any such Company
Lease.

4.18        Intellectual Property .  Except to the extent as would not have a
Material Adverse Effect, individually or in the aggregate, on the Company:

(a)           Section 4.18(a) of the Company Disclosure Schedule lists (by name,
owner and, where applicable, registration number and jurisdiction of
registration, application, certification or filing) all Intellectual Property
that is owned by Company and/or one or more of its Subsidiaries (whether
exclusively, jointly with another Person or otherwise) (“Company-Owned
Intellectual Property”); provided, however, that Company Disclosure Schedule
does not include items of Company-Owned Intellectual Property which are both
(i) immaterial to Company and its Subsidiaries and (ii) not registered or the
subject of an application for registration.  Except as described in Company
Disclosure Schedule, Company or one of its Subsidiaries owns the entire right,
title and interest to all Company-Owned Intellectual Property free and clear of
all Liens.

(b)           Section 4.18(b) of the Company Disclosure Schedule lists all
licenses, sublicenses and other Contracts (“Company In-Bound Licenses”) pursuant
to which a third party authorizes the Company or any of its Subsidiaries to use,
practice any rights under, or grant sublicenses with respect to, any
Intellectual Property owned by such third party, including the incorporation of
any such Intellectual Property into the Company’s or any of its Subsidiaries’
products and, with respect to each Company In-Bound License, whether Company
In-Bound License is exclusive or non-exclusive; provided, however, that Company
Disclosure Schedule is not required to list Company In-Bound Licenses that
consist solely of “shrink-wrap” and similar commercially available end-user
licenses.

(c)           Section 4.18(c) of the Company Disclosure Schedule lists all
licenses, sublicenses and other Contracts (“Company Out-Bound Licenses”)
pursuant to which the Company or any of its Subsidiaries authorizes a third
party to use, practice any rights under, or grant sublicenses with respect to,
any Company Owned Intellectual Property or pursuant to which Company or any of
its Subsidiaries grants rights to use or practice any rights under any
Intellectual Property owned by a third party and, with respect to each Company
Out-Bound License, whether Company Out-Bound License is exclusive or
non-exclusive.

(d)           Except as may be specified in Section 4.18(d) of the Company
Disclosure Schedule, each Company In-Bound License and each Company Out-Bound
License is in full force and effect and valid and enforceable in accordance with
its terms, and neither the Company nor any of its Subsidiaries has violated any
provision of, or committed or failed to perform any act which, with or without
the giving of notice or lapse of time, or both, would constitute a default in
the performance, observance or fulfillment of any obligation, covenant,
condition or other term contained in any Company In-Bound License or Company
Out-Bound License, and neither the Company nor any of its Subsidiaries has given
or received notice to or from any Person relating to any such alleged or
potential default that has not been cured.
 
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(e)           Except as may be specified in Section 4.18(e) of the Company
Disclosure Schedule, the Company and/or one or more of its Subsidiaries
(i) exclusively own the entire right, interest and title to all Intellectual
Property that is used in or necessary for the businesses of Company and its
Subsidiaries as they are currently conducted free and clear of Liens (including
the design, manufacture, license and sale of all products currently under
development or in production), or (ii) otherwise rightfully use or otherwise
enjoy such Intellectual Property pursuant to the terms of a valid and
enforceable Company In-Bound License that is listed in Company Disclosure
Schedule or that is a “shrink-wrap” or similar commercially available end-user
license. Company-Owned Intellectual Property, together with Company’s and its
Subsidiaries’ rights under Company In-Bound Licenses listed in Section 4.18(b)
of the Company Disclosure Schedule or that are “shrink-wrap” and similar
commercially available end-user licenses (collectively, the “Company
Intellectual Property”), constitutes all the Intellectual Property used in or
necessary for the operation of Company’s and its Subsidiaries’ businesses as
they are currently conducted.

(f)           Except as may be specified in Section 4.18(f) of the Company
Disclosure Schedule, (i) all registration, maintenance and renewal fees related
to Patents, Marks, Copyrights and any other certifications, filings or
registrations that are owned by Company or any of its Subsidiaries
(collectively, “Company Registered Intellectual Property”) that are currently
due have been paid and all documents and certificates related to such Company
Registered Intellectual Property have been filed with the relevant Governmental
Authority or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Company Registered
Intellectual Property, (ii) all Company Registered Intellectual Property is in
good standing, held in compliance with all applicable legal requirements and
enforceable by Company and/or one or more of its Subsidiaries, and (iii)  all
Patents that have been issued to the Company or any of its Subsidiaries are
valid.

(g)           Except as may be specified in Section 4.18(g) of the Company
Disclosure Schedule, the Company is not aware of any challenges (or any basis
therefor) with respect to the validity or enforceability of any Company
Intellectual Property. Neither Company nor any of its Subsidiaries has taken any
action or failed to take any action that would reasonably be expected to result
in the abandonment, cancellation, forfeiture, relinquishment, invalidation,
waiver or unenforceability of any Company Intellectual Property.  Section
4.18(g) of the Company Disclosure Schedule lists all previously held Company
Registered Intellectual Property that the Company or any of its Subsidiaries has
abandoned, cancelled, forfeited or relinquished during the twelve (12) months
preceding the date of this Agreement.

(h)           Except as may be specified in Section 4.18(h) of the Company
Disclosure Schedule, (i) none of the products or services currently or formerly
developed manufactured, sold, distributed, provided, shipped or licensed, by the
Company or any of its Subsidiaries, or which are currently under development,
has infringed or infringes upon, or otherwise unlawfully used or uses, the
Intellectual Property Rights of any third party, (ii) neither the Company nor
any of its Subsidiaries, by conducting its business as currently conducted, has
infringed or infringes upon, or otherwise unlawfully used or uses, any
Intellectual Property Rights of a third party, (iii) neither the Company nor any
of its Subsidiaries has received any communication alleging that Company or any
of its Subsidiaries or any of their respective products, services, activities or
operations infringe upon or otherwise unlawfully use any Intellectual Property
Rights of a third party nor, to the Company’s Knowledge, is there any basis
therefor, (iv) no Action has been instituted, or, to Company’s Knowledge,
threatened, relating to any Intellectual Property formerly or currently used by
the Company or any of its Subsidiaries and none of Company Intellectual Property
is subject to any outstanding Order, and (v) to the Company’s Knowledge, no
Person has infringed or is infringing any Intellectual Property Rights of the
Company or any of its Subsidiaries or has otherwise misappropriated or is
otherwise misappropriating any Company Intellectual Property.
 
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(i)           With respect to the Company’s or any of its Subsidiaries’
Proprietary Information, the documentation relating thereto is current, accurate
and sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the special knowledge or memory of
others. The Company and its Subsidiaries have taken commercially reasonable
steps to protect and preserve the confidentiality of all Proprietary Information
owned by the Company and its Subsidiaries that is not covered by an issued
Patent.  Without limiting the generality of the foregoing, the Proprietary
Information of the Company and its Subsidiaries (other than Proprietary
Information that is covered by an issued Patent) is not part of the public
knowledge and has not been used or divulged for the benefit of any Person other
than the Company and its Subsidiaries.

(j)           Except as specified in Section 4.18(j) of the Company Disclosure
Schedule, (i) all current and former employees, consultants and contractors of
the Company and its Subsidiaries have executed and delivered, and are in
compliance with, enforceable agreements regarding the protection of Proprietary
Information and providing valid written assignments of all Intellectual Property
conceived or developed by such employees, consultants or contractors in
connection with their services for the Company and its Subsidiaries, and (ii) no
current or former employee, consultant or contractor or any other Person has any
right, claim or interest to any of Company Intellectual Property.

(k)           No employee, consultant or contractor of the Company or any of its
Subsidiaries has been, is or will be, by performing services for the Company or
such Subsidiary, in violation of any term of any employment, invention
disclosure or assignment, confidentiality, noncompetition agreement or other
restrictive covenant or any Order as a result of such employee’s, consultant’s
or independent contractor’s employment by the Company or any of its Subsidiaries
or any services rendered by such employee, consultant or independent contractor.

(l)           The execution and delivery of this Agreement and the other
Operative Agreements by the Company does not, and the consummation of the Merger
(in each case, with or without the giving of notice or lapse of time, or both)
will not, directly or indirectly, result in the loss or impairment of, or give
rise to any right of any third party to terminate or reprice or otherwise
renegotiate any of the Company’s or any of its Subsidiaries’ rights to own any
of its Intellectual Property or their respective rights under any Company
Out-Bound License or Company In-Bound License, nor require the consent of any
Governmental Authority or other third party in respect of any such Intellectual
Property.

(m)         Software.

(i)           The Software owned, or purported to be owned by the Company or any
of its Subsidiaries (collectively, the “Company-Owned Software” ), has been
either (A) developed by employees of the Company or one or more of its
Subsidiaries within the scope of their employment by the Company or such
Subsidiary, (B) developed by independent contractors who have assigned all of
their right, title and interest therein to the Company or one of its
Subsidiaries pursuant to written Contracts, or (C) otherwise acquired by the
Company or one of its Subsidiaries from a third party pursuant to a written
Contract in which such third party assigns all of its right, title and interest
therein.  No Company-Owned Software contains any programming code, documentation
or other materials or development environments that embody Intellectual Property
Rights of any Person other than the Company and its Subsidiaries, other than
such materials obtained by the Company and its Subsidiaries from other Persons
who make such materials generally available to all interested Persons or
end-users on standard commercial terms.
 
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(ii)           Each of the Company’s and its Subsidiaries’ existing and
currently supported and marketed Software (including Software-embedded) products
performs, in all material respects, the functions described in any agreed
specifications or end-user documentation or other information provided to
customers of the Company or such Subsidiary on which such customers relied when
licensing or otherwise acquiring such products, subject only to routine bugs and
errors that can be corrected promptly by the Company or such Subsidiary in the
course of providing customer support without further liability to the Company or
such Subsidiary, and all of the code of such products has been developed in a
manner that meets common industry practice, including the use of regression test
and release procedures.  To the Company’s Knowledge, each of the Company’s and
its Subsidiaries’ existing and currently supported and marketed Software
(including Software-embedded) products is free of all viruses, worms, trojan
horses and material known Contaminants and does not contain any bugs, errors, or
problems in each case that would substantially disrupt its operation or have a
substantial adverse impact on the operation of the Software.

(iii)           The Company and its Subsidiaries have taken all actions
customary in the Software industry to document the Company-Owned Software and
its operation, such that the materials comprising the Company-Owned Software,
including the source code and documentation, have been written in a clear and
professional manner so that they may be understood, modified and maintained in
an efficient manner by reasonably competent programmers.

(iv)           Neither the Company nor any of its Subsidiaries has exported or
transmitted Software or other material in connection with the Company’s or such
Subsidiaries’ business to any country to which such export or transmission is
restricted by any applicable Law, without first having obtained all necessary
and appropriate Authorizations.

(v)           All Company-Owned Software is free of any Disabling Code or
Contaminants that may, or may be used to, access, modify, delete, damage or
disable any Systems or that may result in damage thereto.  The Company and its
Subsidiaries have taken reasonable steps and implemented reasonable procedures
to ensure that its and their internal computer systems used in connection with
Company’s and its Subsidiaries’ business are free from Disabling Codes and
Contaminants.  The Software licensed by the Company is free of any Disabling
Codes or Contaminants that may, or may be used to, access, modify, delete,
damage or disable the Systems of the Company or its Subsidiaries or that might
result in damage thereto.  The Company and its Subsidiaries have taken all
reasonable steps to safeguard their respective Systems and restrict unauthorized
access thereto.

(vi)           No Public Software: (A) forms part of any Company Intellectual
Property; (B) was, or is, used in connection with the development of any
Company-Owned Intellectual Property or any products or services developed or
provided by the Company or any of its Subsidiaries; or (C) was, or is,
incorporated or distributed, in whole or in part, in conjunction with Company
Intellectual Property.

4.19        Material Contracts

(a)           Section 4.19 of the Company Disclosure Schedule contains a
complete and accurate list of each Contract or series of related Contracts to
which the Company or any of its Subsidiaries is a party or is subject, or by
which any of their respective assets are bound:
 
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(i)           for the purchase of materials, supplies, goods, services,
equipment or other assets and that involves or would reasonably be expected to
involve (A) annual payments by the Company or any of its Subsidiaries of $50,000
or more, or (B) aggregate payments by the Company or any of its Subsidiaries of
$50,000 or more;

(ii)           (A) for the sale by the Company or any of its Subsidiaries of
materials, supplies, goods, services, equipment or other assets, and that
provides for (1) a specified annual minimum dollar sales amount by the Company
or any of its Subsidiaries of $50,000 or more, or (2) aggregate payments to the
Company or any of its Subsidiaries of $50,000 or more, or (B) pursuant to which
the Company or any of its Subsidiaries received payments of more than $50,000 in
the year ended May 26, 2007, or expects to receive payments of more than $50,000
in the year ending May 26, 2008;

(iii)           that continues over a period of more than six (6) months from
the date hereof and provides for payments to or by the Company or any of its
Subsidiaries exceeding $50,000, except for arrangements disclosed pursuant to
the preceding subparagraphs (i) and (ii);

(iv)           that is an employment, consulting, termination or severance
Contract that involves or would reasonably be expected to involve the payment of
$50,000 or more by the Company or any of its Subsidiaries following the date
hereof, except for any such Contract that is terminable at-will by the Company
or any of its Subsidiaries without liability to the Company or any such
Subsidiary;

(v)           that is a distribution, dealer, representative or sales agency
Contract, other than Contracts entered into in the Ordinary Course of Business
with distributors, representatives and sales agents that are cancelable without
penalty on not more than one hundred eighty (180) days’ notice and does not
deviate in any material respect from the Company’s standard form;

(vi)           that is a (A) Company Lease, or (B) Contract for the lease of
personal property, in each case which provides for payments to or by the Company
or any of its Subsidiaries in any one case of $75,000 or more annually or
$250,000 or more over the term of such Company Lease or lease;

(vii)           which provides for the indemnification by the Company or any of
its Subsidiaries of any Person, the undertaking by the Company or any of its
Subsidiaries to be responsible for consequential damages, or the assumption by
the Company or any of its Subsidiaries of any Tax, environmental or other
Liability;

(viii)           that is a note, debenture, bond, equipment trust, letter of
credit, loan or other Contract for Indebtedness or lending of money (other than
to employees for travel expenses in the Ordinary Course of Business) or Contract
for a line of credit or guarantee, pledge or undertaking of the Indebtedness of
any other Person;

(ix)           for any capital expenditure or leasehold improvement in any one
case in excess of $50,000 or any such Contracts in the aggregate greater than
$100,000;
 
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(x)           that restricts or purports to restrict the right of the Company or
any of its Subsidiaries to engage in any line of business, acquire any property,
develop or distribute any product or provide any service (including geographic
restrictions) or to compete with any Person or granting any exclusive
distribution rights, in any market, field or territory;

(xi)           that is a partnership, joint venture, joint development or
similar Contract;

(xii)           that relates to the acquisition or disposition of any business
(whether by merger, sale of stock, sale of assets or otherwise);

(xiii)           that is a collective bargaining Contract or other Contract with
any labor organization, union or association; and

(xiv)           that is a Contract or series of Contracts, the termination or
breach of which would reasonably be expected to have a Material Adverse Effect
on the Company and not previously disclosed pursuant to this Section 4.19.

(b)           Each Contract required to be listed in Schedule 4.19 of the
Company Disclosure Schedule (collectively, the “Company Material Contracts”) is
in full force and effect and valid and enforceable in accordance with its terms,
except to the extent a failure to be in full force and effect and valid or
enforceable in accordance with its terms would not have a Material Adverse
Effect on the Company.

(c)           Neither the Company nor any of its Subsidiaries is, and to the
Company’s Knowledge, no other party thereto is, in default in the performance,
observance or fulfillment of any obligation, covenant, condition or other term
contained in any Company Material Contract, and neither the Company nor any of
its Subsidiaries has given or received notice to or from any Person relating to
any such alleged or potential default that has not been cured.  No event has
occurred which with or without the giving of notice or lapse of time, or both,
may conflict with or result in a violation or breach of, or give any Person the
right to exercise any remedy under or accelerate the maturity or performance of,
or cancel, terminate or modify, any Company Material Contract.

(d)           The Company has provided accurate and complete copies of each
Company Material Contract to Parent.

(e)           All Contracts other than Company Material Contracts to which the
Company or any of its Subsidiaries is a party or is subject, or by which any of
their respective assets are bound (collectively, the “Company Minor Contracts”),
are in all material respects valid and enforceable in accordance with their
terms.  Neither the Company nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any obligation, covenant or condition
contained therein, and no event has occurred which with or without the giving of
notice or lapse of time, or both, would constitute a default thereunder by the
Company or any of its Subsidiaries, except in either case where any such default
or defaults could not reasonably be expected have, individually or in the
aggregate, a Material Adverse Effect on Company taken as a whole.

4.20           Litigation.  Except as may be specified in Section 4.20 of the
Company Disclosure Schedule, (i) there is no Proceeding pending or, to the
Knowledge of the Company, threatened against the Company or any if its
Subsidiaries, which (a) individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Company, or (b) seeks to and
is reasonably likely to significantly delay or prevent the consummation of the
Merger, (ii) there is no Proceeding against any current or, to Company’s
Knowledge, former director or employee of the Company or any of its Subsidiaries
with respect to which the Company or any of its Subsidiaries has or is
reasonably likely to have an indemnification obligation, and (iii) neither the
Company or any of its Subsidiaries, nor any property or asset of the Company or
any of its Subsidiaries is in violation of any Order having, individually or in
the aggregate, a Material Adverse Effect on the Company.
 
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4.21        Employee Benefit Plans.

(a)           Section 4.21(a) of the Company Disclosure Schedule sets forth a
complete and accurate list of all Benefit Plans sponsored, maintained or
contributed to by the Company, any of its Subsidiaries, or any Company ERISA
Affiliate, or with respect to which the Company, any of its Subsidiaries, or any
Company ERISA Affiliate otherwise has any present or future Liability (each, a
“Company Benefit Plan”).  A current, accurate and complete copy of each Company
Benefit Plan has been provided to Parent.  Neither the Company nor any of its
Subsidiaries has any intent or commitment to create any additional Company
Benefit Plan or amend any Company Benefit Plan.

(b)           Each Company Benefit Plan has been and is currently administered
in compliance in all material respects with its constituent documents and with
all reporting, disclosure and other requirements of ERISA and the Code
applicable to such Company Benefit Plan.  Each Company Benefit Plan that is an
Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) and which is
intended to be qualified under Section 401(a) of the Code (a “Company Pension
Plan”), has been determined by the Internal Revenue Service to be so qualified
and no condition exists that would adversely affect any such determination.  No
Company Benefit Plan is a “defined benefit plan” as defined in Section 3(35) of
ERISA.

(c)           None of the Company, any Subsidiary of Company, any Company ERISA
Affiliate or any trustee or agent of any Company Benefit Plan has been or is
currently engaged in any prohibited transactions as defined by Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not applicable which
could subject Company, any Subsidiary of the Company, any Company ERISA
Affiliate or any trustee or agent of any Company Benefit Plan to the tax or
penalty imposed by Section 4975 of the Code or Section 502 of ERISA.

(d)           There is no event or condition existing which could be deemed a
“reportable event” (within the meaning of Section 4043 of ERISA) with respect to
which the thirty (30)-day notice requirement has not been waived.  To the
Company’s Knowledge, no condition exists which could subject the Company or any
of its Subsidiaries to a penalty under Section 4071 of ERISA.

(e)           None of the Company, any Subsidiary of Company, nor any Company
ERISA Affiliate is, or has been, party to any “multi-employer plan,” as that
term is defined in Section 3(37) of ERISA.

(f)           True and correct copies of the most recent annual report on
Form 5500 and any attached schedules for each Company Benefit Plan (if any such
report was required by applicable Law) and a true and correct copy of the most
recent determination letter issued by the Internal Revenue Service for each
Company Pension Plan have been provided to Parent.
 
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(g)           With respect to each Company Benefit Plan, there are no
Proceedings (other than routine claims for benefits in the ordinary course)
pending or, to the Company’s Knowledge, threatened against any Company Benefit
Plan, the Company, any Subsidiary of the Company, any Company ERISA Affiliate or
any trustee or agent of any Company Benefit Plan.

(h)           With respect to each Company Benefit Plan to which the Company,
any Subsidiary of the Company or any Company ERISA Affiliate is a party which
constitutes a group health plan subject to Section 4980B of the Code, each such
Company Benefit Plan complies, and in each case has complied, in all material
respects with all applicable requirements of Section 4980B of the Code.

(i)            Full payment has been made of all amounts which the Company, any
Subsidiary of the Company or any Company ERISA Affiliate was required to have
paid as a contribution to any Company Benefit Plan as of the last day of the
most recent fiscal year of each of the Benefit Plans ended prior to the date of
this Agreement, and no Company Benefit Plan has incurred any “accumulated
funding deficiency” (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, as of the last day of the most recent fiscal year
of each such Company Benefit Plan ended prior to the date of this Agreement.

(j)           Each Company Benefit Plan is, and its administration is and has
been during the six-year period preceding the date of this Agreement, in all
material respects in compliance with, and none of the Company, any Subsidiary of
the Company or any Company ERISA Affiliate has received any claim or notice that
any such Company Benefit Plan is not in material compliance with, all applicable
Laws and Orders and prohibited transaction exemptions, including to the extent
applicable, the requirements of ERISA.

(k)           None of the Company, any Subsidiary of the Company and any Company
ERISA Affiliate is in default in any material respect in performing any of its
contractual obligations under any Company Benefit Plans or any related trust
agreement or insurance contract.

(l)           There are no material outstanding Liabilities of any Company
Benefit Plan other than Liabilities for benefits to be paid to participants in
any Company Benefit Plan and their beneficiaries in accordance with the terms of
such Company Benefit Plan.

(m)           Subject to ERISA and the Code, each Company Benefit Plan may be
amended, modified, terminated or otherwise discontinued by the Company, a
Subsidiary of the Company or a Company ERISA Affiliate at any time without
liability.

(n)           No Company Benefit Plan other than a Company Pension Plan, retiree
medical plan or severance plan provides benefits to any individual after
termination of employment.

(o)           The consummation of the Merger will not (either alone or in
conjunction with any other event) (i) entitle any current or former director,
employee, contractor or consultant of the Company or any of its Subsidiaries to
severance pay, unemployment compensation or any other payment, (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due to
any such director, employee, contractor or consultant, or result in the payment
of any other benefits to any Person or the forgiveness of any Indebtedness of
any Person, (iii) result in any prohibited transaction described in Section 406
of ERISA or Section 4975 of the Code for which an exemption is not available, or
(iv) result in the payment or series of payments by the Company or any of its
Affiliates to any person of an “excess parachute payment”  within the meaning of
Section 280G of the Code.
 
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(p)           With respect to each Company Benefit Plan that is funded wholly or
partially through an insurance policy, all premiums required to have been paid
to date under the insurance policy have been paid, all premiums required to be
paid under the insurance policy through the Closing will have been paid on or
before the Closing and, as of the Closing, there will be no liability of the
Company, any Subsidiary of the Company or any Company ERISA Affiliate under any
insurance policy or ancillary agreement with respect to such insurance policy in
the nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring prior to the Closing.

(q)           Each Company Benefit Plan that constitutes a “welfare benefit
plan,” within the meaning of Section 3(1) of ERISA, and for which contributions
are claimed by the Company, any Subsidiary of the Company or any Company ERISA
Affiliate as deductions under any provision of the Code, is in compliance in all
material respects with all applicable requirements pertaining to such
deduction.  With respect to any welfare benefit fund (within the meaning of
Section 419 of the Code) related to a welfare benefit plan, there is no
disqualified benefit (within the meaning of Section 4976(b) of the Code) that
would result in the imposition of a tax under Section 4976(a) of the Code.  All
welfare benefit funds intended to be exempt from tax under Section 501(a) of the
Code have been determined by the Internal Revenue Service to be so exempt and no
event or condition exists which would adversely affect any such determination.

(r)           Section 4.21(r) of the Company Disclosure Schedule sets forth all
Company Benefit Plans covering employees of the Company or any of its
Subsidiaries outside of the United States (the “Company Foreign Plans”).  The
Company Foreign Plans have been operated in accordance, and are in compliance,
in all material respects with their constituent documents and all applicable
Laws.  There are no material unfunded Liabilities under or in respect of any
Company Foreign Plans, and all contributions or other payments required to be
made to or in respect of the Company Foreign Plans prior to the Closing Date
have been made or will be made prior to the Closing Date.

4.22        Labor and Employment Matters.

(a)           Neither the Company nor any of its Subsidiaries is a party or
subject to any labor union or collective bargaining Contract. There have not
been since the Company began operations and there are not pending or threatened
any labor disputes, work stoppages, requests for representation, pickets, work
slow-downs due to labor disagreements or any actions or arbitrations which
involve the labor or employment relations of the Company or any of its
Subsidiaries.  There is no unfair labor practice, charge or complaint pending,
unresolved or, to the Company’s Knowledge, threatened before the National Labor
Relations Board. No event has occurred or circumstance exist that may provide
the basis of any work stoppage or other labor dispute.

(b)           Each of the Company and its Subsidiaries has complied in all
material respects with each, and is not in violation in any material respect of
any, Law relating to anti-discrimination and equal employment opportunities and
there are, and have been, no material violations of any other Law respecting the
hiring, hours, wages, occupational safety and health, employment, promotion,
termination or benefits of any employee or other Person.  Each of the Company
and its Subsidiaries has filed all reports, information and notices required
under any Law respecting the hiring, hours, wages, occupational safety and
health, employment, promotion, termination or benefits of any employee or other
Person, and will timely file prior to Closing all such reports, information and
notices required by any Law to be given prior to Closing.
 
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(c)           Each of the Company and its Subsidiaries has paid or properly
accrued in the Ordinary Course of Business all wages and compensation due to
employees, including all vacations or vacation pay, holidays or holiday pay,
sick days or sick pay, and bonuses.

(d)           Neither the Company nor any of its Subsidiaries is a party to any
Contract which restricts the Company or any of its Subsidiaries from relocating,
closing or terminating any of its operations or facilities or any portion
thereof.  Neither the Company nor any of its Subsidiaries have effectuated a
“plant closing” (as defined in the Worker Adjustment and Retraining Notification
Act of 1988 (the “WARN Act”)) or (ii) a “mass lay-off” (as defined in the WARN
Act), in either case affecting any site of employment or facility of the Company
or any of its Subsidiaries, except in accordance with the WARN Act.  The
consummation of the Merger will not create Liability for any act by the Company
or any of its Subsidiaries on or prior to the Closing Date under the WARN Act or
any other Law respecting reductions in force or the impact on employees on plant
closings or sales of businesses.

4.23        Environmental.

(a)           Each of the Company and its Subsidiaries has secured, and is in
compliance in all material respects with, all Environmental Permits required in
connection with its operations and the Real Property.  Each Environmental
Permit, together with the name of the Governmental Authority issuing such
Environmental Permit, is set forth in Section 4.23(a) of the Company Disclosure
Schedule.  All such Environmental Permits are valid and in full force and effect
and none of such Environmental Permits will be terminated or impaired or become
terminable as a result of the Merger.  Each of the Company and its Subsidiaries
has been, and are currently, in compliance in all material respects with all
Environmental Laws. Neither the Company nor any of its Subsidiaries has received
any notice alleging that the Company or any of its Subsidiaries is not in such
compliance with Environmental Laws.

(b)           There are no past, pending or, to the Company’s Knowledge,
threatened Environmental Actions against or affecting the Company or any of its
Subsidiaries, and the Company is not aware of any facts or circumstances which
could be expected to form the basis for any Environmental Action against the
Company or any of its Subsidiaries.

(c)           Neither the Company nor any of its Subsidiaries has entered into
or agreed to any Order, and neither the Company nor any of its Subsidiaries is
subject to any Order, relating to compliance with any Environmental Law or to
investigation or cleanup of a Hazardous Substance under any Environmental Law.

(d)           No Lien has been attached to, or asserted against, the assets,
property or rights of the Company or any of its Subsidiaries pursuant to any
Environmental Law, and, to the Company’s Knowledge, no such Lien has been
threatened.  There are no facts, circumstances or other conditions that could be
expected to give rise to any Liens on or affecting any Real Property.

(e)           There has been no treatment, storage, disposal or Release of any
Hazardous Substance at, from, into, on or under any Real Property or any other
property currently or formerly owned, operated or leased by the Company or any
of its Subsidiaries.  No Hazardous Substances are present in, on, about or
migrating to or from any Real Property that could be expected to give rise to an
Environmental Action against the Company or any of its Subsidiaries.
 
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(f)           Neither the Company nor any of its Subsidiaries has received a
CERCLA 104(e) information request nor has the Company or any of its Subsidiaries
been named a potentially responsible party for any National Priorities List site
under CERCLA or any site under analogous state Law.  Neither the Company nor any
of its Subsidiaries has received an analogous notice or request from any
non-U.S. Governmental Authority.

(g)           There are no aboveground tanks or underground storage tanks on,
under or about the Real Property.  Any aboveground or underground tanks
previously situated on the Real Property or any other property currently or
formerly owned, operated or leased by the Company or any of its Subsidiaries
have been removed in accordance with all Environmental Laws and no residual
contamination, if any, remains at such sites in excess of applicable standards.

(h)           There are no PCBs leaking from any article, container or equipment
on, under or about the Real Property and there are no such articles, containers
or equipment containing PCBs.  There is no asbestos containing material or
lead-based paint containing materials in at, on, under or within the Real
Property.

(i)           Neither the Company nor any of its Subsidiaries has transported or
arranged for the treatment, storage, handling, disposal, or transportation of
any Hazardous Material to any off-site location which is an Environmental
Clean-up Site.

(j)           None of the Real Property is an Environmental Clean-up Site.

(k)           The Company has provided to Parent true and complete copies of, or
access to, all written environmental assessment materials and reports that have
been prepared by or on behalf of the Company or any of its Subsidiaries.

4.24         Related Party Transactions.  There are no Contracts of any kind,
written or oral, entered into by the Company or any of its Subsidiaries with, or
for the benefit of, any officer, director or stockholder of the Company or, to
the Knowledge of the Company, any Affiliate of any of them, except in each case,
for (a) employment agreements, indemnification agreements fringe benefits and
other compensation paid to directors, officers and employees consistent with
previously established policies (including normal merit increases in such
compensation in the Ordinary Course of Business) and copies of which have been
provided to Parent and are listed in Section 4.24 of the Company Disclosure
Schedule, (b) reimbursements of ordinary and necessary expenses incurred in
connection with their employment or service, (c) amounts paid pursuant to
Company Benefit Plans of which copies have been provided to Parent, (d) the
occupancy of certain of the Company’s facilities which do not provide for the
payment of significant amounts of rent, and (e) those loans made to the Company
listed in, and the details of which are specifically set forth in, Section 4.24
of the Company Disclosure Schedule.  To the Knowledge of the Company, none of
such Persons has any material direct or indirect ownership interest in any firm
or corporation with which the Company or any of its Subsidiaries has a business
relationship, or with any firm or corporation that competes with the Company or
any of its Subsidiaries (other than ownership of securities in a publicly-traded
company representing less than one percent of the outstanding stock of such
company).  No officer or director of the Company or any of its Subsidiaries or
member of his or her immediate family or greater than 5% stockholder of the
Company or, to the Knowledge of the Company, any Affiliate of any of them or any
employee of the Company or any of its Subsidiaries is directly or indirectly
interested in any Company Material Contract.
 
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4.25         Insurance. Section 4.25 of the Company Disclosure Schedule sets
forth the following information with respect to each material insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) with respect to which
any of the Company and its Subsidiaries is a party, a named insured, or
otherwise the beneficiary of coverage:

(i)           the name, address, and telephone number of the agent;

(ii)           the name of the insurer, the name of the policyholder, and the
name of each covered insured;

(iii)           the policy number and the period of coverage;

(iv)           the scope (including an indication of whether the coverage is on
a claims made, occurrence, or other basis) and amount (including a description
of how deductibles and ceilings are calculated and operate) of coverage; and

(v)           a description of any retroactive premium adjustments or other
material loss-sharing arrangements.

With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect in all material respects; (B)
neither the Company, any of its Subsidiaries nor any other party to the policy
is in material breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a material breach or default, or
permit termination, modification, or acceleration, under the policy; and (C) no
party to the policy has repudiated any material provision thereof.  Section 4.25
of the Company Disclosure Schedule describes any material self-insurance
arrangements affecting the Company and/or any of its Subsidiaries.

4.26         Absence of Certain Changes or Events.  Since May 31, 2008, except
as may be contemplated by, or disclosed pursuant to, this Agreement, including
Section 4.26 of the Company Disclosure Schedule:

(a)           there has not been any event or events (whether or not covered by
insurance), individually or in the aggregate, which have had a Material Adverse
Effect on the Company or any of its Subsidiaries, including without limitation
the imposition of any security interests on any of the assets of the Company or
any of its Subsidiaries;

(b)           there have not been any amendments or other modifications to the
certificate of incorporation or bylaws of either the Company or any of its
Subsidiaries;

(c)           there has not been any entry by the Company nor any of its
Subsidiaries into any commitment or transaction material to the Company or such
Subsidiaries, except in the Ordinary Course of Business and consistent with past
practice, including without limitation any (i) borrowings or the issuance of any
guaranties, (ii) any capital expenditures in excess of $60,000, or (iii) any
grant of any increase in the base compensation payable, or any loans, to any
directors, officers or employees;

(d)           there has not been, other than pursuant to the Plans, any increase
in or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the Ordinary Course of Business consistent with
past practice.
 
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(e)           there have not been any material changes by the Company in its
accounting methods, principles or practices;

(f)           neither Company nor any of its Subsidiaries has declared, set
aside or paid any dividend or other distribution (whether in cash, stock or
property) with respect to any of its securities;

(g)           neither Company nor any of its Subsidiaries has split, combined or
reclassified any of its securities, or issued, or authorized for issuance, any
securities;

(h)           there has not been any material damage, destruction or loss with
respect to the property and assets of Company or any of its Subsidiaries,
whether or not covered by insurance;

(i)           there has not been any revaluation of Company’s or any of its
Subsidiaries’ assets, including writing down the value of inventory or writing
off notes or accounts receivable, other than in the Ordinary Course of Business
consistent with past practice; and

(j)           neither Company nor any of its Subsidiaries has agreed, whether in
writing or otherwise, to do any of the foregoing.

4.27         Solvency. No Order has been made, petition presented, or resolution
passed for the winding up (or other process whereby the business is terminated
and the assets of the subject company are distributed among its creditors and/or
shareholders) of either the Company or any of its Subsidiaries.  There are no
cases or Proceedings of any kind pending under any applicable insolvency,
reorganization or similar Law in any jurisdiction concerning the Company or any
of its Subsidiaries, and no circumstances exist which, under applicable Law,
would justify any such cases or Proceedings.  No receiver or trustee has
been  appointed with respect to all or any portion of the Company or any of its
Subsidiaries business or assets.

4.28         Brokers or Finders. The Company shall indemnify and hold harmless
Parent and the officers and directors of Parent from any obligations or
liabilities to any person or entity engaged by or to whom the Company or any of
its Subsidiaries is liable for brokerage, investment banking and/or finder’s
fees or commissions for services rendered in connection with the Transactions.

4.29         No Illegal Payments.  None of the Company, any of its Subsidiaries
or, to the Knowledge of the Company, any Affiliate, officer, agent or employee
thereof, directly or indirectly, has, since inception, on behalf of or with
respect to the Company or any of its Subsidiaries, (a) made any unlawful
domestic or foreign political contributions, (b) made any payment or provided
services which were not legal to make or provide or which the Company, any of
its Subsidiaries or any Affiliate thereof or any such officer, employee or other
Person should reasonably have known were not legal for the payee or the
recipient of such services to receive, (c) received any payment or any services
which were not legal for the payer or the provider of such services to make or
provide, (d) had any material transactions or payments which are not recorded in
its accounting books and records, or (e) had any off-book bank or cash accounts
or “slush funds.”
 
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4.30           Information Supplied.  None of the information furnished or to be
furnished by or on behalf of the Company for inclusion or incorporation by
reference in the Form S-4 Registration Statement to be filed with the SEC by
Parent in connection with the issuance of the Merger Securities pursuant to the
Merger, will, as of the time furnished, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.

4.31           Antitakeover Statutes. The Company has taken all action necessary
to exempt the Merger, this Agreement, the Amended & Restated Voting Agreement,
and the Transactions from Section 203 of the DGCL.  Neither such Section nor any
other anti-takeover or similar Law applies or purports to apply to the
Transactions.  No other “control share acquisition,” “fair price,” “moratorium”
or other anti-takeover Laws apply to this Agreement or any of the Transactions.

4.32           Compliance with Securities Laws.  Except to the extent as would
not have a Material Adverse Effect, individually or in the aggregate, on the
Company or any of its Subsidiaries, the offering and issuance by the Company and
any of its Subsidiaries of all securities to date were made and completed in
substantial compliance with all applicable state, federal and, if applicable,
foreign securities Laws.

4.33           Change in Control.  Except as may be set forth in Section 4.33 of
the Company Disclosure Schedule, the Company is not a party to any Contract that
contains a “change in control,” “potential change in control” or similar
provision.

4.34           Powers of Attorney.  To the Knowledge of the Company, there are
no material outstanding powers of attorney executed on behalf of the Company or
any of its Subsidiaries.

4.35           Material Disclosures.  No statement, representation or warranty
made by the Company in this Agreement, or in any certificate, statement, list,
schedule or other document furnished or to be furnished to Parent hereunder,
contains, or when so furnished will contain, any untrue statement of a material
fact, or fails to state, or when so furnished will fail to state, a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances in which they are or will be made, not misleading.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Except as set forth in the Disclosure Schedule delivered by Parent to the
Company and signed by the Company and Parent for identification prior to the
execution and delivery of this Agreement (the “Parent Disclosure Schedule”),
which shall identify exceptions by specific section references, Parent and
Merger Sub hereby, jointly and severally, represent and warrant to the Company
that:

5.1           Corporate Organization and Qualification.  Parent and Merger Sub
are corporations duly organized, validly existing and in good standing under the
Laws of the State of Delaware.  Parent and each of its Subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing as would not, individually or in the aggregate, have a
Material Adverse Effect on either or both of Parent and/or Merger Sub.
 
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5.2           Certificate of Incorporation and Bylaws.  Exhibit A annexed hereto
is a complete and correct copy of Parent’s certificate of incorporation, as
amended to date, and Exhibit B annexed hereto is a complete and correct copy of
Parent’s bylaws, as amended to date.  Exhibit C annexed hereto is a complete and
correct copy of Merger Sub’s certificate of incorporation, as amended to date,
and Exhibit D annexed hereto is a complete and correct copy of the Merger Sub’s
bylaws, as amended to date.  Neither Parent nor Merger Sub is in violation of
any provision of its certificate of incorporation or bylaws.

5.3           Books and Records.

(a)         The books of account, minute books, stock record books, and other
records of Parent and Merger Sub, all of which have heretofore been furnished or
made available to the Company, are complete and correct and have been maintained
in accordance with sound business practices, including the maintenance of an
adequate system of internal controls.  The minute books of Parent and Merger Sub
contain accurate and complete records of all meetings held of, consents of, and
corporate action taken by, the stockholders, the boards of directors, and any
committees of the boards of directors of each of Parent and Merger Sub, and no
meeting of such stockholders, boards of directors or committees has been held
for which minutes have not been prepared and are not contained in such minute
books.

(b)         None of the records, systems, data or information of either Parent
or Merger Sub is recorded, stored, maintained, operated or otherwise wholly or
partly dependent on or held or accessible by any means (including, but not
limited to, an electronic, mechanical or photographic process computerized or
not) which are not under the exclusive ownership and direct control of either
Parent or Merger Sub, as the case may be.

5.4           Capitalization.

(a)           As of the date of this Agreement, the authorized capital stock of
Parent consists of (i) one hundred million (100,000,000) shares of Parent Common
Stock, $.0001 par value, and (ii) twenty million (20,000,000) shares of “blank
check” preferred stock, $.0001 par value (“Parent Preferred Stock”).  As of the
date of this Agreement, (A) 5,000,000 shares of Parent Common Stock were issued
and outstanding, all of which were validly issued, fully paid and nonassessable,
(B) no shares of Parent Common Stock were held in the treasury of Parent, (C) no
shares of Parent Common Stock were reserved for future issuance pursuant to
outstanding stock options or stock incentive rights granted pursuant to any
stock option plan, and (D) no shares of Parent Preferred Stock were issued or
outstanding.  Except as contemplated by this Agreement and as set forth in
Section 5.4(a) of the Parent Disclosure Schedule, as of the date of this
Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of Parent obligating Parent to issue or sell any shares of capital
stock of, or other equity interests in, Parent or Merger Sub.  There are no
outstanding contractual obligations of Parent to repurchase, redeem or otherwise
acquire any shares of Parent Common Stock, Parent Preferred Stock or any other
securities of Parent. The shares of Parent Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights created by statute, Parent’s certificate of
incorporation or bylaws, or any agreement to which Parent is a party or by which
Parent is bound.
 
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(b)           As of the date of this Agreement, the authorized capital stock of
Merger Sub consists of (i) 1,000,000 shares of Merger Sub Common stock, $.0001
par value, and (ii) 1,000,000 shares of “blank check” preferred stock, $.0001
par value (“Merger Sub Preferred Stock”).  As of the date of this Agreement, (A)
1,000 shares of Merger Sub Common Stock were issued and outstanding, each of
which are held by Parent, and all of which were validly issued, fully paid and
nonassessable, (B) no shares of Merger Sub Common Stock were held in the
treasury of Merger Sub, (C) no shares of Merger Sub Common Stock were reserved
for future issuance pursuant to outstanding stock options or stock incentive
rights granted pursuant to any stock option plan, and (D) no shares of Merger
Sub Preferred Stock were issued or outstanding.  Except as contemplated by this
Agreement and as set forth in Section 5.4(b) of the Parent Disclosure Schedule,
as of the date of this Agreement, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of Merger Sub obligating Merger Sub to issue or
sell any shares of capital stock of, or other equity interests in, Merger
Sub.  There are no outstanding contractual obligations of Merger Sub to
repurchase, redeem or otherwise acquire any shares of Merger Sub Common Stock or
Merger Sub Preferred Stock.

5.5          Authority Relative To This Agreement.  Each of Parent and Merger
Sub has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
Transactions.  The execution and delivery of this Agreement by Parent and Merger
Sub and the consummation by Parent and Merger Sub of the Transactions have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Merger Sub are necessary to
authorize this Agreement or to consummate the Transactions (other than with
respect to the Merger, the filing and recordation of the Certificate of Merger
with the Delaware Secretary of State, as required by this Agreement and
applicable Law).  This Agreement has been duly and validly executed and
delivered by Parent and Merger Sub and, assuming the due authorization,
execution and delivery of this Agreement by the Company and the Company
Principal Stockholder, constitutes a legal, valid and binding obligation of each
of Parent and Merger Sub enforceable against each of Parent and Merger Sub in
accordance with its terms, except as the enforceability thereof may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar Laws affecting or relating to creditors’ rights generally, and (ii) the
availability of injunctive relief and other equitable remedies.

5.6          No Conflict; Required Filings and Consents.

(a)           The execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement by Parent and Merger Sub will
not, subject to obtaining the consents, approvals, Authorizations and permits
and making the filings described in Section 5.6(b) of this Agreement and Section
5.6(b) of the Parent Disclosure Schedule, (i) conflict with or violate the
certificate of  incorporation or bylaws of either Parent or Merger Sub, (ii)
conflict with or violate any Law applicable to Parent or Merger Sub or by which
any property or asset of any of them is bound or affected, or (iii) result in
any breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien or other encumbrance on any property or asset of Parent or
Merger Sub or require the consent of any third party pursuant to, any note,
bond, mortgage, indenture, Contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or Merger Sub is a
party or by which Parent or Merger Sub or any property or asset of any of them
is bound or affected, except for any such conflicts, violations, breaches,
defaults or other occurrences which would not, individually or in the aggregate,
have a Material Adverse Effect on Parent or prevent Parent and Merger Sub from
performing their respective obligations under this Agreement and consummating
the Transactions.
 
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(b)           The execution and delivery of this Agreement by Parent and Merger
Sub do not, and the performance of this Agreement by Parent and Merger Sub will
not, require any consent, approval, Authorization or permit of, or filing with
or notification to, any Governmental Authority, domestic or foreign, except
(i) the filing and effectiveness of a Form S-4 registration statement with the
SEC in connection with the issuance of the Merger Securities pursuant to the
Merger and the issuance of any Parent Common Stock underlying, and issuable upon
exercise or conversion of, any Merger Securities (including any amendments or
supplements thereto, the “S-4 Registration Statement”), (ii) such filings as may
otherwise be required in accordance with federal and state securities Law
compliance in connection with the issuance of the Merger Securities pursuant to
the Merger and the issuance of any Parent Common Stock underlying, and issuable
upon exercise or conversion of, any Merger Securities, (iii) the filing of a
Schedule 14F in accordance with Exchange Act Section 14f, (iv) the filing and
recordation of the Certificate of Merger with the Delaware Secretary of State as
required by this Agreement and applicable Law, (v) such filings as may be
required under the Exchange Act and/or by FINRA, (vi) as may be specified in
Section 5.6(b) of the Parent Disclosure Schedule, and (vii) where failure to
obtain such consents, approvals, Authorizations or permits, or to make such
filings or notifications, would not have a Material Adverse Effect on Parent or
Merger Sub and would not prevent or delay consummation of the Transactions, or
otherwise prevent Parent or Merger Sub from performing their respective
obligations under this Agreement.
 
5.7          SEC Reports; Financial Statements.

(a)           Parent has made available to Company all forms, reports and
documents required to be filed by it with the SEC since April 1, 2007
(collectively, the “Parent SEC Reports”).  Parent SEC Reports (i) at the time
they were filed complied as to form in all material respects with the applicable
requirements of the Exchange Act, and (ii) did not at the time they were filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

(b)           The consolidated financial statements (including, in each case,
any related notes) contained in Parent SEC Reports complied as to form in all
material respects with the applicable rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted by the SEC) and fairly presented the consolidated financial position
of Parent and its Subsidiaries as at the respective dates and the consolidated
results of its operations and cash flows for the periods indicated (subject, in
the case of the unaudited financial statements, to normal year-end recurring
adjustments).
 
(c)           Parent and its Subsidiaries have no Liabilities except (a) those
which are adequately reflected or reserved against as noted above in the
Financial Statements included in the most recently filed Parent SEC Report, and
(b) those which have been incurred in the Ordinary Course of Business and
consistent with past practice since the last balance sheet date therein or which
are not, individually or in the aggregate, material in amount.

5.8          Taxes.

(a)           Except as may be specified in Section 5.8(a) of the Parent
Disclosure Schedule, (i) each of Parent and its Subsidiaries has duly and timely
filed all Tax Returns required to have been filed by or with respect to Parent
or such Subsidiary, (ii) each such Tax Return correctly and completely reflects
all liability for Taxes and all other information required to be reported
thereon, (iii) all Taxes owed by Parent and each Subsidiary of Parent (whether
or not shown on any Tax Return) have been timely paid, and (iv) each of Parent
and its Subsidiaries has adequately provided for, in its books of account and
related records, all Liability for unpaid Taxes, being current Taxes not yet due
and payable.
 
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(b)           Except as may be specified in Section 5.8(b) of the Parent
Disclosure Schedule, each of Parent and its Subsidiaries has withheld and timely
paid all Taxes required to have been withheld and paid by it and has complied
with all information reporting and backup withholding requirements, including
maintenance of required records with respect thereto.

(c)           Except as may be specified in Section 5.8(c) of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries (i) is the
beneficiary of any extension of time within which to file any Tax Return, nor
has Parent or any of its Subsidiaries made (or had made on its behalf) any
requests for such extensions, or (ii) has waived (or is subject to a waiver of)
any statute of limitations in respect of Taxes or has agreed to (or is subject
to) any extension of time with respect to a Tax assessment or deficiency.

(d)           Section 5.8(d) of the Parent Disclosure Schedule indicates those
Tax Returns that have been audited and those Tax Returns that currently are the
subject of audit.  Except as set forth in Section 5.8(d) of the Parent
Disclosure Schedule (i) there is no Action now pending or threatened against or
with respect to Parent or any of its Subsidiaries in respect of any Tax or any
assessment or deficiency, and (ii) there are no liens for Taxes (other than
current Taxes not yet due and payable) upon the assets of Parent.

(e)           Section 5.8(e) of the Parent Disclosure Schedule lists, as of the
date of this Agreement, all jurisdictions in which Parent or any of its
Subsidiaries currently files Tax Returns.  No claim has been made by any Taxing
Authority in a jurisdiction where Parent or any of its Subsidiaries does not
file Tax Returns that any of them is or may be subject to taxation by that
jurisdiction or that any of them must file Tax Returns.

(f)           None of the assets or properties of Parent or any of its
Subsidiaries constitutes tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code.  Neither Parent nor any
of its Subsidiaries is a party to any “safe harbor lease” within the meaning of
Section 168(f)(8) of the Code, as in effect prior to amendment by the Tax Equity
and Fiscal Responsibility Act of 1982, or to any “long-term contract” within the
meaning of Section 460 of the Code. Neither Parent nor any of its Subsidiaries
has ever been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.  Parent is not a “foreign person”
within the meaning of Section 1445 of the Code.

(g)           Neither Parent nor any of its Subsidiaries has agreed to or is
required to make by reason of a change in accounting method or otherwise, or
could be required to make by reason of a proposed or threatened change in
accounting method or otherwise, any adjustment under Section 481(a) of the
Code.  Neither Parent nor any of its Subsidiaries has been the “distributing
corporation” (within the meaning of Section 355(c)(2) of the Code) with respect
to a transaction described in Section 355 of the Code within the 5-year period
ending as of the date of this Agreement.

(h)           No Subsidiary of Parent that is incorporated in a non-U.S.
jurisdiction has, or at any time has had, an investment in “United States
property” within the meaning of Section 956(c) of the Code.  No Subsidiary of
Parent is, or at any time has been, a passive foreign investment company within
the meaning of Section 1297 of the Code and neither Parent nor any of its
Subsidiaries is a shareholder, directly or indirectly, in a passive foreign
investment company.  No Subsidiary of Parent that is incorporated in a non-U.S.
jurisdiction is, or at any time has been, engaged in the conduct of a trade or
business within the United States, or treated as or considered to be so engaged.
 
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(i)           Neither Parent nor any of its Subsidiaries (i) has ever been a
party to any Tax allocation or sharing agreement or Tax indemnification
agreement, (ii) has ever been a member of an affiliated, consolidated, condensed
or unitary group, or (iii) has any Liability for or obligation to pay Taxes of
any other Person under Treas. Reg. 1.1502-6 (or any similar provision of Tax
Law), or as transferee or successor, by Contract or otherwise.  Neither Parent
nor any of its Subsidiaries is a party to any joint venture, partnership, or
other arrangement that is treated as a partnership for federal income tax
purposes.

(j)           Neither Parent nor any of its Subsidiaries will 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 Effective
Time as a result of any: (i) intercompany transactions or excess loss accounts
described in Treasury regulations under Section 1502 of the Code (or any similar
provision of state, local, or foreign Tax Law), (ii) installment sale or open
transaction disposition made on or prior to the Effective Time, or (iii) prepaid
amount received on or prior to the Effective Time.

(k)           Parent has not entered into any transaction that constitutes a
“reportable transaction” within the meaning of Treasury
Regulation Section 1.6011-4(b).

(l)           Section 5.8(l) of the Parent Disclosure Schedule lists each person
who Parent reasonably believes is, with respect to Parent or any Affiliate of
Parent, a “disqualified individual” within the meaning of Section 280G of the
Code and the Regulations thereunder.

(m)           Neither Parent nor, to the Knowledge of Parent, any of its
Affiliates has taken or agreed to take any action (other than actions
contemplated by this Agreement) that would reasonably be expected to prevent the
Merger from constituting a “reorganization” under Section 368 of the Code.  The
Parent is not aware of any agreement or plan to which Parent or any of its
Affiliates is a party or other circumstances relating to Parent or any of its
Affiliates that could reasonably be expected to prevent the Merger from so
qualifying as a “reorganization” under Section 368 of the Code.

(n)           Except as may be specified in Section 5.8(n) of the Parent
Disclosure Schedule, the unpaid Taxes of Parent (i) did not, as of the date of
the Most Recent Parent Balance Sheet, exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Most
Recent Parent Balance Sheet (rather than in any notes thereto), and (ii) will
not exceed that reserve as adjusted for the passage of time through the Closing
Date in accordance with the past custom and practice of Parent in filing its Tax
Returns.  Since the date of the Most Recent Parent Balance Sheet, Parent has not
incurred any liability for Taxes arising from extraordinary gains or losses, as
that term is used in GAAP, outside the Ordinary Course of Business consistent
with past custom and practice.

5.9           Absence of Litigation.  There is no claim, action, Proceeding or
investigation pending or, to the Knowledge of Parent, threatened against Parent
or any Subsidiary of Parent including Merger Sub, before any arbitrator or
Governmental Authority, which (a) individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Parent, or (b) seeks
to delay or prevent the consummation of the Merger.  Neither Parent nor Merger
Sub, nor any property or asset of Parent or Merger Sub is in violation of any
Order, writ, judgment, injunction, decree, determination or award having,
individually or in the aggregate, a Material Adverse Effect.
 
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5.10         Related Party Transactions.  There are no Contracts of any kind,
written or oral, entered into by Parent or any of its Subsidiaries with, or for
the benefit of, any officer, director or stockholder of  Parent or, to the
Knowledge of Parent, any Affiliate of any of them, except in each case, for (a) 
reimbursements of ordinary and necessary expenses incurred in connection with
their services, (b) the occupancy of certain of Parent’s facilities which do not
provide for the payment of significant amounts of rent, and (c) as may have
otherwise been disclosed in the Parent SEC Reports.
 
5.11         Ownership of Merger Sub; No Prior Activities.

(a)           Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated by this Agreement.

(b)           As of the date hereof and the Effective Time, except for
obligations or Liabilities incurred in connection with its incorporation or
organization and the Transactions, and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Merger Sub has not
and will not have incurred, directly or indirectly, through any Subsidiary or
Affiliate, any obligations or Liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.

5.12         Absence of Certain Changes or Events.  Since the date of the most
recently filed Parent SEC Reports that included financial statements, and except
as may be contemplated by, or disclosed pursuant to, this Agreement, including
Section 5.12 of the Parent Disclosure Schedule:

(a)           there has not been any event or events (whether or not covered by
insurance), individually or in the aggregate, which have had a Material Adverse
Effect on Parent or any of its Subsidiaries, including without limitation the
imposition of any security interests on any of the assets of Parent or any of
its Subsidiaries;

(b)           there have not been any amendments or other modifications to the
certificate of incorporation or bylaws of either Parent or any of its
Subsidiaries;

(c)           there has not been any entry by Parent nor any of its Subsidiaries
into any commitment or transaction material to Parent or such Subsidiaries,
except in the Ordinary Course of Business and consistent with past practice,
including without limitation any (i) borrowings or the issuance of any
guaranties, (ii) any capital expenditures in excess of $1,000, or (iii) any
grant of any increase in the base compensation payable, or any loans, to any
directors, officers or employees;

(d)           there has not been, other than pursuant to the Plans, any increase
in or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, except in the Ordinary Course of Business consistent with
past practice.

(e)           there have not been any material changes by Parent in its
accounting methods, principles or practices;

(f)           neither Parent nor any of its Subsidiaries has declared, set aside
or paid any dividend or other distribution (whether in cash, stock or property)
with respect to any of its securities;
 
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(g)           neither Parent nor any of its Subsidiaries has split, combined or
reclassified any of its securities, or issued, or authorized for issuance, any
securities;

(h)           there has not been any material damage, destruction or loss with
respect to the property and assets of Parent or any of its Subsidiaries, whether
or not covered by insurance;

(i)           there has not been any revaluation of Parent’s or any of its
Subsidiaries’ assets, including writing down the value of inventory or writing
off notes or accounts receivable, other than in the Ordinary Course of Business
consistent with past practice; and

(j)           neither Parent nor any of its Subsidiaries has agreed, whether in
writing or otherwise, to do any of the foregoing.

5.13         No Illegal Payments.  None of Parent, any of its Subsidiaries or,
to the Knowledge of  Parent, any Affiliate, officer, agent or employee thereof,
directly or indirectly, has, since inception, on behalf of or with respect to
Parent or any of its Subsidiaries, (a) made any unlawful domestic or foreign
political contributions, (b) made any payment or provided services which were
not legal to make or provide or which Parent, any of its Subsidiaries or any
Affiliate thereof or any such officer, employee or other Person should
reasonably have known were not legal for the payee or the recipient of such
services to receive, (c) received any payment or any services which were not
legal for the payer or the provider of such services to make or provide, (d) had
any material transactions or payments which are not recorded in its accounting
books and records, or (e) had any off-book bank or cash accounts or “slush
funds.”

5.14         Antitakeover Statutes.  Parent has taken all action believed to be
necessary to exempt the Merger, this Agreement, the Amended & Restated Voting
Agreement, and the Transactions from Section 203 of the DGCL.  Neither such
Section nor any other anti-takeover or similar Law applies or purports to apply
to the Transactions.  No other “control share acquisition,” “fair price,”
“moratorium” or other anti-takeover Laws apply to this Agreement or any of the
Transactions.

5.15         Compliance with Securities Laws.  Except to the extent as would not
have a Material Adverse Effect, individually or in the aggregate, on Parent or
any of its Subsidiaries, the offering and issuance by Parent and any of its
Subsidiaries of all securities to date were made and completed in substantial
compliance with all applicable state and federal securities Laws.

5.16         Brokers or Finders.  No broker, finder or investment banker is
entitled to any brokerage, finder’s or other fee or commission in connection
with the Transactions based upon arrangements made by or on behalf of Parent or
Merger Sub.

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ARTICLE VI

COVENANTS RELATING TO CONDUCT OF BUSINESS PENDING THE MERGER

6.1           Conduct of Business by the Company Pending the Merger.  The
Company covenants and agrees that, between the date of this Agreement and the
Effective Time, except as set forth in Section 6.1 of the Company Disclosure
Schedule or as contemplated by any other provision of this Agreement, and unless
Parent shall otherwise agree in writing (which agreement shall not be
unreasonably withheld), (1) the business of the Company and any of its
Subsidiaries shall be conducted only in, and the Company and any such
Subsidiaries shall not take any action except in, the Ordinary Course of
Business, (2) the Company shall use all reasonable efforts to preserve
substantially intact its business organization, to keep available the services
of the current officers, employees and consultants of the Company and any of its
Subsidiaries and to preserve the current relationships of the Company and such
Subsidiaries with customers, suppliers and other persons with which the Company
and any of its Subsidiaries has significant business relations, (3) comply with
all applicable Laws, (4) prepare and timely file all foreign, Federal, state and
local Tax Returns as required by applicable Law, and make timely payment of all
applicable Taxes when due, (5) use reasonable efforts to obtain, prior to the
Closing Date, all Required Company Consents, (6) take all actions to be in
substantial compliance with all Company Permits, (7) make full and timely
payment of all amounts required to be contributed under the terms of each Plan
and applicable Law or required to be paid as expenses under any such Plan, and
(8) the Company will not, and will not permit any Subsidiary to:

(a)           amend or otherwise change its Articles of Incorporation or Bylaws;

(b)           issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares of
capital stock of the Company or any Subsidiary of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company (except for shares of
the Company Common Stock, if any, issuable under agreements currently in effect
on the date hereof and described in Section 4.4(a) of the Company Disclosure
Schedule), shares of capital stock pursuant to Plans currently in effect as of
the date hereof and described in Section 4.21(a) of the Company Disclosure
Schedule, and such shares of Company Common Stock as it otherwise deems
appropriate, or (ii) any of the Company’s or any Subsidiaries’ assets, except
for sales in the Ordinary Course of Business and in a manner consistent with
past practice;

(c)           declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;

(d)           reclassify, combine, split, divide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;

(e)           (i)  acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any Person or
any division thereof or any assets, other than the acquisition of assets in the
Ordinary Course of Business consistent with past practice; (ii) merge with any
Person (other than Merger Sub), (iii) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
loans or advances; (iv) enter into any Contract material to the business,
results of operations or financial condition of the Company other than in the
Ordinary Course of Business, consistent with past practice; (v) authorize any
capital expenditure, other than capital expenditures set forth in Section
4.19(a)(ix) of the Company Disclosure Schedule; or (vi) enter into or amend any
Contract with respect to any matter set forth in this subsection (e);

(f)            (i) increase the compensation payable or to become payable to any
director, officer or other employee, or grant any bonus, to, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with any director, officer or other employee of the Company or any
Subsidiary or enter into or amend any collective bargaining agreement, or (ii)
establish, adopt, enter into or amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation or other plan, trust or fund for the benefit of any director,
officer or class of employees;
 
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(g)           settle or compromise any pending or threatened litigation which is
material or which relates to the Transactions;

(h)           grant or convey to any Person any rights, including, but not
limited to, by way of sale, license or sub-license, in any of the Company
Intellectual Property;

(i)           make any Tax election, change its method of Tax accounting or
settle any claim relating to Taxes;

(j)           make any change in any of the Company’s or any of its Subsidiaries
accounting methods or in the manner of keeping each of their respective books
and records or any change in any of their respective current practices with
respect to inventory, sales, receivables, payables or accrued expenses;

(k)           file or cause to be filed any registration statements under the
Securities Act or Exchange Act relating to any of its capital stock or other
securities;

(l)           take any action or omit to do any act within its reasonable
control which action or omission is reasonably likely to result in any of the
conditions to the Merger not being satisfied, except as may be required by
applicable Law;

(m)           take or omit to take any action that would result in its
representations and warranties hereunder being rendered untrue in any material
respect; or

(n)           agree to do any of the foregoing.

6.2          Conduct of Business by Parent Pending the Merger.  Parent covenants
and agrees that, between the date of this Agreement and the Effective Time,
except as may be set forth in Section 6.2 of the Parent Disclosure Schedule, as
contemplated by any other provision of this Agreement, or as may not have a
Material Adverse Effect on Parent or any of its Subsidiaries, and unless the
Company shall otherwise agree in writing (which agreement shall not be
unreasonably withheld), (i) the businesses of Parent and Merger Sub shall be
conducted only in, and Parent shall not, and shall cause Merger Sub not to, take
any action except in, the Ordinary Course of Business consistent with past
practice, (ii) Parent shall timely file all Parent SEC Reports as may be
required under the Exchange Act (including any extensions afforded by way of
compliance with Rule 12b-25 thereunder, if applicable), (iii) Parent shall
comply with all applicable Laws, (iv) Parent shall prepare and timely file all
foreign, Federal, state and local Tax Returns as required by applicable Law, and
make timely payment of all applicable Taxes when due, (v) Parent shall not amend
any of the terms or provisions of the Parent Common Stock, (vi) Parent shall not
take any action or omit to do any act within its reasonable control which action
or omission is reasonably likely to result in any of the conditions to the
Merger not being satisfied, except as may be required by applicable Law, and
(vii) Parent shall not take or omit to take any action that would result in its
representations and warranties hereunder being rendered untrue in any material
respect.
 
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6.3           Conduct of Company Principal Stockholder Pending the Merger.  The
Company Principal Stockholder covenants and agrees to refrain from taking any
action, directly or indirectly, that is intended to, would, or that might
reasonably be likely to, (i) discourage Company Stockholders from approving the
Merger and this Agreement as required under the DGCL and the bylaws of the
Company, or (ii) encourage, or that might otherwise result in, any holder of
Dissentable Shares becoming a Dissenting Holder.   

ARTICLE VII

ADDITIONAL AGREEMENTS

7.1           Amended & Restated Voting Agreement.  Contemporaneously with the
execution of this Agreement, the Company Principal Stockholder shall have
delivered to Parent an executed Amended & Restated Voting Agreement.

7.2           Parent Stockholder Holdback.  Anything to the contrary in this
Agreement notwithstanding, the common stockholders of Parent (the “Parent
Stockholders”) shall be entitled to collectively retain three  million five
hundred thousand (3,500,000) shares of the total isssued and outstanding Parent
Common Stock as of the Effective Time (the “Parent Stockholder Holdback”).  In
order to enable the Parent Stockholder Holdback, and given that there are five
million (5,000,000) shares of Parent Common Stock issued and outstanding as of
the date hereof, Parent shall effect a 7-for-10 reverse stock-split prior to
Closing (the “Parent Stock-Split”).  Following the Parent Stock-Split, Parent
shall not issue any capital stock or other securities until the earlier of
Closing or termination of this Agreement pursuant to Article IX.

7.3           Certain Corporate and Securities Compliance.
 
(a)           The Company hereby agrees that, as soon as practicable after the
execution of this Agreement, it shall take whatever action may be reasonably
necessary to  have its financial statements audited by an independent auditing
firm duly registered with the PCAOB, and immediately make available such audited
financial statements to Parent.

(b)           As soon as practicable after the execution of this Agreement,
Parent, with the fullest of cooperation and assistance of the Company applying
its best efforts, shall prepare an initial draft of the S-4 Registration
Statement which shall be incorporated together in a single SEC filing with each
of the following (combined, the “S-4/Merger Proxy Statement”):

 
·
An Exchange Act Schedule 14A consent solicitation in connection with the
obtaining of written consent from Parent Stockholders to duly authorize each of
the following Parent actions (collectively, the “Parent Consent Actions”):

 
(i)
An amendment to the Parent certificate of incorporation effecting the Parent
Stock-Split (the “Parent Stock-Split Amendment”);

(ii)
An amendment to the Parent certificate of incorporation effecting an increase in
authorized common stock from one hundred million (100,000,000) shares (seventy
million [70,000,000] post Parent Stock-Split) to two hundred million
(200,000,000) shares (post Parent Stock-Split)(the “Authorized Stock Increase
Amendment”);

 
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(iii)
An amendment to the Parent certificate of incorporation effecting a change of
name from “GCA I Acquisition Corp.” to “Bixby Energy Systems Inc.” (the “Name
Change Amendment”); and

 
 
(iv)
A GCA I Acquisition Corp. 2009 Equity Participation Plan (the “2009 Plan”) and
the reservation of twenty million (20,000,000) shares of common stock
thereunder; and

 
·
An Exchange Act Schedule 14A merger proxy statement for Company Stockholders in
connection with, and a related notice to Company Stockholders of, a special
meeting of stockholders (the “Company Special Meeting”) to vote on each of the
following (the “Company Proxy Statement”):

 
(i)
approval of the Merger, the related transactions, and this Agreement; and

 
(ii)
approval of an amendment to the Company certificate of incorporation to revise
the terms of the Company Series A Convertible Preferred Stock to provide that,
subject to and contemporaneously with the completion of the Merger, the Company
Series A Convertible Preferred Stock will convert into Parent Common Stock on an
as-converted basis in the Merger (the “Company Certificate of Designations
Amendment”).

 
Parent shall give the Company, its counsel and its independent
accountants/auditors a reasonable opportunity to review, comment upon, and
propose edits to the S-4/Merger Proxy Statement prior to filing with the SEC,
and, also prior to filing the S-4/Merger Proxy Statement, Parent shall have
obtained the written approval of the Company as to the accuracy and completeness
of the information relating to the Company and its Subsidiaries contained
therein.

(c)           The Company hereby agrees to cooperate, and agrees to use all
reasonable efforts to cause its Subsidiaries and Affiliates to cooperate, with
Parent’s officers, directors, employees, accountants, counsel and/or other
agents retained by Parent (“Parent Representatives”) in connection with the
preparation of any and all information required, as determined by Parent, to be
disclosed pursuant to applicable securities Laws in the S-4/Merger Proxy
Statement.  The Company shall furnish all information concerning itself as may
be reasonably requested by Parent or its counsel in connection with the
foregoing, including without limitation (unless determined by Parent in its
exclusive discretion otherwise) complete financial statements as required under
the Securities Act and/or the regulations promulgated thereunder, which
financial statements shall have been fully audited by a PCAOB registered
independent auditing firm.  The Company shall, and shall cause its Subsidiaries
to, afford to the Parent Representatives reasonable access to its properties,
assets and records during the period prior to the Effective Time to obtain all
information concerning its business as Parent may reasonably request.  The
Company shall furnish to Parent all such documents and copies of documents and
records and information with respect to itself and its Subsidiaries, and copies
of any working papers relating thereto, as Parent may reasonably
request.  Anything to the contrary notwithstanding, nothing in this Section
7.3(c) shall require the Company to provide any access, or to disclose any
information, if permitting such access or disclosing such information would
(a) violate applicable Law, (b) violate any of its obligations with respect to
confidentiality (provided, however, that the Company shall, upon the request of
Parent, use its reasonable best efforts to obtain the required consent of any
third party to such access or disclosure), or (c) result in the loss of
attorney-client privilege (provided, however, that the Company shall use its
reasonable best efforts to allow for such access or disclosure in a manner that
does not result in a loss of attorney-client privilege).  The Company shall
reasonably avail itself to Parent regarding its business on an as-requested
basis.
 
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(d)          In connection with the issuance of the Merger Securities:

(i)           Parent, with the fullest of cooperation and assistance of the
Company applying its reasonable best efforts, shall use its reasonable best
efforts to cause the S-4/Merger Proxy Statement to be declared effective by the
SEC as promptly as practicable and, prior to the effective date of the
S-4/Merger Proxy Statement, Parent shall use its reasonable best efforts to take
any and all action required under any applicable federal or state securities
Laws in connection with the issuance of the Merger Securities pursuant to the
Merger.

(ii)           Parent shall give the Company, its counsel and its independent
accountants/auditors a reasonable opportunity to review and comment on any
amendment or supplement to the S-4/Merger Proxy Statement prior to filing any
amendment or supplement thereto with the SEC.  Parent shall (x) promptly provide
the Company, its counsel and its independent accountants/auditors with any
comments or other communications, whether written or oral, that it or its
counsel may receive from time to time from the SEC with respect to the
S-4/Merger Proxy Statement promptly after receipt of any such comments or other
communications, and (y) provide the Company, its counsel and its independent
accountants/auditors a reasonable opportunity to participate in the response to
those comments and any corresponding amendments to the S-4/Merger Proxy
Statement, including, as may be reasonably requested, participation in any
discussions or meetings with the SEC.  Parent shall not file any amendment or
supplement to the S-4/Merger Proxy Statement without the approval of the
Company, which approval shall not be unreasonably withheld or delayed.  Parent
shall advise the Company promptly after it receives notice of, or otherwise
becomes aware of (x) the time at which the S-4/Merger Proxy Statement has been
declared effective under the Securities Act by the SEC, (y) the time at which
any supplements or amendments to the   S-4/Merger Proxy Statement have been
declared effective under the Securities Act by the SEC, or (z) the issuance of
any stop Order or the suspension of the qualification of the shares of Parent
Common Stock issuable pursuant to the Merger for offering or sale in any
jurisdiction.

(iii)           As soon as practicable following the time at which notification
is received by Parent from the SEC that the S-4 Registration Statement shall be
eligible  to be declared effective under the Securities Act by the SEC following
the filing by Parent of a final amendment thereto with all dates and other
information (previously left blank) included:

(1)           the Company shall set a record date for the Company Special
Meeting that is not more than sixty (60) days and not less than thirty (30) days
prior to the Company Special Meeting, the date for which shall also be set;

(2)           Parent shall set a record date for the obtaining of the written
consent of Parent Stockholders to the Parent Consent Actions (the “Parent
Written Consent”);

(3)           each of the Company and Parent shall use its reasonable best
efforts to cause to be delivered to the other party a letter from their
respective independent accountants/auditors dated approximately as of the date
the S-4 Registration Statement shall have been declared effective by the SEC,
addressed to the other Party, in form and substance reasonably satisfactory to
the other Party and customary in scope and substance for comfort letters
delivered by independent public accountants in connection with registration
statements on Form S-4 under the Securities Act;
 
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(4)           each of the Company and Parent shall use its reasonable best
efforts to cause to be delivered to the other party consents from their
respective independent accountants, dated the date on which the S-4 Registration
Statement is declared effective or a date not more than two (2) days prior to
such date, in form reasonably satisfactory to the other party and customary in
scope and substance for consents delivered by independent public accountants in
connection with registration statements on Form S-4 under the Securities Act;

(5)           the final amendment to the S-4/Merger Proxy Statement (in
definitive form) shall be filed by Parent with the SEC;

(6)           a notice of consent solicitation together with the S-4/Merger
Proxy Statement (in final amendment/definitive form) shall be mailed or
personally delivered by Parent to all Parent Stockholders of record on the
record date;

(7)           the S-4/Merger Proxy Statement (in final amendment/definitive
form) shall be mailed by Parent to all Company Stockholders of record on the
record date and other Company securityholders not more than sixty (60) days and
not less than thirty (30) days prior to the Company Special Meeting, which
S-4/Merger Proxy Statement shall include a statement advising that the board of
directors of the Company recommends that the Company Stockholders approve the
Merger and this Agreement;

(8)           the Parent Written Consent shall be obtained;

(9)           the holders of any Company Convertible Debentures shall be
solicited by the Company and/or its agents applying their good faith best
efforts in connection with the obtaining of an agreement from such holders to
exchange such Company Convertible Debentures upon closing of the Merger for
either (x) a number of shares of Parent Common Stock (rounded down to the
nearest whole number) equal to the number of shares of Company Common
Stock  into which each such Company Convertible Debenture would have been
convertible immediately prior to the Merger, or (y) Parent Convertible Debt
Securities substantially equivalent to the Company Convertible Debentures for
which they are being exchanged, such agreement to be in the form annexed hereto
as Exhibit J and made a part hereof (each, a “Convertible Debt Securities
Exchange Agreement”);

(10)           the holders of any Company Common Stock Purchase Warrants shall
be solicited by the Company and/or its agents applying their good faith best
efforts in connection with the obtaining of an agreement from such holders to
exchange such Company Common Stock Purchase Warrants upon closing of the Merger
for a Parent Common Stock Purchase Warrant substantially equivalent to the
Company Common Stock Purchase Warrant for which it is being exchanged, which
Parent Common Stock Purchase Warrant shall in any event (x) have, and be subject
to, the same terms and conditions as the Company Common Stock Purchase Warrant
for which it is being exchanged had in effect immediately prior to the effective
time of the Merger, including any repurchase rights, risk of forfeiture, or
vesting provisions and any related provisions regarding the acceleration of
vesting and exercisability in the event of certain transactions; and (y) be
exercisable for the same number of shares of Parent Common Stock for which the
Company Common Stock Purchase Warrant had been exercisable (for shares of
Company common stock) immediately prior to the effective time of the Merger and
at a price per share of Parent Common Stock equal to the exercise price per
share of Company common stock at which the Company Common Stock Purchase Warrant
was exercisable immediately prior to the effective time of the Merger, such
agreement to be in the form annexed hereto as Exhibit K and made a part hereof
(each, a “Common Stock Purchase Warrant Exchange Agreement”);
 
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(11)           the holders of any Company Series A Convertible Preferred Stock
Purchase Warrants shall be solicited by the Company and/or its agents applying
their good faith best efforts in connection with the obtaining of an agreement
from such holders to exchange such Company Series A Convertible Preferred Stock
Purchase Warrants upon closing of the Merger for a Parent Common Stock Purchase
Warrant substantially equivalent to the Company Series A Convertible Preferred
Stock Purchase Warrant for which it is being exchanged, which Parent Common
Stock Purchase Warrant shall in any event (x) have, and be subject to, the same
terms and conditions as the Company Series A Convertible Preferred Stock
Purchase Warrant for which it is being exchanged had in effect immediately prior
to the effective time of the Merger, including any repurchase rights, risk of
forfeiture, or vesting provisions and any related provisions regarding the
acceleration of vesting and exercisability in the event of certain transactions;
and (y) be exercisable for twice (2x) the number of shares of Parent Common
Stock for which the Company Series A Convertible Preferred Stock Purchase
Warrant had been exercisable (for shares of Company Series A Convertible
Preferred stock) immediately prior to the effective time of the Merger and at a
price per share of Parent Common Stock equal to one half (½) the exercise price
per share of Company Series A Convertible Preferred Stock at which the Company
Series A Convertible Preferred Stock Purchase Warrant was exercisable
immediately prior to the effective time of the Merger, such agreement to be in
the form annexed hereto as Exhibit L and made a part hereof (each, a “Series A
Convertible Preferred Stock Purchase Warrant Exchange Agreement”);

(12)           the Company and/or its agents, and the Company Principal
Stockholder, shall use their good faith best efforts to (i) solicit voting
proxies or votes in favor of each of the specified proposals to be presented at
the Company Special Meeting from its record stockholders, and (ii) take all
other action reasonably necessary to secure the vote of its stockholders
required by the DGCL and the Company bylaws to obtain approvals in relation to
such proposals;

(13)           the Company Special Meeting shall be held.

(iv)         The information provided by the Company for inclusion in the S-4
Registration Statement shall not, (A) at the time provided, (B) at the time the
S-4 Registration Statement is declared effective by the SEC, or (C) at the time
the Company Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to Company Stockholders, contain any untrue statement of a material
fact or fail to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  If, at any time prior
to the Effective Time, any event or circumstance relating to the Company and/or
its Subsidiaries, or their respective officers or directors, should be
discovered by the Company that should be set forth in an amendment or a
supplement to the S-4 Registration Statement so that any of such documents will
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, the Company shall
promptly inform Parent in writing.  All documents that Parent is responsible for
filing with the SEC in connection with the Merger or the Transactions shall
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as appropriate.
 
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(e)           To the extent that the Company duly obtains the requisite approval
of its stockholders to the Merger and this Agreement in accordance with the DGCL
and its bylaws, each of Parent and the Company shall agree in writing to a
specified date for Closing, and:

(i)           At least ten (10) days prior to the Closing Date, and pursuant to
the Exchange Act Section 14(f), Parent, with the fullest of cooperation and
assistance of the Company applying its reasonable best efforts, shall prepare,
file with the SEC, and mail to its stockholders a Schedule 14F;

(ii)           Parent shall cause to be filed with the Delaware Secretary of
State the Authorized Stock Increase Amendment and the Parent Stock-Split
Amendment;

(iii)           The Company shall cause to be filed with the Delaware Secretary
of State the Company Certificate of Designations Amendment;

(iv)           Each of the Company and Parent shall use its reasonable best
efforts to cause to be delivered to the other party a letter from their
respective independent accountants/auditors dated approximately as of the
Closing Date, addressed to the other Party, in form and substance reasonably
satisfactory to the other Party and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements on Form S-4 under the Securities Act;
(v)           The Closing shall occur;

(vi)           at the Effective Time, the 2009 Plan shall be deemed to be
adopted by Parent; and

(vii)           At a point to be determined within the exclusive discretion of
Parent (following the change of control contemplated by the Merger), Parent
(following the change of control contemplated by the Merger) shall cause to be
filed with Delaware Secretary of State the Name Change Amendment.

(f)           It is acknowledged that each of the Parent and the Company have
made a determination, and agreed, to forego the obtaining of any fairness
opinion in relation to the Merger.

7.4          Regulatory Approvals.

(a)           Each of the Company, Parent and Merger Sub shall promptly apply
for, and take all reasonably necessary actions to obtain or make, as applicable,
all Authorizations, Orders, declarations and filings with, and notices to, any
Governmental Authority required to be obtained or made by it for the
consummation of the Transactions.  Each Party shall cooperate with and promptly
furnish information to the other Parties necessary in connection with any
requirements imposed upon such other Parties in connection with the consummation
of the Merger.

(b)           Each of the Company and Parent shall give the other reasonable
prior notice of any communication with, and any proposed understanding or
agreement with, any Governmental Authority regarding any Authorizations, Orders,
declarations and filings with, and notices to, any Governmental Authority, and
permit the other to review and discuss in advance, and consider in good faith
the views of the other in connection with, any proposed communication,
understanding or agreement with any Governmental Authority with respect to the
Merger and the Transactions.  Notwithstanding the foregoing, neither the Company
nor Parent shall be required to nor any of their respective Affiliates shall
have any obligation to contest, administratively or in court, any ruling, order
or other action of any Governmental Authority or any other Person respecting the
Transactions.
 
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7.5           Public Announcements.  If there is an initial press release
relating to this Agreement, it shall be a joint press release the text of which
shall have been agreed to in writing in advance by each of Parent and the
Company. Thereafter, each of Parent and the Company shall not issue any press
release or otherwise make any public statements with respect to this Agreement
or any of the Transactions without the prior written consent of the other Party;
provided, however, that a Party may, without such consent (but after prior
consultation to the extent practicable under the circumstances), issue such
press releases and make such public statements and/or disclosures that it
reasonably determines are required under applicable Law, including without
limitation the Exchange Act, or the rules of the OTCBB or, if applicable, the
NASDAQ Capital Market.  Notwithstanding the foregoing, a Party may make public
statements in response to questions from the press, analysts and investors and
make internal announcements to employees, so long as such statements and
announcements are accurate and not misleading, consistent with previous press
releases or public statements made jointly by the Company and Parent, and do not
contain forward-looking statements of any kind.

7.6           Tax Free Reorganization.  Each of the Company and Parent shall use
their reasonable best efforts, and shall cause their respective Subsidiaries to
use their reasonable best efforts, to take or cause to be taken any action
necessary for the Merger to qualify as a “reorganization” within the meaning of
Section 368(a) of the Code.  Neither the Company nor Parent shall (and following
the Effective Time, Parent shall cause the Surviving Corporation not to) take
any action that would cause the Merger to fail to qualify as a “reorganization”
within the meaning of Section 368(a) of the Code.  This Agreement is intended to
constitute a “plan of reorganization” within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code.

7.7           Affiliates.  Not less than twenty (20) days prior to the date upon
which this Agreement is submitted for adoption by Company Stockholders, the
Company shall deliver to Parent a letter identifying all Persons who, in the
judgment of the Company, may be deemed at the time this Agreement is submitted
for adoption by Company Stockholders, “affiliates” of the Company for purposes
of Rule 145 under the Securities Act, and such list shall be updated as
necessary from time to time to reflect changes from the date thereof.  The
Company shall use its reasonable best efforts to cause each Person identified on
such list who is not a Dissenting Holder to deliver to Parent an Affiliate
Agreement as of the time this Agreement is submitted for adoption by Company
Stockholders.

7.8           Consents.  The Company shall, and shall cause each of its
Subsidiaries to, use its reasonable best efforts to obtain all Required Company
Consents.

7.9           Notification of Certain Matters.   Each of the Company and Parent
shall give prompt notice to the other Party of any fact, event or circumstance
known to it (a) that individually or taken together with all other facts, events
and circumstances known to it, has had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
Parent or a Material Adverse Effect on the Company and its Subsidiaries or
Parent and its Subsidiaries, in each case taken as a whole, (b) that would cause
or constitute a breach of any of its representations, warranties, covenants or
agreements contained herein, (c) that would cause the failure of any condition
precedent to its obligations, (d) regarding any consent of a third party that is
or may be required in connection with the Merger, (e) relating to any notice or
other communication from any Governmental Authority in connection with the
Merger, or (f) in respect of any Proceedings commenced relating to it or any of
its Subsidiaries that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.20 or Section 5.9, as
applicable; provided, however, that (i) the delivery of any notice pursuant to
this Section 7.9 shall not prevent or cure any misrepresentations, breach of
warranty or breach of covenant, and (ii) disclosure by the Company or Parent
pursuant to this Section 7.9 shall not be deemed to amend or supplement either
the Company Disclosure Schedule or the Parent Disclosure Schedule, or constitute
an exception to any representation or warranty under this Agreement.
 
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7.10           Conveyance Taxes.  Each of the Company and Parent shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any Taxes which become payable in
connection with the Transactions that are required or permitted to be filed on
or before the Effective Time.

7.11           Dissenter’s Rights.  Except as otherwise required by applicable
Law, neither the Company, the Company Principal Stockholder, nor Parent shall do
anything, either directly or indirectly, that is intended to, or would,
encourage, or that might otherwise result in, any holder of Dissentable Shares
becoming a Dissenting Holder.

7.12           Post-Closing Current Report Filing on Form 8-K.  Within four (4)
Business Days of the Closing Date, Parent (following the change of control
contemplated by the Merger) shall file with the SEC a current report on Form 8-K
regarding consummation of the Merger pursuant to Items 5.01, 5.02, and/or 5.06
of such form (or such other Items as may otherwise be appropriate).

7.13           Post-Closing Establishment of Trading Market; Quotation;
Listing.  As soon as practicable following the Closing Date, the Parent
(following the change of control contemplated by the Merger) shall use its
reasonable best efforts to cause the Parent Common Stock, as a class, to become
authorized for quotation, and to be quoted, on the OTCBB, and/or to the extent
qualified, to become authorized for listing, and to become listed, on the NASDAQ
Capital Market, including, as applicable, the preparation, filing and
prosecution of a Form 211 with FINRA in accordance with Rule 15c-211 under the
Exchange Act and/or a listing application; provided, however, that it is
understood that the actual preparation, filing and prosecution of a Form 211
with FINRA in accordance with Rule 15c-211 under the Exchange Act may only be
undertaken by a sponsoring market maker.

7.14         Certain Registration Obligations.

(a)           Within twenty (20) Business Days following the Closing Date,
Parent (following the change of control contemplated by the Merger) shall have
prepared, and shall file, at its own expense, a registration statement covering
the resale of the Registrable Securities on Form S-1 or such other appropriate
registration form of the SEC for Parent as of such date as shall permit the
disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified in the registration statement (the
“Resale Registration Statement”).  Parent (following the change of control
contemplated by the Merger) shall thereafter use its best efforts to cause the
Resale Registration Statement to be declared effective by the SEC by the earlier
of (i) forty (40) Business Days following the filing date thereof, (ii) five (5)
Business Days following the receipt of a “No Review” or similar letter or
communication from the SEC, or (iii) one (1) Business Day following the day upon
which the SEC shall have determined the Resale Registration Statement eligible
to be declared effective.  Anything in this agreement to the contrary
notwithstanding, Parent shall pay to the holders of Registrable Securities, pro
rata, as liquidated damages and not as a penalty, an amount in cash equal to two
thousand five hundred dollars ($2,500) per day for any delays in meeting any of
the timeframes under this Section 7.14; provided, however, that, in addition to
such liquidated damages, the holders of Registrable Securities shall be entitled
to pursue and obtain specific performance or other equitable relief with respect
to the registration rights hereunder.
 
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(b)           From and after the date of effectiveness of the Resale
Registration Statement, Parent (following the change of control contemplated by
the Merger) shall do each the following:

(i)           prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such Resale Registration Statement effective and to
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such registration statement until such
time as all of the securities which are the subject of such registration
statement cease to be Registrable Securities;

(ii)    furnish to each holder of Registrable Securities covered by such Resale
Registration Statement such number of conformed copies of such Resale
Registration Statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities, and
such other documents, as such holder of Registrable Securities may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities owned by such holder of Registrable Securities;

(iii)     use its reasonable best efforts to register or qualify all Registrable
Securities and other securities covered by such Resale Registration Statement
under such other state securities Laws as any holder of Registrable Securities
thereof shall reasonably request, to keep such registrations or qualifications
in effect for so long as such Resale Registration Statement remains in effect,
and take any other action which may be reasonably necessary to enable such
holder of Registrable Securities to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such holder; provided,
however, that Parent shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction wherein it
would not but for the requirements of this subdivision (iii) be obligated to be
so qualified or to consent to general service of process in any such
jurisdiction;

(iv)           use its reasonable best efforts to cause all Registrable
Securities covered by such Resale Registration Statement to be registered with
or approved by such other governmental agencies or authorities as may be
necessary to enable the holders of Registrable Securities to consummate the
disposition of such Registrable Securities;

(v)           furnish to each holder of Registrable Securities a signed
counterpart, addressed to such holder of Registrable Securities, and the
underwriters, if applicable, of an opinion of counsel for Parent, dated the
effective date of such Resale Registration Statement (or, if such registration
includes an underwritten public offering, an opinion dated the date of the
closing under the underwriting agreement), reasonably satisfactory in form and
substance to such holder of Registrable Securities, including that the
prospectus and any prospectus supplement forming a part of the Resale
Registration Statement does not contain an untrue statement of a material fact
or omit a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and
 
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(vi)           notify the holders of Registrable Securities promptly and confirm
such advice in writing promptly after Parent has Knowledge thereof:

(A)           when the Resale Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to the Resale
Registration Statement has been filed, and, with respect to the Resale
Registration Statement or any post-effective amendment thereto, when the same
has become effective;

(B)           of any request by the SEC for amendments or supplements to the
Resale Registration Statement or the prospectus or for additional information;

(C)           of the issuance by the SEC of any stop order suspending the
effectiveness of the Resale Registration Statement or the initiation of any
proceedings by any Person for that purpose; and

(D)           of the receipt by Parent of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale under any
federal or state securities Laws or the initiation or threat of any Proceeding
for such purpose.

(vii)          notify each holder of Registrable Securities covered by such
Resale Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in such
Resale Registration Statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material facts required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and, at the request of any such holder of
Registrable Securities, promptly prepare and furnish to such holder of
Registrable Securities a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;

(viii)       use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Resale Registration Statement at the
earliest possible moment;

(ix)      otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC, and make available to each holder
of Registrable Securities, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve (12) months, but not more than
eighteen (18) months, beginning with the first full calendar month after the
effective date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;

(x)           enter into such agreements and take such other actions as the
holders of Registrable Securities shall reasonably request in writing in order
to expedite or facilitate the disposition of the Registrable Securities; and
 
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(xi)           use its reasonable best efforts to list all Registrable
Securities covered by such Resale Registration Statement on any national
securities exchange on which any of the Registrable Securities are then listed.
 
(c)           Notwithstanding anything to the contrary contained herein, the
obligations of Parent under this Section 7.14 shall only be enforceable by the
holders of Registrable Securities if and to the extent that such holders of
Registrable Securities individually execute and deliver to Parent after the
Effective Time a separate agreement in substantially the form annexed hereto as
Exhibit M and made a part hereof (the “Registrable Securities Lock-Up
Agreement”).

(d)           This Section 7.14 is intended to be for the benefit of, and shall
be enforceable by, the holders of Registrable Securities and their heirs and
personal representatives, and shall be binding on Parent and its successors and
assigns.  In the event that Parent or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
Person, then, and in each case, proper provision shall be made so that the
successors and assigns of Parent shall be legally bound to honor the
registration obligations set forth in this Section 7.14.

(e)           It is acknowledged by the Company that it is the intention of the
Company as of the date hereof to cause to be registered as part of the Resale
Registration Statement following the change of control contemplated by the
Merger, and in addition to the Registrable Securities, (i) all shares of Parent
Common Stock (i) held of record by Affiliates of Parent as of the date of filing
of such Resale Registration Statement, and (ii) underlying then outstanding
warrants to purchase GCA common stock held of record by affiliates as of the
date of filing of the resale registration statement; provided, however, that, to
the extent that any limitation on the number of shares of Parent Common Stock
that may be registered in the Resale Registration Statement is imposed by the
SEC or otherwise, Parent shall (i) first include the Registrable Securities in
the resale registration, (ii) next, and only to the extent permitted, include
the maximum number of shares of GCA common stock then held by any such
affiliates in the resale registration on a pro rata basis (with any remainder to
be registered pursuant to subsequently filed registration statements), and (iii)
lastly, and only to the extent permitted, include the maximum number of shares
of GCA common stock underlying then outstanding warrants then held by any such
affiliates in the resale registration on a pro rata basis in proportion to the
number of shares for which such holders’ warrants are, in the aggregate,
exercisable (with any remainder to be registered pursuant to subsequently filed
registration statements).

7.15         Certain Liability & Indemnification.

(a)           With an understanding that all material information regarding the
post-merger Parent to be provided in the S-4 Registration Statement furnished to
Company Stockholders in connection with the issuance of the Merger Securities is
information that, of necessity, shall have originated with, and been provided
by, the Company, and provided that the written authorization of the Company in
relation to the S-4 Registration Statement shall have been obtained by Parent
pursuant to Section 7.2(c), from and after the Effective Time, Parent and the
Company Principal Stockholder shall have full and complete direct and primary
joint and several liability for any and all amounts for which any officer or
director of Parent is otherwise found to be liable in connection with any
actions arising, directly or indirectly, out of the offering by Parent of the
Merger Securities.
 
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(b)           From and after the Effective Time, Parent and the Company
Principal Stockholder, shall, jointly and severally and to the fullest extent
permitted by applicable Law, indemnify, defend and hold harmless, and provide
advancement of expenses to, each Person who is now, or has been at any time
prior to the date hereof or who becomes prior to the Effective Time, an officer,
director or employee of Parent (the “Indemnified Parties”) against all Damages,
Liabilities or Orders or amounts that are paid in settlement of or in connection
with any claim or Proceeding that is based in whole or in part on, or arises in
whole or in part out of, the fact that such Person is or was a director, officer
or employee of Parent, and pertaining to any matter existing or occurring, or
any acts or omissions occurring, at or prior to the Effective Time, whether
asserted or claimed prior to, or at or after, the Effective Time (including
without limitation any matters, acts or omissions occurring in connection with
the approval of this Agreement and the consummation of the Transactions, as well
as matters arising out of any failures of disclosure in relation to the S-4
Registration Statement) to the same extent such Persons are entitled to be
indemnified or have the right to advancement of expenses as of the date of this
Agreement by Parent pursuant to its certificate of incorporation, bylaws, and/or
any indemnification agreements in effect as of the date hereof.

(c)           This Section 7.15 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties and their heirs and personal
representatives, and shall be binding on Parent, the Company Principal
Stockholder, and their respective successors and assigns.  In the event that
Parent or the Company Principal Stockholder, or any of their respective
successors or assigns (i) consolidates with or merges into any other Person and
shall not be the continuing or surviving corporation or entity in such
consolidation or merger, or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each case, proper provision
shall be made so that the successors and assigns of the Parent or Company
Principal Stockholder, as applicable, shall be legally bound to honor the
indemnification obligations set forth in this Section 7.15.

7.16         Further Assurances.  Upon the terms and subject to the conditions
hereof, each of the Parties hereto shall execute such documents and other
instruments and take such further actions as may be reasonably required from
time to time to carry out the provisions hereof and consummate the Merger and
the other Transactions.
 
ARTICLE VIII

CONDITIONS TO THE MERGER

8.1           Conditions to the Obligations of Each Party to Effect the
Merger.  In addition to the other conditions set forth in this Article VIII, the
obligations of the Company, Parent and Merger Sub to consummate the Merger are
subject to the satisfaction on or prior to the Closing Date of the following
conditions:

(a)           the Merger and this Agreement shall have been approved by the
affirmative vote of a majority of the shares of Company Common Stock and other
Cancelable Securities entitled to vote on the matter at a meeting duly called
and at which a quorum is present or represented;

(b)           all Authorizations and Orders of, declarations and filings with,
and notices to any Governmental Authority required to permit the consummation of
the Merger shall have been obtained or made and shall be in full force and
effect;
 
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(c)           no temporary restraining order, preliminary or permanent
injunction or other Order prohibiting the consummation of the Merger shall be in
effect, and no Law shall have been enacted or shall be deemed applicable to the
Merger which makes the consummation of the Merger unlawful;

(d)           the shares of Parent Common Stock and, if applicable, other Merger
Securities issuable as part of the Merger in accordance with Section 2.1 of this
Agreement, shall have been duly authorized; and

(e)           the S-4 Registration Statement shall have been declared effective
under the Securities Act by the SEC, delivered to all required recipients under
this Agreement, and shall not be the subject of any stop order or Proceeding
seeking a stop order.

8.2          Conditions to the Obligations of Parent and Merger Sub to Effect
the Merger.  The obligations of Parent and Merger Sub to consummate the Merger
are subject to satisfaction (or waiver by Parent in its sole discretion) on or
prior to the Closing Date of the following conditions:

(a)           Company Principal Stockholder shall have delivered an executed
Amended & Restated Voting Agreement;

(b)           each of the representations and warranties of the Company set
forth in this Agreement that is qualified by a Material Adverse Effect on the
Company shall be true and correct at and as of the Closing Date as if made at
and as of the Closing Date and each of such representations and warranties that
is not so qualified shall be true and correct in all material respects at and as
of the Closing Date as if made at and as of the Closing Date, except to the
extent that (i) such representations and warranties refer specifically to an
earlier date, in which case such representations and warranties shall have been
true and correct as of such earlier date, or (ii) any facts which would
otherwise render any such representations or warranties untrue or incorrect as
of the Closing Date are the direct or indirect result of obligations arising
under or are otherwise contemplated by any one or more provisions of this
Agreement;

(c)           each of the representations and warranties of the Company
Principal Stockholder set forth in this Agreement that is qualified by a
Material Adverse Effect on the Company shall be true and correct at and as of
the Closing Date as if made at and as of the Closing Date and each of such
representations and warranties that is not so qualified shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of the Closing Date, except to the extent that such representations and
warranties refer specifically to an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date;

(d)           Parent, at the expense of the Company, shall have procured
directors and officers liability insurance coverage in an aggregate amount
satisfactory to Parent from a carrier rated A++XV by A.M. Best & Company (or
otherwise satisfactory to Parent) which coverage shall specifically include
liability arising out of any errors or omissions that shall have occurred in
connection with the offering and issuance of the Merger Securities;

(e)           the Company shall have duly approved, by the affirmative vote of a
majority of the shares of Company Common Stock and Series A Convertible
Preferred Stock, in each case as entitled to vote on the matter, voting
together, and a majority of shares of Bixby Series A Convertible Preferred Stock
entitled to vote on the matter voting separately as a class, and shall have
filed with the Delaware Secretary of State the Company Certificate of
Designations Amendment;
 
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(f)           the Company shall have entered into Convertible Debt Securities
Exchange Agreements with a number of the holders of Company Convertible
Debentures satisfactory to Parent in its exclusive discretion, and performance
by the holders of their obligations under such Convertible Debt Securities
Exchange Agreements shall have been satisfied;

(g)           the Company shall have entered into Common Stock Purchase Warrant
Exchange Agreements with a number of the holders of Company Common Stock
Purchase Warrants satisfactory to Parent in its exclusive discretion, and
performance by the holders of their obligations under such Common Stock Purchase
Warrant Exchange Agreements shall have been satisfied;

(h)           the Company shall have entered into Series A Convertible Preferred
Stock Purchase Warrant Exchange Agreements with a number of the holders of
Company Series A Convertible Preferred Stock Purchase Warrants satisfactory to
Parent in its exclusive discretion, and performance by the holders of their
obligations under such Common Stock Purchase Warrant Exchange Agreements shall
have been satisfied;

(i)           the Company shall have performed, or complied with, in all
material respects all obligations required to be performed or complied with by
it under this Agreement at or prior to the Closing Date, and the Company shall
have delivered to Parent a certificate signed by the Chief Executive Officer of
the Company to such effect;

(j)           there shall not have occurred any event, occurrence or change that
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company except where any such event,
occurrence or change are the direct or indirect result of obligations arising
under or are otherwise contemplated by any one or more provisions of this
Agreement;

(k)           each of Parent and Merger Sub shall have received a certificate
signed by the Chief Executive Officer of the Company certifying as to the
satisfaction of the conditions set forth in Sections 8.1 and 8.2 as of the
Closing Date; and

(l)           all actions to be taken by the Company in connection with
consummation of the Transactions and all certificates, opinions, instruments,
and other documents required to effect the Transactions will be reasonably
satisfactory in form and substance to Parent or its counsel.

8.3          Conditions to the Obligations of the Company to Effect the
Merger.  The obligation of the Company to consummate the Merger is subject to
satisfaction (or waiver by the Company in its sole discretion) on or prior to
the Closing Date of the following conditions:

(a)           each of the representations and warranties of Parent set forth in
this Agreement that is qualified by a Material Adverse Effect on Parent shall be
true and correct at and as of the Closing Date as if made at and as of the
Closing Date and each of such representations and warranties that is not so
qualified shall be true and correct in all material respects at and as of the
Closing Date as if made at and as of the Closing Date, except to the extent that
(i) such representations and warranties refer specifically to an earlier date,
in which case such representations and warranties shall have been true and
correct as of such earlier date, or (ii) any facts which would otherwise render
any such representations or warranties untrue or incorrect as of the Closing
Date are the direct or indirect result of obligations arising under or are
otherwise contemplated by any one or more provisions of this Agreement;
 
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(b)           the Company shall have obtained the requisite approval of its
stockholders to the Merger and this Agreement in accordance with the DGCL and
its bylaws;

(c)           the holders of no more than twenty percent (20%) of the
Dissentable Shares shall be in a position to perfect their appraisal rights
under the DGCL as determined immediately prior to the Effective Time;

(d)           Parent shall have performed, or complied with, in all material
respects all obligations required to be performed or complied with by it under
this Agreement at or prior to the Closing Date, and Parent shall have delivered
to the Company a certificate signed by the Chief Executive Officer of Parent to
such effect;

(e)           there shall not have occurred any event, occurrence or change that
has had, or could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent except where any such event,
occurrence or change are the direct or indirect result of obligations arising
under or are otherwise contemplated by any one or more provisions of this
Agreement;

(f)           the Company shall have received resignations of each of the
officers of Parent, effective, in each case, as of the Effective Time;

(g)           the Company shall have received a certificate signed by the Chief
Executive Officer of Parent certifying as to the satisfaction of the conditions
set forth in Sections 8.1 and 8.3 as of the Closing Date; and

(h)           all actions to be taken by Parent in connection with consummation
of the Transactions and all certificates, opinions, instruments, and other
documents required to effect the Transactions will be reasonably satisfactory in
form and substance to the Company or its counsel.

(i)           Parent shall have duly authorized and filed the Parent Stock-Split
Amendment and shall have outstanding no more shares of capital stock than is
permitted in accordance with the Parent Stockholder Holdback.

(j)           Parent shall have duly authorized and filed the Authorized Stock
Increase Amendment.

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

9.1          Termination.  This Agreement may be terminated and the Merger and
the other Transactions may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval of this Agreement and the Transactions,
as follows:
 
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(a)          by mutual written consent duly authorized by the boards of
directors of each of Parent, Merger Sub and the Company;

(b)          by Parent:

(i)           to the extent that the Effective Time shall not have occurred on
or before December 31, 2009; provided, however, that the right to terminate this
Agreement under this Section 9.1(b) shall not be available to Parent if Parent’s
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;

(ii)           if Parent reasonably concludes that material information
regarding the Company and/or its Subsidiaries that it determines to include in
the S-4 Registration Statement has been unreasonably withheld by the Company
and/or its Subsidiaries;

(iii)           if the Company unreasonably withholds its approval as to the
accuracy and completeness of the Form S-4 Registration Statement;

(iv)           if the Company’s independent auditors resign at any time after
having been engaged citing a disagreement with management of the Company or any
of its officers and/or directors as the reason therefor;

(v)           upon a material breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become materially untrue,
in either case such that the conditions set forth in Section 8.2(a)-(l) would
not be satisfied (a “Terminating Company Breach”); provided, however, that (A)
if such Terminating Company Breach is curable by the Company through the
exercise of its best efforts and for so long as the Company continues to
exercise such best efforts, and (B) if such Terminating Company Breach is the
direct or indirect result of obligations arising under or are otherwise
reasonably contemplated by any other provision of this Agreement, Parent may not
terminate this Agreement under this Section 9.1(b)(v); or

(c)           by the Company:

(i)           if the Company Stockholders shall have failed to duly approve the
Merger and this Agreement within a reasonable period following good faith
compliance by the Company and the Company Principal Stockholder with all of
their obligations under this Agreement, including without limitation Sections
7.3 and 7.11;

(ii)           upon a material breach of any representation, warranty, covenant
or agreement on the part of Parent set forth in this Agreement, or if any
representation or warranty of Parent shall have become materially untrue, in
either case such that the conditions set forth in Section 8.3(a)-(j) would not
be satisfied (“Terminating Parent Breach”); provided, however, that, (A) if such
Terminating Parent Breach is curable by Parent through best efforts and for so
long as Parent continues to exercise such best efforts, or (B) if such
Terminating Parent Breach is the direct or indirect result of either the
fulfillment of, or the failure to fulfill, any obligations of any Party arising
under or that are otherwise reasonably contemplated by any other provision of
this Agreement, the Company may not terminate this Agreement under this Section
9.1(c)(ii).
 
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9.2           Amendment.  This Agreement may be amended by the Company, Parent
and Merger Sub by action taken by or on behalf of their respective boards of
directors at any time prior to the Effective Time;  provided, however, that, (i)
any such amendment is in writing signed by each of the Parties, and (ii) after
approval of the matters presented in connection with the Merger by the Company
Stockholders, no amendment shall be made which by Law requires further approval
by the Company Stockholders without such further approval, including without
limitation any amendment which would reduce the amount or change the type of
consideration into which each share of Company Common Stock shall be converted
upon consummation of the Merger.

9.3           Waiver.  At any time prior to the Effective Time, any Party hereto
may (a) extend the time for the performance of any obligation or other act of
any other Party hereto, (b) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any agreement or condition contained herein.  Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the Party or Parties to be bound thereby.  No failure or delay by any
Party in exercising any right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  To the maximum extent permitted by Law, (i) no waiver that may be
given by a Party shall be applicable except in the specific instance for which
it was given, and (ii) no notice to or demand on one Party shall be deemed to be
a waiver of any obligation of such Party or the right of the Party giving such
notice or demand to take further action without notice or demand.
 
ARTICLE X

GENERAL PROVISIONS

10.1           Notices.  Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given: (a) on the date established by the sender as
having been delivered personally; (b) on the date delivered by FedEx, UPS, USPS,
or DHL as established by the sender by evidence obtained from such courier;
(c) on the date sent by facsimile, with confirmation of transmission, if sent
during normal business hours of the recipient, if not, then on the next Business
Day; or (d) on the fifth (5th) day after the date mailed, by certified or
registered mail, return receipt requested, postage prepaid.  Such
communications, to be valid, must be addressed as follows:

If to Parent or Merger Sub:

GCA I Acquisition Corp.
115 East 57th Street, Suite 1006
New York, New York    10022
  Att:  Michael M. Membrado, President & CEO

Fax: 646-486-9771
 
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with a copy to:

Certilman, Balin, Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
   Att:  Gavin C. Grusd

Fax:  516-296-7111

If to the Company or Robert Walker:

Bixby Energy Systems, Inc.
6893 139th Lane N.W.
Ramsey, MN 55303
  Att:  Robert Walker, CEO

Fax:  763-428-7903

with a copy to:

Davisson & Associates, PA
4124 Quebec Avenue North, Suite 306
Minneapolis, MN 55427
  Att:  Peder K. Davisson, Esq.

Fax:  763-355-5679

or to such other address or to the attention of such Person or Persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain). If more than one method for sending notice
as set forth above is used, the earliest notice date established as set forth
above shall control.

10.2           Certain Definitions.  For purposes of this Agreement, the
following terms, in their capitalized forms, shall have the correspondingly
ascribed meanings:

“Affiliate” means, with respect to any specified Person, any other Person who,
directly or indirectly, through one or more intermediaries, Controls, is
Controlled By, or is Under Common Control With, such specified Person.

“Applicable Rate” means the corporate base rate of interest publicly announced
from time to time by Citibank N.A. plus 2% per annum.

“Authorization” means any authorization, approval, consent, certificate,
license, permit or franchise of or from any Governmental Authority or pursuant
to any Law.
 
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“Beneficial Owner” with respect to any shares means a Person who shall be deemed
to be the beneficial owner of such shares (i) which such Person or any of its
Affiliates or associates (as such term is defined in Rule 12b-2 promulgated
under the Exchange Act) beneficially owns, directly or indirectly, (ii) which
such Person or any of its Affiliates or associates has, directly or indirectly,
(A) the right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding, (iii) which are beneficially owned,
directly or indirectly, by any other Persons with whom such Person or any of its
Affiliates or associates or any Person with whom such Person or any of its
Affiliates or associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any such shares, or (iv)
pursuant to Section 13(d) of the Exchange Act and any rules or regulations
promulgated thereunder.

“Benefit Plan” means any “employee benefit plan” as defined in 3(3) of ERISA,
including any (a) nonqualified deferred compensation or retirement plan or
arrangement which is an Employee Pension Benefit Plan (as defined in ERISA
Section 3(2)), (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan (as defined in ERISA Section 3(37)),
(d) Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material
fringe benefit plan or program, or (e) stock purchase, stock option, severance
pay, employment, change-in-control, vacation pay, company awards, salary
continuation, sick leave, excess benefit, bonus or other incentive compensation,
life insurance, or other employee benefit plan, contract, program, policy or
other arrangement, whether or not subject to ERISA.

“Business Day” means any day on which the principal offices of the SEC in
Washington, D.C. are open to accept filings, or, in the case of determining a
date when any payment is due, any day other than Saturday, Sunday or other day
on which banks located in New York City are required or authorized by Law to
close.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601 et seq.

“Company ERISA Affiliate” means any entity which is a member of a “controlled
group of corporations” with, under “common control” with or a member of an
“affiliated services group” with, the Company or any of its Subsidiaries, as
defined in Section 414(b), (c), (m) or (o) of the Code.

“Contaminant” means, in relation to any Software, any virus or other
intentionally created, undocumented contaminant.

“Contract” means any agreement, contract, license, lease, commitment,
arrangement or understanding, written or oral, including any sales order and
purchase order.

“Control” (including the terms “Controlled By” and “Under Common Control  With”)
means the possession, directly or indirectly or as trustee or executor, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, as trustee or
executor, by Contract or credit arrangement or otherwise.

“Copyrights” means registered and unregistered copyrights in both published and
unpublished works.
 
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“Damages” means all Proceedings, demands, claims, assessments, losses, damages,
costs, expenses, Liabilities, obligations, injunctions, judgments, Orders,
decrees, rulings, awards, fines, sanctions, penalties, charges, Taxes and
amounts paid in settlement, including, without limitation, (i) interest on cash
disbursements in respect of any of the foregoing at the Applicable Rate,
compounded quarterly, from the date each such cash disbursement is made until
the Person incurring the same shall have been indemnified in respect thereof,
and (ii) reasonable costs, fees and expenses of attorneys, accountants and other
agents of the relevant Person.

“Disabling Codes” means, with respect to any Software, any disabling codes or
related instructions.

“Environment” means all air, surface water, groundwater, land, including land
surface or subsurface, including all fish, wildlife, biota and all other natural
resources.

“Environmental Action” means any Proceeding brought or threatened under any
Environmental Law or otherwise asserting the incurrence of Environmental
Liabilities.

“Environmental Clean-Up Site” means any location which is listed on the National
Priorities List, the Comprehensive Environmental Response, Compensation and
Liability Information System, or on any similar state or foreign list of sites
requiring investigation or cleanup, or which is the subject of any pending or
threatened Proceeding related to or arising from any alleged violation of any
Environmental Law, or at which there has been a threatened or actual Release of
a Hazardous Substance.
 
“Environmental Laws” means any and all applicable Laws and Authorizations
issued, promulgated or entered into by any Governmental Authority relating to
the Environment, worker health and safety, preservation or reclamation of
natural resources, or to the management, handling, use, generation, treatment,
storage, transportation, disposal, manufacture, distribution, formulation,
packaging, labeling, Release or threatened Release of or exposure to Hazardous
Substances, whether now existing or subsequently amended or enacted, including
but not limited to: CERCLA; the Federal Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.; the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Occupational
Safety and Health Act, 29 U.S.C. Section 651 et seq.; the Emergency Planning and
Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Safe
Drinking Water Act, 42 U.S.C. Section 300(f) et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; the Federal Insecticide,
Fungicide and Rodenticide Act 7 U.S.C. Section 136 et seq.; RCRA; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Oil Pollution Act of
1990, 33 U.S.C. Section 2701 et seq.; and any similar or implementing state or
local Law, and any non-U.S. Laws and regulations of similar import, and all
amendments or regulations promulgated thereunder; and any common law doctrine,
including but not limited to, negligence, nuisance, trespass, personal injury,
or property damage related to or arising out of the presence, Release, or
exposure to Hazardous Substances.

“Environmental Liabilities” means, with respect to any party, Liabilities
arising out of (A) the ownership or operation of the business of such party or
any of its Subsidiaries, or (B) the ownership, operation or condition of the
Real Property or any other real property currently or formerly owned, operated
or leased by such party or any of its Subsidiaries, in each case to the extent
based upon or arising out of (i) Environmental Law, (ii) a failure to obtain,
maintain or comply with any Environmental Permit, (iii) a Release of any
Hazardous Substance, or (iv) the use, generation, storage, transportation,
treatment, sale or other off-site disposal of Hazardous Substances.
 
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“Environmental Permit” means any Authorization under Environmental Law, and
includes any and all Orders issued or entered into by a Governmental Authority
under Environmental Law.

“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as
amended.

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

“FINRA” means the Financial Industry Regulatory Authority.

“GAAP” means U.S. Generally Accepted Accounting Principles.

“Governmental Authority” means any entity or body exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to United States federal, state, local, or municipal government, foreign,
international, multinational or other government, including any department,
commission, board, agency, bureau, subdivision, instrumentality, official or
other regulatory, administrative or judicial authority thereof, and any
non-governmental regulatory body to the extent that the rules and regulations or
orders of such body have the force of Law.

“Hazardous Substances” means all explosive or regulated radioactive materials or
substances, hazardous or toxic materials, wastes or chemicals, petroleum and
petroleum products (including crude oil or any fraction thereof), asbestos or
asbestos containing materials, and all other materials, chemicals or substances
which are regulated by, form the basis of liability or are defined as hazardous,
extremely hazardous, toxic or words of similar import, under any Environmental
Law, including materials listed in 49 C.F.R. Section 172.101 and materials
defined as hazardous pursuant to Section 101(14) of CERCLA.

“Indebtedness” means any of the following: (a) any indebtedness for borrowed
money, (b) any obligations evidenced by bonds, debentures, notes or other
similar instruments, (c) any obligations to pay the deferred purchase price of
property or services, except trade accounts payable and other current
Liabilities arising in the Ordinary Course of Business, (d) any obligations as
lessee under capitalized leases, (e) any indebtedness created or arising under
any conditional sale or other title retention agreement with respect to acquired
property, (f) any obligations, contingent or otherwise, under acceptance credit,
letters of credit or similar facilities, and (g) any guaranty of any of the
foregoing.

“Intellectual Property” means: (i) Proprietary Information; (ii) trademarks and
service marks (whether or not registered), trade names, logos, trade dress and
other proprietary indicia and all goodwill associated therewith;
(iii) documentation, advertising copy, marketing materials, web-sites,
specifications, mask works, drawings, graphics, databases, recordings and other
works of authorship, whether or not protected by Copyright; (iv) Software; and
(v) Intellectual Property Rights, including all Patents, Copyrights, Marks,
trade secret rights, mask works, moral rights or other literary property or
authors rights, and all applications, registrations, issuances, divisions,
continuations, renewals, reissuances and extensions of the foregoing.

“Intellectual Property Rights” means all forms of legal rights and protections
that may be obtained for, or may pertain to, any Intellectual Property in any
country of the world.
 
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“Knowledge” of a given party (or any similar phrase) means, with respect to any
fact or matter, the actual knowledge of the directors and executive officers of
such party and each of its Subsidiaries, together with such knowledge that such
directors, executive officers and other employees could be expected to discover
after due investigation concerning the existence of the fact or matter in
question.

“Law” means any statute, law (including common law), constitution, treaty,
ordinance, code, order, decree, judgment, rule, regulation and any other binding
requirement or determination of any Governmental Authority.

“Liability” or “Liabilities” means any liability, Indebtedness or obligation of
any kind, whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, whether secured or unsecured, whether joint or several, whether
due or to become due, whether vested or unvested, including any liability for
Taxes.

“Liens” means any liens, claims, charges, security interests, mortgages,
pledges, easements, conditional sale or other title retention agreements,
defects in title, covenants or other restrictions of any kind, including, any
restrictions on the use, voting, transfer or other attributes of ownership.

“Marks” means trademarks, service marks and other proprietary indicia (whether
or not registered).

“Material Adverse Effect” means, with respect to any Person, any state of facts,
development, event, circumstance, condition, occurrence or effect that,
individually or taken collectively with all other preceding facts, developments,
events, circumstances, conditions, occurrences or effects (a) is materially
adverse to the condition (financial or otherwise), business, operations or
results of operations of such Person, (b) impairs the ability of such Person to
perform its obligations under this Agreement, or (c) delays the consummation of
the Merger.

“Operative Agreements” means, collectively, this Agreement, the Amended &
Restated Voting Agreement, any Affiliate Agreements, any Convertible Debt
Securities Exchange Agreements, any Common Stock Purchase Warrant Exchange
Agreements, and any Series A Convertible Preferred Stock Purchase Warrant
Exchange Agreements.

“Order” means any award, injunction, judgment, decree, stay, order, ruling,
subpoena or verdict, or other decision entered, issued or rendered by any
Governmental Authority.

“Ordinary Course of Business” means the ordinary course of business consistent
with past custom and practice (including with respect to quantity and
frequency).

“OTCBB” means the Over-The-Counter Bulletin Board, operated by NASDAQ.

“Patents” means letters patent, patent applications, provisional patents, design
patents, PCT filings, invention disclosures and other rights to inventions or
designs.

“PCAOB” means the Public Company Accounting Oversight Board.

“PCBs” means polychlorinated biphenyls.
 
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“Permitted Liens” means, with respect to any party, (i) Liens for current real
or personal property taxes not yet due and payable and with respect to which
such party maintains adequate reserves, (ii) workers’, carriers’ and mechanics’
or other like Liens incurred in the Ordinary Course of Business with respect to
which payment is not due and that do not impair the conduct of such party’s or
any of its Subsidiaries’ business in any material respect or the present or
proposed use of the affected property and (iii) Liens that are immaterial in
character, amount, and extent and which do not detract from the value or
interfere with the present or proposed use of the properties they affect.

“Person” means an individual, a corporation, a partnership, a limited liability
company, a trust, an unincorporated association, Governmental Authority, a
person (including, without limitation, a “person” as defined in Section 13(d)(3)
of the Exchange Act), or any political subdivision, agency or instrumentality of
a Governmental Authority, or any other entity or body.

“Proceeding” or “Proceedings” means any actions, suits, claims, hearings,
arbitrations, mediations, Proceedings (public or private) or governmental
investigations that have been brought by any governmental authority or any other
Person.

“Proprietary Information” means, collectively, inventions (whether or not
patentable), trade secrets, technical data, databases, customer lists, designs,
tools, methods, processes, technology, ideas, know-how, source code, product
road maps and other proprietary information and materials.
 
“Public Software” means any Software that contains, or is derived in any manner
(in whole or in part) from, any Software that is distributed as free Software,
open source Software or similar licensing or distribution models, including
Software licensed or distributed under any of the following licenses or
distribution models, or licenses or distribution models similar to any of the
following: (i) GNU’s General Public License or Lesser/Library GPL; (ii) Mozilla
Public License; (iii) Netscape Public License; (iv) Sun Community Source/
Industry Standard License; (v) BSD License; and (vi) Apache License.

“RCRA” means the Resource Conservation and Recovery Act of 1976, 42 U.S.C.
Section 6901 et seq.

“Release” means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous
Substances into the Environment.

“Registrable Securities” means the shares of Parent Common Stock issued and
outstanding immediately prior to the Effective Time; provided, however, that, as
to any particular Registrable Securities, such securities will cease to be
Registrable Securities when (a) they have been effectively registered under the
Securities Act and disposed of in accordance with the registration statement
covering them, (b) they are or may be freely traded without registration
pursuant to Rule 144 under the Securities Act (or any similar provisions that
are then in effect), or (c) they have been otherwise transferred and new
certificates for them not bearing a restrictive legend have been issued by
Parent and Parent shall not have “stop transfer” instructions imposed against
them.

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

“SEC” means the U.S. Securities and Exchange Commission.
 
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“Software” means, collectively, computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, design documents, flow-charts, user manuals and
training materials relating thereto and any translations thereof.

“Subsidiary” or “Subsidiaries” means, with respect to any party, any Person, of
which (a) such party or any subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by such
party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (b) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such Person is directly or indirectly owned or controlled by such party and/or
by any one or more of its subsidiaries.

“Systems” means, in relation to any Person, any of the hardware, software,
databases or embedded control systems thereof.

“Tax” or “Taxes” means any means any and all federal, state, local, or foreign
net or gross income, gross receipts, net proceeds, sales, use, ad valorem, value
added, franchise, bank shares, withholding, payroll, employment, excise,
property, deed, stamp, alternative or add-on minimum, environmental (including
taxes under Code §59A), profits, windfall profits, transaction, license, lease,
service, service use, occupation, severance, energy, unemployment, social
security, workers’ compensation, capital, premium, and other taxes, assessments,
customs, duties, fees, levies, or other governmental charges of any nature
whatever, whether disputed or not, together with any interest, penalties,
additions to tax, or additional amounts with respect thereto.

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

“Taxing Authority” means any Governmental Authority having jurisdiction with
respect to any Tax.

“Trading Day” means any day on which the NASDAQ Stock Market is open for
trading.

“$” means United States dollars.

10.3         Index of Other Defined Terms.  In addition to those terms defined
above, the following terms, in their capitalized forms, shall have the
respective meanings given thereto in the sections indicated below:

Defined Term
 
Section
     
“2009 Plan”
 
7.3(b)
“Affiliate Agreement”
 
2.2(j)
“Agreement”
 
Preamble
“Amended & Restated Voting Agreement”
 
Recitals
“Authorized Stock Increase Amendment”
 
7.3(b)
“Bixby Option Plan”
 
2.1(a)(vi)
“Cancelable Common Share”
 
2.1(a)(i)

 
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“Cancelable Company Common Stock Purchase Warrant”
 
2.2(a)
“Cancelable Company Convertible Debenture”
 
2.2(a)
“Cancelable Company Series A Convertible Preferred Stock
   
Purchase Warrant”
 
2.2(a)
“Cancelable Securities”
 
2.2(a)
“Cancelable Series A Convertible Preferred Share”
 
2.1(a)(ii)
“Cancelable Series A Convertible Preferred Stock”
 
2.1(a)(ii)
“Certificate of Merger”
 
1.1
“Closing”
 
1.2
“Closing Date”
 
1.2
“Code”
 
Recitals
“Common Stock Purchase Warrant Exchange Agreement”
 
7.3(d)(iii)(10)
“Company”
 
Preamble
“Company Benefit Plan”
 
4.21(a)
“Company Certificate of Designations Amendment”
 
7.3(b)
“Company Common Stock”
 
2.1(a)(i)
“Company Common Stock Purchase Warrant”
 
2.1(a)(iv)
“Company Convertible Debenture”
 
2.1(a)(iii)
“Company Series A Convertible Preferred Purchase Warrant”
 
2.1(a)(v)
 “Company Disclosure Schedule”
 
Art. IV Intro
“Company Foreign Plans”
 
4.21(r)
“Company In-Bound Licenses”
 
4.18(b)
“Company Intellectual Property”
 
4.18(e)
“Company Lease”
 
4.17(c)
“Company-Leased Real Property”
 
4.17(a)
“Company Material Contracts”
 
4.19(b)
“Company Minor Contracts”
 
4.19(e)
“Company Out-Bound Licenses”
 
4.18(c)
“Company-Owned Intellectual Property”
 
4.18(a)
“Company-Owned Real Property”
 
4.17(a)
“Company-Owned Software”
 
4.18(m)(i)
“Company Pension Plan”
 
4.21(b)
“Company Permits”
 
4.7
“Company Principal Stockholder”
 
Preamble
“Company Proxy Statement”
 
7.3(b)
“Company Receivables”
 
4.9
“Company Registered Intellectual Property”
 
4.18(f)
“Company Series A Convertible Preferred Stock”
 
2.1(a)(ii)
“Company Series A Convertible Preferred Stock Purchase Warrant”
 
2.1(a)(v)
“Company Special Meeting”
 
7.3(b)
“Company Stockholder”
 
2.1
“Company Stock Option”
 
2.1(a)(vi)
“Constituent Corporations”
 
1.1
“Convertible Debt Securities Exchange Agreement”
 
7.3(d)(iii)(9)
“Delaware Secretary of State”
 
1.2
“DGCL”
 
Recitals
“Dissentable Shares”
 
2.3(a)

 
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“Dissenting Holder”
 
2.3(a)
“Dissenting Shares”
 
2.3(a)
“Effective Time”
 
1.2
“Exchange Agent”
 
2.2(a)
“Exchange Fund”
 
2.2(a)
“Exchange Ratio”
 
2.1(a)(i)
“Indemnified Parties”
 
7.15(b)
“Listing Date”
 
2.2(i)1)
“Merger”
 
1.1
“Merger Securities”
 
2.2(a)
“Merger Sub”
 
Preamble
“Merger Sub Common Stock”
 
2.1(a)(vii)
“Merger Sub Preferred Stock”
 
5.4(b)
“Most Recent Company Balance Sheet”
 
4.8(a)
“Most Recent Company Cash Flow Statement”
 
4.8(a)
“Most Recent Company Financial Statements”
 
4.8(a)
“Most Recent Company Income Statement”
 
4.8(a)
“Most Recent Company Statement of Stockholders’ Equity”
 
4.8(a)
“Name Change Amendment”
 
7.3(b)
“Original Merger Agreement”
 
Recitals
“Parent”
 
Preamble
“Parent Common Stock”
 
Recitals
“Parent Common Stock Purchase Warrants”
 
2.2(a)
“Parent Consent Actions”
 
7.3(b)
“Parent Convertible Debt Securities”
 
2.2(a)
“Parent Disclosure Schedule”
 
Art. V Intro
“Parent Preferred Stock”
 
5.4(a)
“Parent Representatives
 
7.3(c)
“Parent Stockholders”
 
7.2
“Parent Stock-Split”
 
7.2
“Parent Stock-Split Amendment”
 
7.3(b)
“Parent SEC Reports”
 
5.7(a)
“Parent Stockholder Holdback”
 
7.2
“Parent Preexisting Stock Option”
 
2.1(a)(vii)
“Parent Preexisting Warrant”
 
2.1(a)(vii)
“Parent Written Consent”
 
7.3(d)(iii)(2)
“Party” / “Parties”
 
Preamble
“Registrable Securities Lock-Up Agreement”
 
7.14(c)
“Required Company Consents”
 
4.6(a)
“Replacement Option”
 
2.1(a)(x)
“Resale Registration Statement”
 
7.14(a)
“S-4/Merger Proxy Statement”
 
7.3(b)
“S-4 Registration Statement”
 
5.6(b)
“Series A Convertible Preferred Stock Purchase
   
Warrant Exchange Agreement”
 
7.3(d)(iii)(11)
“Surviving Corporation”
 
1.1
“Terminating Parent Breach”
 
9.1(c)(ii)

 
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“Terminating Company Breach”
 
9.1(b)(v)
“Transactions”
 
Recitals
“WARN Act”
 
4.22(d)

 
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10.4         Interpretation.

(a)           The meaning assigned to each term defined herein shall be equally
applicable to both the singular and the plural forms of such term and vice
versa, and words denoting either gender shall include both genders as the
context requires.  Where a word or phrase is defined herein, each of its other
grammatical forms shall have a corresponding meaning.

(b)           The terms “hereof”, “herein” and “herewith” and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement.

(c)           When a reference is made in this Agreement to an Article, Section,
paragraph, Exhibit or Schedule, such reference is to an Article, Section,
paragraph, Exhibit or Schedule to this Agreement unless otherwise specified.

(d)           The word “include”, “includes”, and “including” when used in this
Agreement shall be deemed to be followed by the words “without limitation”,
unless otherwise specified.

(e)           A reference to any Party to this Agreement or any other agreement
or document shall include such Party’s predecessors, successors and permitted
assigns.

(f)           Reference to any Law means such Law as amended, modified,
codified, replaced or reenacted, and all rules and regulations promulgated
thereunder.

(g)           The Parties have participated jointly in the negotiation and
drafting of this Agreement.  Any rule of construction or interpretation
otherwise requiring this Agreement to be construed or interpreted against any
Party by virtue of the authorship of this Agreement shall not apply to the
construction and interpretation hereof.

(h)           All accounting terms used and not defined herein shall have the
respective meanings given to them under GAAP.

10.5         Survival.  The representations and warranties and covenants and
agreements in this Agreement and in any certificate delivered pursuant hereto
shall terminate at the Effective Time, except that the covenants and agreements
set forth in Articles I, II, VII and this Article X, in each case as they relate
to any post-Closing matters, and including without limitation any provisions for
the benefit of third parties, shall survive the Effective Time.

10.6         Severability.  If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Transactions is not affected in any manner materially adverse to any
Party.  Upon a determination that any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in a mutually acceptable manner in order that
the Transactions be consummated as originally contemplated to the fullest extent
possible.
 
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10.7         Assignment; Binding Effect; Benefit.  Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the Parties hereto (whether by operation of Law or otherwise) without the
prior written consent of the other Parties; provided, however, that Parent or
Merger Sub may assign any of their respective rights and obligations to any
direct or indirect Subsidiary of Parent. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the Parties
hereto and their respective executors, heirs, personal representatives
successors and assigns.  Notwithstanding anything contained in this Agreement to
the contrary, except for the provisions of Article II, and Sections 7.14 and
7.15, which are intended to benefit and be enforceable by third parties as
specifically set forth therein, nothing in this Agreement, expressed or implied,
is intended to confer on any Person other than the Parties or their respective
successors and assigns any rights, remedies, obligations or Liabilities under or
by reason of this Agreement.

10.8         Fees and Expenses.  All fees and expenses incurred in connection
with the Merger, the other Transactions, and this Agreement shall be paid by the
Party incurring such fees or expenses, whether or not the Merger is consummated;
provided, however, that:

(a)           As and when requested by Parent, the Company shall pay the
reasonable legal, accounting, independent auditing, and EDGARization service
fees and expenses of Parent in connection with the preparation and filing of any
and all required reports to be filed under the Exchange Act from and after the
date of this Agreement through the earlier of (i) four (4) Business Days
following the Effective Time, or (ii) the time at which this Agreement shall
have been terminated, if at all, in accordance with Article IX hereof; provided,
however, that any amounts owed as of Closing hereunder shall be paid directly to
the vendors of Parent as directed by Parent no later than Closing;

(b)           As and when requested by Parent, the Company shall pay the
reasonable legal, accounting, independent auditing, and EDGARization/printing
service fees and expenses of Parent in connection with the Merger and the
preparation, filing and dissemination of the S-4/Merger Proxy Statement and all
related federal and state securities Law compliance associated with the Merger;
provided, however, that any amounts owed as of Closing hereunder shall be paid
directly to the vendors of Parent as directed by Parent no later than Closing;
and

(c)           Parent shall be free at all times to select the professional
service firms that it utilizes in respect of 10.8 (a) and (b) above in its
exclusive discretion, and, without limiting the foregoing, it is acknowledged
that Parent may utilize the services of M.M. Membrado, PLLC as legal counsel for
certain aspects of the legal work involved in this process (at a rate of
$400/hr.) and may use other law firms for other aspects (at rates that may be
comparable or higher).

10.9          Incorporation of Schedules.  The Company Disclosure Schedule and
the Parent Disclosure Schedule referred to herein and signed for identification
by the Parties hereto are hereby incorporated herein and made a part hereof for
all purposes as if fully set forth herein.

10.10        Specific Performance.  The Parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the Parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at Law or equity.
 
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10.11        Governing Law.  This Agreement and the Exhibits and Schedules
hereto shall be governed by and interpreted and enforced in accordance with the
Laws of the State of New York, without giving effect to any choice of Law or
conflict of Laws rules or provisions (whether of the State of New York or any
other jurisdiction) that would cause the application of the Laws of any
jurisdiction other than the State of New York.

10.12        Consent to Jurisdiction; Waiver of Jury Trial.  Each Party
irrevocably submits to the exclusive jurisdiction of (a) New York County, New
York, and (b) the United States District Court for the Southern District of New
York, for the purposes of any Proceeding arising out of this Agreement or any of
the Transactions.  Each Party agrees to commence any such Proceeding either in
the United States District Court for the Southern District of New York or if
such Proceeding may not be brought in such court for jurisdictional reasons, in
the Supreme Court sitting in New York County (including its Appellate Division).
Each Party further agrees that service of any process, summons, notice or
document by U.S. registered mail to such Party’s respective address set forth
above shall be effective service of process for any Proceeding in New York with
respect to any matters to which it has submitted to jurisdiction in this
Section 10.12.  Each Party irrevocably and unconditionally waives any objection
to the laying of venue of any Proceeding arising out of this Agreement or any of
the Transactions in (i) the United States District Court for the Southern
District of New York, or (ii) the Supreme Court sitting in New York County
(including its Appellate Division), and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Proceeding brought in any such court has been brought in an
inconvenient forum.  EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

10.13        Headings.  The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.

10.14        Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different Parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

10.15        Entire Agreement.  This Agreement, the Company Disclosure Schedule,
the Parent Disclosure Schedule and any documents delivered by the Parties in
connection herewith constitute the entire agreement among the Parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the Parties with respect thereto, including without
limitation the Original Merger Agreement.  Except as otherwise provided herein,
no addition to or modification of any provision of this Agreement shall be
binding upon any Party hereto unless made in writing and signed by all Parties
hereto.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 
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IN WITNESS WHEREOF, the Parties have executed this Agreement or caused this
Agreement to be executed by the respective officers thereunto duly authorized,
in each case as of the date first written above.

 
“PARENT”
 
GCA I ACQUISITION CORP.
       
By:
   
Name:
Michael M. Membrado
 
Title:
President & Chief Executive Officer

 
“MERGER SUB”
 
BIXBY ENERGY ACQUISITION CORP.
     
By:
 
 
Name:
Michael M. Membrado
 
Title:
President & Chief Executive Officer

 
“COMPANY”
 
BIXBY ENERGY SYSTEMS, INC.
       
By:
   
Name:
Robert A. Walker
 
Title:
President & Chief Executive Officer

     
Robert A. Walker, personally

 
 
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EXHIBITS

Exhibit A
Certificate of Incorporation – Parent
Exhibit B
Bylaws – Parent
Exhibit C
Certificate of Incorporation – Merger Sub
Exhibit D
Bylaws – Merger Sub
Exhibit E
Certificate of Incorporation – Company
Exhibit F
Bylaws – Company
Exhibit G
 Form of Amended & Restated Voting Agreement
Exhibit H
 Form of Certificate of Merger
Exhibit I
Form of Affiliate Agreement
Exhibit J
 Form of Convertible Debt Securites Exchange Agreement
Exhibit K
 Form of Common Stock Purchase Warrant Exchange Agreement
Exhibit L
Form of Series A Convertible Preferred Stock Purchase Warrant Exchange Agreement
Exhibit M
Form of Registrable Securities Lock-Up Agreement

 
 

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EXHIBIT A

ARTICLES OF INCORPORATION – PARENT

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EXHIBIT B

BYLAWS – PARENT
 

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EXHIBIT C

ARTICLES OF INCORPORATION – MERGER SUB
EXHIBIT C

CERTIFICATE OF INCORPORATION

OF

BIXBY ENERGY ACQUISITION CORP.
 
(Pursuant to Section 102 of the Delaware General Corporation Law)  

1. The name of the corporation is Bixby Energy Acquisition Corp. (the
“Corporation”).

2. The address of its registered office in the State of Delaware is 160
Greentree Drive, Suite 101, Dover, Delaware 19904, County of Kent.  The name of
its registered agent at such address is the National Registered Agents, Inc..

3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware (the “DGCL”).

4. The Corporation is to have perpetual existence.

5. The total number of shares of capital stock which the Corporation shall have
authority to issue is: two million (2,000,000). These shares shall be divided
into two classes with 1,000,000 shares designated as common stock at $.0001 par
value (the “Common Stock”) and 1,000,000 shares designated as preferred stock at
$.0001 par value (the “Preferred Stock”).

The Preferred Stock of the Corporation shall be issued by the Board of Directors
of the Corporation in one or more classes or one or more series within any class
and such classes or series shall have such voting powers, full or limited, or no
voting powers, and such designations, preferences, limitations or restrictions
as the Board of Directors of the Corporation may determine, from time to time.

Holders of shares of Common Stock shall be entitled to cast one vote for each
share held at all stockholders’ meetings for all purposes, including the
election of directors. The Common Stock does not have cumulative voting rights.

No holder of shares of stock of any class shall be entitled as a matter of right
to subscribe for or purchase or receive any part of any new or additional issue
of shares of stock of any class, or of securities convertible into shares of
stock of any class, whether now hereafter authorized or whether issued for
money, for consideration other than money, or by way of dividend.

6.   The Board of Directors shall have the power to adopt, amend or repeal the
by-laws of the Corporation.  
 
7.   No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit. If
the DGCL hereafter is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended DGCL. No
amendment to or repeal of this Article 7 shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.
 

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8.   The Corporation shall indemnify, to the fullest extent permitted by Section
145 of the DGCL, as amended from time to time, each person that such section
grants the Corporation the power to indemnify.

9. The name and mailing address of the incorporator is Michael M. Membrado, c/o
M.M. Membrado, PLLC, 115 East 57th Street, Tenth Floor, New York, New York
10022.

IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore named,
has executed, signed and acknowledged this certificate of incorporation this
23rd day of April, 2008.

     
Michael M. Membrado,  Incorporator

 
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EXHIBIT D

BYLAWS – MERGER SUB

EXHIBIT D

BY-LAWS

OF

BIXBY ENERGY ACQUISITION CORP.
~ A Delaware corporation ~

ARTICLE I

STOCKHOLDERS
 
Section 1.   Certificates Representing Stock.  (a) Certificates representing
stock in the corporation shall be signed by, or in the name of, the corporation
by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the corporation.  Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.

(b)   Whenever the corporation shall be authorized to issue more than one class
of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law.  Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.

(c)   The corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the Board of Directors may require the owner
of the lost, stolen or destroyed certificate, or his legal representative, to
give the Corporation a bond sufficient to indemnify the corporation against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of any such new certificate
or uncertificated shares.
 
Section 2.   Uncertificated Shares.  Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
 
Section 3.   Fractional Share Interests.  The corporation may, but shall not be
required to, issue fractions of a share.  If the Corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share.  A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the Corporation in the event of liquidation.  The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.

 
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Section 4.   Stock Transfers.  Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
 
Section 5.   Record Date For Stockholders.  In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting.  If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.  A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meeting of stockholders are
recorded. Delivery made to the corporation’s registered office shall be by hand
or by certified or registered mail, return receipt requested.  If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such
action.  If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
 
 
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Section 6.   Meaning of Certain Terms.  As used herein in respect of the right
to notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of meeting, as the case
may be, the term “share” or “shares” or “share of stock” or “shares of stock” or
“stockholder” or “stockholders” refers to an outstanding share or shares of
stock and to a holder or holders of record of outstanding shares of stock when
the corporation is authorized to issue only one class of shares of stock, and
said reference is also intended to include any outstanding share or shares of
stock and any holder or holders of record of outstanding shares of stock of any
class upon which or upon whom the certificate of incorporation confers such
rights where there are two or more classes or series of shares of stock or upon
which or upon whom the General Corporation Law confers such rights
notwithstanding that the certificate of incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the certificate of incorporation, except as any provision of law
may otherwise require.

Section 7.   Stockholder Meetings .

Time.  The annual meeting shall be held on the date and at the time fixed, from
time to time, by the directors, provided that the first annual meeting shall be
held on a date within thirteen months after the organization of the corporation,
and each successive annual meeting shall be held on a date within thirteen
months after the date of the preceding annual meeting.  A special meeting shall
be held on the date and at the time fixed by the directors.

Place.  Annual meetings and special meetings shall be held at such place, within
or without the State of Delaware, as the directors may, from time to time,
fix.  Whenever the directors shall fail to fix such place, the meeting shall be
held at the registered office of the corporation in the State of Delaware.

Call.  Annual meetings and special meetings may be called by the directors or by
any officer instructed by the directors to call the meeting.

Notice or Waiver of Notice.  Written notice of all meetings shall be given,
stating the place, date, hour of the meeting and stating the place within the
city or other municipality or community at which the list of stockholders of the
corporation may be examined.  The notice of an annual meeting shall state that
the meeting is called for the election of directors and for the transaction of
other business which may properly come before the meeting, and shall (if any
other action which could be taken at a special meeting is to be taken at such
annual meeting) state the purpose or purposes.  The notice of a special meeting
shall in all instances state the purpose or purposes for which the meeting is
called. The notice of any meeting shall also include, or be accompanied by, any
additional statements, information, or documents prescribed by the General
Corporation Law.  Except as otherwise provided by the General Corporation Law, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten days nor more than sixty days before the date of the meeting,
unless the lapse of the prescribed period of time shall have been waived, and
directed to each stockholder at his record address or at such other address
which he may have furnished by request in writing to the Secretary of the
corporation.  Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the adjourned
meeting.  Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, not the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.

 
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Stockholder List.  The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.  Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be
held.  The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.  The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.

Conduct of Meeting.  Meetings of the stockholders shall be presided over by one
of the following officers in the order of seniority and if present and
acting-the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders.  The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.

Proxy Representation.  Every stockholder may authorize another person or persons
to act for him by proxy in all matters in which a stockholder is entitled to
participate, whether by waiving notice of any meeting, voting or participating
at a meeting, or expressing consent or dissent without a meeting. Every proxy
must be signed by the stockholder or by his attorney-in-fact.  No proxy shall be
voted or acted upon after three years from its date unless such proxy provides
for a longer period.  A duly executed proxy shall be irrevocable if it states
that is irrevocable and, if, and only as long as it is coupled with an interest
sufficient in law to support an irrevocable power.  A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.

Inspectors.  The directors, in advance of any meeting, may, but need not,
appoint one or more inspectors of election to act at the meeting or any
adjournment thereof.  If any inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not appoint one or more
inspectors.  In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat.  Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability.  The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders.  Upon request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by him
or them and execute a certificate of any fact found by him or them.  Except as
otherwise required by subsection (e) of Section 231 of the General Corporation
Law, the provisions of that Section shall not apply to the corporation.

 
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Quorum.  The holders of a majority of the outstanding shares of stock shall
constitute a quorum at a meeting of stockholders for the transaction of any
business.  The stockholders presents may adjourn the meeting despite the absence
of a quorum.

Voting.  Each share of stock shall entitle the holder thereof to one vote.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.  Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.

Section 8.   Stockholder Action Without Meetings.  Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.  Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.  Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.

ARTICLE II

DIRECTORS

Section 1.   Functions and Definition.  The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation.  The Board of Directors shall have the authority to fix the
compensation of the members thereof.  The use of the phrase “whole board” herein
refers to the total number of directors which the corporation would have if
there were no vacancies.

Section 2.   Qualifications and Number.  A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware.  The
initial Board of Directors shall consist of one (1) person.  Thereafter, the
number of directors may be increased or decreased from time to time by action of
the stockholders or of the directors, or, if the number is not fixed, the number
shall be one (1).
 
Section 3.   Election and Term.  The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal.  Any director may
resign at any time upon written notice to the corporation.  Thereafter,
directors who are elected at an annual meeting of stockholders, and directors
who are elected in the interim to fill vacancies and newly created
directorships, shall hold office until the next annual meeting resignation or
removal.  Except as the General Corporation Law may otherwise require, in the
interim between annual meetings of stockholders or of special meetings of
stockholders called for the election of directors and/or for the removal of one
or more directors and for the filling of any vacancy in that connection, newly
created directorships and any vacancies in the Board of Directors, including
unfilled vacancies resulting from the removal of directors for cause or without
cause, may be filled by the vote of a majority of the remaining directors then
in office, although less than a quorum, or by the sole remaining director.  

 
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            Section 4.   MEETINGS.

TIME.  Meetings shall be held at such time as the Board shall fix, except that
the first meeting of a newly elected Board shall be held as soon after its
election as the directors may conveniently assemble.

PLACE.  Meetings shall be held at such place within or without the State of
Delaware as shall be fixed by the Board.

CALL.  No call shall be required for regular meetings for which the time and
place have been fixed. Special meetings may be called by or at the direction of
the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of
the President, or of a majority of the directors in office.

NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER.  No notice shall be required for
regular meetings for which the time and place have been fixed.  Written, oral,
or any other mode of notice of the time and place shall be given for special
meetings in sufficient time for the convenient assembly of the directors
thereat. Notice need not be given to any director or to any member of a
committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.  Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.

QUORUM AND ACTION.  A majority of the whole Board shall constitute a quorum
except when a vacancy or vacancies prevents such majority, whereupon a majority
of the directors in office shall constitute a quorum, provided, that such
majority shall constitute at least one-third of the whole Board.  A majority of
the directors present, whether or not a quorum is present, may adjourn a meeting
to another time and place.  Except as herein otherwise provided, and except as
otherwise provided by the General Corporation Law, the vote of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board.  The quorum and voting provisions herein stated shall not be
construed as conflicting with any provisions of the General Corporation Law and
these Bylaws which govern a meeting of the directors held to fill vacancies and
newly created directorships in the Board or action of disinterested directors.

Any member or members of the Board of Directors or of any committee designated
by the Board, may participate in a meeting of the Board, or any such committee,
as the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other.

CHAIRMAN OF THE MEETING.  The Chairman of the Board, if any and if present and
acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the
Board, if any and if present and acting, or the President, if present and
acting, or any other director chosen by the Board, shall preside.

Section 5.   REMOVAL OF DIRECTORS.  Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.

 
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Section 6.   COMMITTEES . The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation.  The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.  In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.  Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.

Section 7.   WRITTEN ACTION.  Any action required or permitted to be taken at
any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.

Section 8.   BOARD OF ADVISORS.   The Board of Directors, in its discretion, may
establish a Board of Advisors, consisting of individuals who may or may not be
stockholders or directors of the Corporation.  The purpose of the Board of
Advisors would be to advise the officers and directors of the Corporation with
respect to such matters as such officers and directors shall choose, and any
other matters which the members of such Board of Advisors deem appropriate in
furtherance of the best interest of the Corporation.  The Board of Advisors
shall meet on such basis as the members thereof may determine.   The Board of
Directors may eliminate the Board of Advisors at any time.  No member of the
Board of Advisors, nor the Board of Advisors itself, shall have any authority of
the Board of Directors or any decision-making power and shall be merely advisory
in nature.  Unless the Board of Directors determines another method of
appointment, the President shall recommend possible members of the Board of
Advisors to the Board of Directors, who shall approve such appointments or
reject them.
 
ARTICLE III

OFFICERS

The officers of the corporation shall consist of a President, a Secretary, a
Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive
Vice-President, one or more other Vice-Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
title as the resolution of the Board of Directors choosing them shall
designate.  Except as may otherwise be provided in the resolution of the Board
of Directors choosing him, no officer other than the Chairman or Vice-Chairman
of the Board, if any, need be a director.  Any number of offices may be held by
the same person, as the directors may determine.

Unless otherwise provided in the resolution choosing him, each officer shall be
chosen for a term which shall continue until the meeting of the Board of
Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.

All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith.  The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors.  Any vacancy in any office may
be filled by the Board of Directors.

 
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ARTICLE IV

CORPORATE SEAL

The corporate seal shall be in such form as the Board of Directors shall
prescribe.

ARTICLE V

FISCAL YEAR
  
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.

ARTICLE VI

AMENDMENT

           These Bylaws may be adopted, amended or repealed at any time by the
unanimous written consent of the Board of Directors.

 
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EXHIBIT E

ARTICLES OF INCORPORATION – COMPANY
 
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EXHIBIT F

BYLAWS – COMPANY

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EXHIBIT G

FORM OF AMENDED & RESTATED VOTING AGREEMENT
 
EXHIBIT G

AMENDED & RESTATED VOTING AGREEMENT
 
This Amended & Restated Voting Agreement (this “Agreement”) is made as of March
27, 2009 by and among GCA I Acquisition Corp., a Delaware corporation (“Parent”)
and Robert A. Walker, a principal stockholder of Bixby Energy Systems, Inc., a
Delaware corporation (the “Company”)(the “Company Principal Stockholder”).
 
WHEREAS, Parent and the Company Principal Stockholder entered into a certain
voting agreement as of May 7, 2008 (the “Original Voting Agreement”), which
Original Voting Agreement Parent and Company Principal Stockholder now wish to
amend and restate in its entirety in the form of this Agreement, which shall for
all purposes be deemed to supercede the Original Voting Agreement;

WHEREAS, concurrently with the execution and delivery of this Agreement, Parent,
Bixby Energy Acquisition Corp., a Delaware corporation and wholly-owned
subsidiary of Parent (“Merger Sub”) and the Company are entering into an Amended
& Restated Agreement and Plan of Merger (the “Merger Agreement”), pursuant to
which Merger Sub will be merged with and into the Company, and the Company shall
be the surviving corporation following the merger (the “Merger”);
 
WHEREAS, as of the date hereof, the Company Principal Stockholder is a
Beneficial Owner (as defined below) of the Subject Shares (as defined
below); and
 
WHEREAS, in order to induce Parent to enter into the Merger Agreement, the
Company Principal Stockholder has agreed to enter into this Agreement.
 
NOW, THEREFORE, in consideration of the foregoing premises and of the covenants
and agreements set forth herein and in the Merger Agreement, and intending to be
legally bound hereby, the parties agree as follows:
 
1.           Certain Definitions.
 
(a)           “Beneficially Own” or “Beneficial Owner” with respect to any
securities means having “beneficial ownership” as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
 
(b)           “Company Capital Stock” means, jointly, the Company Common Stock
and the Company Preferred Stock.
 
(c)           “Company Common Stock” means shares of common stock, par value
$0.001 per share, of the Company.

(d)           “Company Options and Other Rights” means options, warrants and
other rights to acquire, directly or indirectly, shares of Company Capital
Stock.
 
(e)           “Company Preferred Stock” means shares of Series A convertible
preferred stock, par value $0.001 per share, of the Company.

(f)           “Expiration Date” means the earlier to occur of (i) the Effective
Time (as defined in the Merger Agreement) or (ii) the date on which the Merger
Agreement is terminated pursuant to its terms.

 
 

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 (g)           “Subject Shares” means (i) all shares of Company Capital Stock
Beneficially Owned by the Company Principal Stockholder  as of the date of this
Agreement, and (ii) all additional shares of Company Capital Stock of which the
Company Principal Stockholder acquires Beneficial Ownership during the period
from the date of this Agreement through the Expiration Date.

2.           Voting.
 
(a)           The Company Principal Stockholder hereby reresents that it is an
“accredited investor” as such term is defined within Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended.

(b)           The Company Principal Stockholder hereby agrees that, prior to the
Expiration Date, at any meeting of the stockholders of the Company, however
called, and in any written action by consent of stockholders of the Company,
unless otherwise directed in writing by Parent, the Company Principal
Stockholder  shall cause to be counted as present thereat for purposes of
establishing a quorum and, subject only to Parent’s compliance with applicable
securities laws, shall vote, or cause to be voted, any and all Subject Shares as
of the record date of such meeting or written consent:
 
(i)           for the adoption and approval of the Merger Agreement and the
terms thereof, in favor of each of the other actions contemplated by the Merger
Agreement, including without limitation the Merger and the amendment to the
Company’s certificate of incorporation relating to the automatic conversion of
the Company Preferred Stock upon consummation of the Merger, and in favor of any
action in furtherance of any of the foregoing;
 
(ii)           against any action or agreement that would result in a breach of
any representation, warranty, covenant or obligation of the Company in the
Merger Agreement; and
 
(iii)           against the following actions (other than the transactions
contemplated by the Merger Agreement including without limitation the Merger and
the amendment to the Company’s certificate of incorporation relating to the
automatic conversion of the Company Preferred Stock upon consummation of the
Merger): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or any
subsidiary of the Company; (B) any sale, lease, sublease, license, sublicense or
transfer of a material portion of the rights or other assets of the Company or
any subsidiary of the Company; (C) any reorganization, recapitalization,
dissolution or liquidation of the Company or any subsidiary of the Company;
(D) any change in the individuals who serve as members of the board of directors
of the Company; (E) any amendment to the Company’s certificate of incorporation
or bylaws; (F) any material change in the capitalization of the Company or the
Company’s corporate structure; and (G) any other action which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or adversely affect the Merger or any of the other transactions
contemplated by the Merger Agreement or this Agreement.
 
(c)           No provision contained in this Agreement shall prohibit the
Company Principal Stockholder from voting in his capacity as a director of the
Company in any manner whatsoever.
 
(d)           Prior to the Expiration Date, the Company Principal Stockholder
shall not enter into any other agreement or understanding with any third party
requiring him to vote in his capacity as a stockholder or give instructions in
any manner inconsistent with clause “(i),” clause “(ii)” or clause “(iii)” of
Subsection (b) of this Section 2 of this Agreement.

 
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(e)           The Company Principal Stockholder hereby waives and agrees not to
exercise  or seek to exercise any applicable “appraisal rights” under the
Delaware General Corporation Law with respect to the Subject Shares in
connection with the Merger and the Merger Agreement.
 
3.           Proof of Vote/Consent.  In the event that approval by the Company
stockholders of the Merger, the Merger Agreement, and the amendment to the
Company’s certificate of incorporation relating to the automatic conversion of
the Company Preferred Stock upon consummation of the Merger is not obtained,
then, and in such event, the Company Principal Stockholder shall promptly
provide to Parent evidence in form reasonably satisfactory to Parent of the
fulfillment of his obligations under this Agreement.
 
4.           Representations and Warranties of Stockholder.   The Company
Principal Stockholder  represents and warrants to Parent as follows:
 
(a)           As of the date of this Agreement and at all times through the
Expiration Date:

(i)           He is the Beneficial Owner (free and clear of any encumbrances or
restrictions) of the outstanding shares of Company Common Stock set forth under
the heading “Shares of Company Common Stock Beneficially Owned”, on the
signature page hereof;

(ii)           He is the Beneficial Owner (free and clear of any encumbrances or
restrictions) of the outstanding shares of Company Preferred Stock set forth
under the heading “Shares of Company Preferred Stock Beneficially Owned”, on the
signature page hereof;
 
(iii)           He is the Beneficial Owner (free and clear of any encumbrances
or restrictions) of the outstanding Company Options and Other Rights set forth
under the heading “Company Options and Other Rights Beneficially Owned” on the
signature page hereof; and
 
(iv)           He does not directly or indirectly Beneficially Own any shares of
Company Capital Stock or Company Options or Other Rights or other securities of
the Company, other than the shares of Company Capital Stock and Company Options
and Other Rights set forth on the signature page hereof.
 
(b)           The Company Principal Stockholder has the legal capacity, power
and authority to enter into and perform all of its obligations under this
Agreement.  This Agreement has been duly executed and delivered by the Company
Principal Stockholder, and upon its execution and delivery by Parent, will
constitute a legal, valid and binding obligation of the Company Principal
Stockholder, enforceable against him in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to creditors rights
generally, and the availability of injunctive relief and other equitable
remedies.
 
(c)           The execution, delivery and performance by the Company Principal
Stockholder of this Agreement will not (i) conflict with, require a consent,
waiver or approval under, or result in a breach of or default under, any of the
terms of any contract, commitment or other obligation (written or oral) to which
such Company Principal Stockholder is a party or by which any of his assets may
be bound.
 
(d)           No filing with, and no permit, authorization, consent or approval
of, any state or federal public body or authority is necessary for the execution
of this Agreement by the Company Principal Stockholder and the consummation by
Company Principal Stockholder of the transactions contemplated hereby.

 
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5.           Covenants of Company Principal Stockholder.   The Company Principal
Stockholder covenants and agrees for the benefit of Parent that, until the
Expiration Date, he shall not:
 
(a)           sell, transfer, pledge, hypothecate, encumber, assign, tender or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, hypothecation,
encumbrance, assignment, tender or other disposition of, (i) any Subject Shares
or any interest therein, or (ii) any Company Options and Other Rights or any
interest therein; provided, however, that Stockholder may convert, exercise or
exchange Company Options and Other Rights into or for shares of Company Capital
Stock in which event such shares of Company Capital Stock shall become and be
deemed Subject Shares subject to all the terms and conditions of this Agreement;
 
(b)           acquire any shares of the stock of Parent except pursuant to
existing Company Options and Other Rights or unless such shares shall become
subject to the terms of this Agreement;
 
(c)           grant any powers of attorney or proxies or consents in respect of
any of the Subject Shares, deposit any of such Subject Shares into a voting
trust, or enter into a voting agreement with respect to any of such Subject
Shares; or
 
(d)           take any other action with respect to the Subject Shares that
would in any way restrict, limit or interfere with the performance of Company
Principal Stockholder’s obligations hereunder or the transactions contemplated
hereby and the Merger Agreement.
 
6.           Adjustments; Additional Shares.   In the event (a) of any stock
dividend, stock split, merger, recapitalization, reclassification, combination,
exchange of shares or the like of the capital stock of the Company on, of or
affecting the Subject Shares, or (b) that Company Principal Stockholder shall
become the Beneficial Owner of any additional shares of Company Capital Stock or
other securities entitling the holder thereof to vote or give consent with
respect to the matters set forth in Section 2(b), then the terms of this
Agreement shall apply to the shares of Company Capital Stock or other
instruments or documents held by Company Principal Stockholder immediately
following the effectiveness of the events described in clause (a) or Company
Principal Stockholder becoming the Beneficial Owner thereof as described in
clause (b), as though, in either case, they were Subject Shares hereunder.
 
7.           Amendments and Waivers.   Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and is
signed, in the case of an amendment, by each party to this Agreement, or in the
case of a waiver, by the party against whom the waiver is to be effective. No
failure or delay by any party in exercising any right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. To the maximum extent permitted by law, (a) no
waiver that may be given by a party shall be applicable except in the specific
instance for which it was given and (b) no notice to or demand on one party
shall be deemed to be a waiver of any obligation of such party or the right of
the party giving such notice or demand to take further action without notice or
demand.
 
8.           Assignment.   This Agreement may not be assigned by any party
hereto without the prior written consent of the other parties. Subject to the
foregoing, all of the terms and provisions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
executors, heirs, personal representatives, successors and assigns.

 
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9.           Entire Agreement.   This Agreement and the documents, instruments
and other agreements specifically referred to herein or delivered pursuant
hereto, set forth the entire understanding of the parties with respect to the
subject matter hereof. Any and all previous agreements and understandings
between or among the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement.
 
10.           Notices.   Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given (a) on the date established by the sender as
having been delivered personally; (b) on the date delivered by a private courier
as established by the sender by evidence obtained from the courier; (c) on the
date sent by facsimile, with confirmation of transmission, if sent during normal
business hours of the recipient, if not, then on the next business day; or
(d) on the fifth day after the date mailed, by certified or registered mail,
return receipt requested, postage prepaid. Such communications, to be valid,
must be addressed as follows:
 
If to Parent, to:
 
GCA I Acquisition Corp.
115 East 57th Street, Suite 1006
New York, New York 10022
Attn: Michael M. Membrado

Facsimile: 646-486-9771
 
With a required copy to:
 
M.M. Membrado, PLLC
115 East 57th Street, Suite 1006
New York, New York 10022
Attn: Michael M. Membrado

Facsimile: 646-486-9771
 
If to Company Principal Stockholder:
 
Robert A. Walker
c/o Bixby Energy Systems, Inc.
6893 139th Lane NW
Ramsey, MN  55303

Facsimile: 763-428-7903
 
With a required copy to:
 
Davisson & Associates, PA
4124 Quebec Avenue North, Suite 306
Minneapolis, MN 55427
Attn: Peder Davisson, Esq.

Facsimile: 763-355-5679
 
or to such other address or to the attention of such person or persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain).  If more than one method for sending
notice as set forth above is used, the earliest notice date established as set
forth above shall control.

 
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11.  Captions.    All captions contained in this Agreement are for convenience
of reference only, do not form a part of this Agreement and shall not affect in
any way the meaning or interpretation of this Agreement.
 
12.  Severability; Enforcement.   Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
 
13.  Specific Performance.   The Company Principal Stockholder acknowledges that
the agreements contained in this Agreement are an integral part of the
transactions contemplated by the Merger Agreement, and that, without these
agreements, Parent would not enter into the Merger Agreement, and acknowledges
that damages would be an inadequate remedy for any breach by the Company
Principal Stockholder of the provisions of this Agreement.  Accordingly, the
Company Principal Stockholder agrees that his obligations hereunder shall be
specifically enforceable and he shall not take any action to impede the other
from seeking to enforce such right of specific performance.
 
14.  Consent to Jurisdiction.   Each party irrevocably submits to the exclusive
jurisdiction of (a) New York County, New York, and (b) the United States
District Court for the Southern District of New York, for the purposes of any
action, suit or proceeding arising out of this Agreement or any transaction
contemplated hereby. Each party agrees to commence any such action, suit or
proceeding either in the United States District Court for the Southern District
of New York or if such action, suit or proceeding may not be brought in such
court for jurisdictional reasons, in the Supreme Court sitting in New York
County (including its Appellate Division).  Each party further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party’s respective address set forth above shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 14.  Each
party irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the United States District Court for the
Southern District of New York, or (ii) the Supreme Court sitting in New York
County (including its Appellate Division), and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
 
15.  Governing Law.   This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York, without giving
effect to any choice of law or conflict of laws rules or provisions (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York,
except to the extent that the voting of the Subject Shares is subject to the
corporate law of the State of Delaware.
 
[SIGNATURES ON THE FOLLOWING PAGE]

 
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
all as of the day and year first above written.

GCA I ACQUISITION CORP.
 
By:
 
Name:   Michael M. Membrado
Title:     President and Chief Executive Officer

COMPANY PRINCIPAL STOCKHOLDER: 
   
ROBERT A. WALKER

Number of shares of Company Common Stock Beneficially Owned:
     
Number of shares of Company Preferred Stock Beneficially Owned:
     
Number of Company Options and Other Rights Beneficially Owned:
 

 
 
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EXHIBIT H

FORM OF CERTIFICATE OF MERGER
 
EXHIBIT H

CERTIFICATE OF MERGER
OF
BIXBY ENERGY SYSTEMS, INC.
AND
BIXBY ENERGY ACQUISITION CORP.
 
Pursuant to Section 251 of the General Corporation Law of the State of Delaware
(the “DGCL”), Bixby Energy Acquisition Corp., a Delaware corporation, DOES
HEREBY CERTIFY that:
 
1.           The name and jurisdiction of incorporation of each of the
constituent corporations to the merger (collectively, the “Constituent
Corporations”) are as follows:

Name
 
Jurisdiction of Incorporation
Bixby Energy Systems, Inc.
 
Delaware
Bixby Energy Acquisition Corp.
 
Delaware

 
2.           An Amended & Restated Agreement and Plan of Merger, dated as of
March 27, 2009 (the “Agreement and Plan of Merger”), by and among GCA I
Acquisition Corp., a Delaware corporation, and each of the Constituent
Corporations, providing for the merger of Bixby Energy Acquisition Corp, with
and into Bixby Energy Systems, Inc. has been approved, adopted, certified,
executed and acknowledged by each of the Constituent Corporations in accordance
with the requirements of Sections 228 and 251 of the DGCL.
 
3.           The name of the corporation surviving the merger is Bixby Energy
Systems, Inc., a Delaware corporation (the “Surviving Corporation”).
 
4.           The Certificate of Incorporation of Bixby Energy Systems, Inc., as
now in force and effect, shall continue to be the Certificate of Incorporation
of the Surviving Corporation until amended and changed pursuant to the
provisions of the DGCL.
 
5.           The Bylaws of Bixby Energy Systems, Inc., as now in full force and
effect, shall continue to be the Bylaws of the Surviving Corporation until
amended and changed pursuant to the provisions of the DGCL.
 
6.           The officers and directors of Bixby Energy Systems, Inc.
immediately prior to the filing of this Certificate of Merger with the Secretary
of State of the State of Delaware shall remain the officers and directors of the
Surviving Corporation, each to hold office until their respective death,
permanent disability, resignation or removal or until their respective
successors are duly elected and qualified, all in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation and the
DGCL.
 
7.           The executed Agreement and Plan of Merger is on file at an office
of the Surviving Corporation, the address of which is as follows:

Bixby Energy Systems, Inc.
6893 139th Lane N.W.
Ramsey, MN 55303
 
8.           A copy of the Agreement and Plan of Merger will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of either
Constituent Corporation.

 
 

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9.           This Certificate of Merger, and the merger provided for herein,
shall be effective immediately upon its filing with the Secretary of State of
the State of Delaware.
 
IN WITNESS WHEREOF, this Certificate of Merger has been duly executed on
________ __, 200_.
 
BIXBY ENERGY SYSTEMS, INC.
   
By
 
Name:                              Robert Walker
Title:                 President & ChiefExecutive Officer

 
 
 

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EXHIBIT I

FORM OF AFFILIATE AGREEMENT
 
EXHIBIT I
 
AFFILIATE AGREEMENT

____________   , 200_
 
 GCA I Acquisition Corp.
115 East 57th Street, Tenth Floor
New York, New York 10022
Att:  Michael M. Membrado, Pres./ CEO

Ladies and Gentlemen:
 
The undersigned has been advised that, as of the date of this letter, it may be
deemed to be an “affiliate” of Bixby Energy Systems, Inc., a Delaware
corporation (the “Company”), as the term “affiliate” is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the “Rules and
Regulations”) of the U.S. Securities and Exchange Commission (the “Commission”)
under the Securities Act of 1933, as amended (the “Securities Act”).  Pursuant
to the terms of the Amended & Restated Agreement and Plan of Merger, dated as of
March 27, 2008 (the “Merger Agreement”), by and among GCA I Acquisition Corp.
(“Parent”), Bixby Energy Acquisition Corp., a wholly-owned subsidiary of Parent
(“Merger Sub”) and the Company (among others), Merger Sub will be merged with
and into the Company (the “Merger”) and the Company, as the entity surviving the
Merger, will become a wholly-owned subsidiary of Parent.
 
As a result of the Merger, and assuming no sale or other conveyance prior to the
effective time of the Merger, the undersigned will receive [shares of common
stock, par value $0.0001 per share, of Parent] [(the “Parent Common
Stock”)][(the “Merger Securities”)][debt securities convertible into shares of
common stock, par value $0.0001 per share, of Parent [(the “Parent Convertible
Debt”)][(the “Merger Securities”)][and][one or more warrant(s) to purchase
shares of common stock, par value $0.0001 per share, of Parent [(the “Parent
Common Stock Purchase Warrants”)][(the “Merger Securities”)][(the [Parent Common
Stock], [the Parent Convertible Debt] [and][the Parent Common Stock Purchase
Warrant] shall be referred to hereinafter [collectively] as the “Merger
Securities”], in exchange for [common stock, par value $0.001 per share, of the
Company][Series A convertible preferred stock, par value $0.001 per share, of
the Company][convertible debt securities of the Company][(a) warrant(s) to
purchase shares of common stock, par value $0.001 per share, of the Company]
][and][(a) warrant(s) to purchase shares of Series A convertible preferred
stock, par value $0.001 per share, of the Company] owned by the undersigned
immediately prior to the effective time of the Merger.
 
The undersigned hereby represents and warrants to, and covenants with, Parent
that in relation to any Merger Securities it receives as a result of the Merger:
 
A.          The undersigned shall not make any sale, transfer or other
disposition of the Merger Securities in violation of the Act or the Rules and
Regulations.
 
B.           The undersigned has carefully read this letter and the Merger
Agreement and discussed the requirements of these documents and other applicable
limitations upon the undersigned’s ability to resell, transfer or otherwise
dispose of the Merger Securities, to the extent the undersigned deemed
necessary, with his or her counsel or counsel for the Company.

 
 

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C.           The undersigned has been advised that any issuance of Merger
Securities to him, her or it pursuant to the Merger has been, or will be,
registered with the Commission under the Act on a registration statement on
Form S-4.  However, the undersigned has also been advised that, since at the
time the Merger is to be submitted for a vote of the stockholders of the
Company, and without regard to any applicable contractual lock-up arrangements,
the undersigned may be deemed to be an affiliate of the Company, the undersigned
may not resell, transfer or otherwise dispose of any Merger Securities issued to
him, her or it in the Merger unless (a) such resale, transfer or other
disposition has been registered under the Act, (b) such resale, transfer or
other disposition is made in conformity with Rule 145 (as that rule may be
hereinafter amended) promulgated by the Commission under the Act, or (c) Parent
shall have received either an opinion of counsel acceptable to Parent in its
exclusive discretion or a “no action” letter obtained by the undersigned from
the staff of the Commission, to the effect that such resale, transfer or other
disposition is otherwise exempt from registration under the Act.
 
D.           The undersigned understands that, except as specifically set forth
in the Merger Agreement, Parent is under no obligation to register the resale,
transfer or other disposition of the Merger Securities by the undersigned or on
his or her behalf under the Act or to take any other action necessary in order
to comply with any available exemption from the registration requirements of the
Act.  The undersigned also understands that stop transfer instructions will be
given to Parent’s transfer agent with respect to the Merger Securities and that
there will be placed on the certificates for the Merger Securities issued to the
undersigned, or any substitutions therefor, a legend stating in substance:
 
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), APPLIES, AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE
WITH THE REQUIREMENTS OF RULE 145, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT.”
 
E.           The undersigned further understands that, unless the transfer by it
of any Merger Securities has been registered under the Act or is a sale made in
accordance with the provisions of Rule 145, Parent reserves the right to place
the following legend on the certificates issued to the undersigned’s transferee:
 
“THE SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND SUCH
SECURITIES WERE ACQUIRED FROM A PERSON WHO RECEIVED THESE SECURITIES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE ACT APPLIES.  THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE HOLDER NOT
WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF
WITHIN THE MEANING OF THE ACT, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT.”
 
F.           Execution of this letter shall not be considered an admission on
the part of the undersigned that he, she or it is an “affiliate” of the Company
as described in the first paragraph of this letter, nor as a waiver of any
rights the undersigned may have to object to any claim that he/she/it is such an
affiliate after the date of this letter.
 

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It is understood and agreed that the legends set forth in paragraphs D and E
above shall be removed by delivery of substitute certificates without any legend
if either of these legends are not required for purposes of the Act or this
letter agreement.  It is understood and agreed that these legends and the stop
transfer orders referred to above will be removed if (i) evidence or
representations satisfactory to Parent and its transfer agent that the Merger
Securities represented by the certificates are being or have been sold in a
transaction made in accordance with the provisions of Rule 145(d) (as that rule
may be hereinafter amended), (ii) Parent has received either an opinion of
counsel or a “no action” letter obtained by the undersigned from the staff of
the Commission, to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned, or (iii) the Merger Securities
represented by the certificates having such legend(s) are the subject of an
effective registration statement under the Act.
 

 
[NAME OF ENTITY]
     
[By]
   
[NAME]

Accepted this  __th day of
______________, 200_ by
 
GCA I ACQUISITION CORP.
 
By 
     
Name:
Michael M. Membrado
 
Title:
President & Chief Executive Officer
 

 
 

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EXHIBIT J

FORM OF CONVERTIBLE DEBT SECURITIES EXCHANGE AGREEMENT

 
EXHIBIT J

CONVERTIBLE DEBT SECURITIES EXCHANGE AGREEMENT

This Convertible Debt Securities Agreement (this “Agreement”), dated as of
__________ __, 200_ (this “Agreement”), among Bixby Energy Systems, Inc., a
Delaware corporation with its principal place of business located at 6893 139th
Lane N.W., Ramsey, MN 55303 (the “Bixby”), _______________ _____________________
[an individual residing at][a _____________________ with its principal place of
business located at] _____________________________ (“Securityholder”), and GCA I
Acquisition Corp., a  Delaware corporation with its principal place of business
located at 115 East 57th Street, Suite 1006, New York, New York 10022 (“GCA”)
(Bixby, Securityholder and GCA may hereinafter be referred to individually as a
“Party” or collectively as the “Parties”).

WHEREAS, Securityholder is the holder of record as of the date hereof of one or
more convertible debt securities issued by Bixby in the aggregate principal face
amount of ________________
_____________________ ($___________) (the “Bixby Convertible Debt Securities”),
copies of the instrument(s) for which are annexed hereto as Exhibit A (the
“Bixby Convertible Debt Security Instruments”);

WHEREAS, Bixby is currently a private company and GCA is currently a public
reporting company with its common stock, par value $.0001 per share (“GCA Common
Stock”), registered as a class under the Securities Exchange Act of 1934;

WHEREAS, it is anticipated by the Parties that a public trading market will be
developed over time in GCA Common Stock;

WHEREAS, Bixby and GCA, inter alia, have entered into a certain Amended &
Restated Agreement and Plan of Merger as of March 27, 2009 (the “Merger
Agreement”) pursuant to which a special-purpose wholly-owned subsidiary of GCA
will merge with and into Bixby, thereby effectively causing Bixby to become the
sole operating subsidiary of a public reporting parent company (the “Merger”);

WHEREAS, all Bixby shares of common stock, par value $.0001 per share (the
“Bixby Common Stock”), are being exchanged as part of the Merger for shares of
GCA Common Stock;

WHEREAS, unless the Parties otherwise agree, the Securityholder shall continue
to hold Bixby Convertible Debt Securities following consummation of the Merger,
and the shares of Bixby Common Stock into which such Bixby Convertible Debt
Securities are convertible shall likely remain illiquid indefinitely;

WHEREAS, in order to provide Securityholder with an opportunity to benefit from
the increased liquidity expected to be realized over time by Bixby common
stockholders as a result of the Merger, Bixby and GCA have agreed to provide
Securityholder with an opportunity to exchange the Bixby Convertible Debt
Securities, upon consummation of the Merger, for [a number of shares (rounded
down to the nearest whole number) of GCA Common Stock equal to the number of
shares of Bixby Common Stock into which such Bixby Convertible Debt Securities
are then convertible][GCA securities substantially equivalent in substance and
form to the Bixby Convertible Debt Securities for which they are being
exchanged];

 
 

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WHEREAS, Securityholder is now desirous of exchanging the Bixby Convertible Debt
Securities, upon consummation of the Merger, for [a number of shares (rounded
down to the nearest whole number) of GCA Common Stock equal to the number of
shares of Bixby Common Stock into which such Bixby Convertible Debt Securities
are then convertible][GCA securities substantially equivalent in substance and
form to the Bixby Convertible Debt Securities for which they are being
exchanged] upon the terms and conditions set forth herein;
 
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
 
1.           Exchange.  At the effective time of the Merger, and in connection
therewith, the Bixby Convertible Debt Securities shall be exchanged for all
purposes for [a number of shares (rounded down to the nearest whole number) of
GCA Common Stock equal to the number of shares of Bixby Common Stock into which
such Bixby Convertible Debt Securities are then convertible (the “Exchange
Shares”)][GCA securities substantially equivalent in substance and form to the
Bixby Convertible Debt Securities for which they are being exchanged (the
“Exchange Securities”)].
 
2.           Exchange of Certificates.  The Bixby Convertible Debt Securities
Instrument(s) shall be exchanged for certificates reflecting the Exchange
[Shares][Securities] in the same manner as provided in Section 2.2 of the Merger
Agreement.  No certificate representing GCA Common Stock or other securities,
however, shall be delivered to any individual or entity otherwise entitled to a
certificate based on their having previously held Bixby Convertible Debt
Securities who is an “affiliate” of Bixby as of the date hereof until such
person shall have executed and delivered to GCA a written agreement
substantially in the form annexed hereto as Exhibit B.

3.           Registration on Form S-4.  The Securityholder hereby acknowledges
that it has received and read a copy of that certain registration statement on
SEC Form S-4, and the prospectus included as part thereof, filed with the SEC by
GCA relating to the Merger and covering the issuance by GCA of [(a)] [the
Exchange Shares][the Exchange Securities and (b) GCA Common Stock issuable upon
conversion of the Exchange Securities].
 
4.           Lock-Up.  Any GCA Common Stock issued pursuant to [this
Agreement][the conversion of any Exchange Security issued pursuant to this
Agreement] shall be delivered upon the condition, and subject to the
requirements that, whether or not registered or otherwise eligible for resale,
ninety percent (90%) of such shares may not be sold except in accordance with
the following schedule (calculated on a cumulative basis):

Up to 5%
90 days following the first date on which the shares of GCA common stock are
listed or quoted for trading on a national stock exchange and/or the OTCBB (the
“Listing Date”)
Up to additional 5%
180 days following the Listing Date
Up to additional 5%
270 days following the Listing Date
Up to additional 5%
365 days following the Listing Date
Up to additional 10%
455 days following the Listing Date
Up to additional 15%
545 days following the Listing Date
Up to additional 20%
635 days following the Listing Date
Up to additional 25%
730 days following the Listing Date

 
 
 

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The above transfer limitation condition shall not apply to transfers (i) by gift
to an immediate family member, (ii) by will or intestacy or distribution, or
(iii) to a trust for the benefit of the transferor or a family
member.  Additionally:

(a)           notwithstanding anything contained in the schedule set forth above
in this Section 4 to the contrary, if the Listing Date shall not have occurred
as of the date one (1) year following the closing date of the Merger, then, and
in such event, for purposes of the schedule set forth above in this Section 4,
the Listing Date shall be deemed to be the date one (1) year following the
closing date of the Merger; and

(b)           GCA Common Stock owned by affiliates of Bixby immediately
preceding the closing of the Merger shall be subject to, and limited by,
transfer restrictions imposed upon affiliates under securities law that are more
restrictive than the above transfer limitation condition, to the extent
applicable.

5.           Miscellaneous.

5.1           Notices.  Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given: (a) on the date established by the sender as
having been delivered personally; (b) on the date delivered by FedEx, UPS, USPS,
or DHL as established by the sender by evidence obtained from such courier;
(c) on the date sent by facsimile, with confirmation of transmission, if sent
during normal business hours of the recipient, if not, then on the next business
day; or (d) on the fifth (5th) day after the date mailed, by certified or
registered mail, return receipt requested, postage prepaid.  Such
communications, to be valid, must be addressed to the recipient Party at the
address set forth in the preamble to this Agreement or to such other address or
to the attention of such person or persons as the recipient Party has specified
by prior written notice to the sending Party (or in the case of counsel, to such
other readily ascertainable business address as such counsel may hereafter
maintain). If more than one method for sending notice as set forth above is
used, the earliest notice date established as set forth above shall control.

5.2           Severability.  If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transaction is not affected in any manner materially adverse to any
Party.  Upon a determination that any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in a mutually acceptable manner in order that
the transaction be consummated as originally contemplated to the fullest extent
possible.

5.3           Assignment; Binding Effect; Benefit.  Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the Parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other Parties.  This Agreement shall be binding
upon and shall inure to the benefit of the Parties hereto and their respective
executors, heirs, personal representatives successors and assigns.  Nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the Parties or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.

 
3

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5.4           Governing Law.  This Agreement shall be governed by and
interpreted and enforced in accordance with the Laws of the State of New York,
without giving effect to any choice of law or conflict of laws rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.

5.5           Consent to Jurisdiction; Waiver of Jury Trial.  Each Party
irrevocably submits to the exclusive jurisdiction of (a) New York County, New
York, and (b) the United States District Court for the Southern District of New
York, for the purposes of any proceeding arising out of this Agreement.  Each
Party agrees to commence any such proceeding either in the United States
District Court for the Southern District of New York or if such proceeding may
not be brought in such court for jurisdictional reasons, in the Supreme Court
sitting in New York County (including its Appellate Division). Each Party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party’s respective address set forth above shall be
effective service of process for any proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 5.  Each Party
irrevocably and unconditionally waives any objection to the laying of venue of
any proceeding arising out of this Agreement in (i) the United States District
Court for the Southern District of New York, or (ii) the Supreme Court sitting
in New York County (including its Appellate Division), and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such proceeding brought in any such court has been brought
in an inconvenient forum.  EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

5.6           Headings.  The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

5.7           Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different Parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

5.8           Entire Agreement.  This Agreement and any documents delivered by
the Parties in connection herewith constitute the entire agreement among the
Parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the Parties with respect thereto.  Except as
otherwise provided herein, no addition to or modification of any provision of
this Agreement shall be binding upon any Party hereto unless made in writing and
signed by all Parties hereto.
 
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 
4

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IN WITNESS WHEREOF, the Parties have executed this Agreement or caused this
Agreement to be executed by the respective officers thereunto duly authorized,
in each case as of the date first written above.

BIXBY ENERGY SYSTEMS, INC.
   
By:
 
Name:    Robert A. Walker
Title:      President & Chief Executive Officer
   
GCA I ACQUISITION CORP.
   
By:
 
Name:   Michael M. Membrado
Title:     President & Chief Executive Officer
   
SECURITYHOLDER
   
[NAME]

 
5

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 EXHIBIT A

BIXBY CONVERTIBLE DEBT SECURITY INSTRUMENT(S)

 
 

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EXHIBIT B

AFFILIATE AGREEMENT

 
 

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EXHIBIT K

FORM OF COMMON STOCK PURCHASE WARRANT EXCHANGE AGREEMENT
 
EXHIBIT K
 
COMMON STOCK PURCHASE WARRANT EXCHANGE AGREEMENT

This Common Stock Purchase Warrant Agreement (this “Agreement”), dated as of
__________ __, 200_ (this “Agreement”), among Bixby Energy Systems, Inc., a
Delaware corporation with its principal place of business located at 6893 139th
Lane N.W., Ramsey, MN 55303 (the “Bixby”), ____________________________________
[an individual residing at][a _____________________ with its principal place of
business located at] _____________________________ (“Warrantholder”), and GCA I
Acquisition Corp., a  Delaware corporation with its principal place of business
located at 115 East 57th Street, Suite 1006, New York, New York 10022 (“GCA”)
(Bixby, Warrantholder and GCA may hereinafter be referred to individually as a
“Party” or collectively as the “Parties”).

WHEREAS, Warrantholder is the holder of record as of the date hereof of one or
more warrants to purchase up to ______ shares of common stock of Bixby, par
value $.0001 per share (the “Bixby Common Stock”) in the aggregate for a price
of ________________________ ($________) per share up through _______________,
20__ (the “Bixby Warrant[s]”), copies of the certificate(s) for which are
annexed hereto as Exhibit A (the “Bixby Warrant Certificate[s]”);

WHEREAS, Bixby is currently a private company and GCA is currently a public
reporting company with its common stock, par value $.0001 per share (“GCA Common
Stock”), registered as a class under the Securities Exchange Act of 1934;

WHEREAS, it is anticipated by the Parties that a public trading market will be
developed over time in GCA Common Stock;

WHEREAS, Bixby and GCA, inter alia, have entered into a certain Amended &
Restated Agreement and Plan of Merger as of March 27, 2009 (the “Merger
Agreement”) pursuant to which a special-purpose wholly-owned subsidiary of GCA
will merge with and into Bixby, thereby effectively causing Bixby to become the
sole operating subsidiary of a public reporting parent company (the “Merger”);

WHEREAS, all shares of Bixby Common Stock, are being exchanged as part of the
Merger for shares of GCA Common Stock;

WHEREAS, unless the Parties otherwise agree, the Warrantholder shall continue to
hold [a] Bixby Warrant[s] following consummation of the Merger, and the shares
of Bixby Common Stock for which such Bixby Warrant[s] are exercisable shall
likely remain illiquid indefinitely;

WHEREAS, in order to provide Warrantholder with an opportunity to benefit from
the increased liquidity expected to be realized over time by Bixby common
stockholders as a result of the Merger, Bixby and GCA have agreed to provide
Warrantholder with an opportunity to exchange the Bixby Warrant[s], upon
consummation of the Merger, for a warrant to purchase shares of GCA Common Stock
substantially equivalent in substance and form to the Bixby Warrant[s] for which
they are being exchanged;

WHEREAS, Warrantholder is now desirous of exchanging the Bixby Warrant[s], upon
consummation of the Merger, for a warrant to purchase shares of GCA Common Stock
substantially equivalent in substance and form to the Bixby Warrant[s] for which
[it is][they are] being exchanged upon the terms and conditions set forth
herein;

 
 

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NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
 
1.           Exchange.  At the effective time of the Merger, and in connection
therewith, the Bixby Warrant[s] shall be exchanged for all purposes for one or
more warrants (i) to purchase, in the aggregate, up to the same number of shares
of GCA Common Stock for which the Bixby Warrant[s] [collectively] had been
exercisable (for shares of Bixby Common Stock) immediately prior to the
effective time of the Merger and at a price per share of GCA Common Stock equal
to the exercise price per share of Bixby Common Stock at which the Bixby
Warrant[s] [was][were] exercisable immediately prior to the effective time of
the Merger, and (ii) that shall have, and be subject to, the same terms and
conditions as the Bixby Warrant[s] had in effect immediately prior to the
effective time of the Merger, including any repurchase rights, risk of
forfeiture, or vesting provisions and any related provisions regarding the
acceleration of vesting and exercisability in the event of certain transactions
(the “Exchange Warrant[s]”).
 
2.           Exchange of Certificates.  The Bixby Warrant Certificate(s) shall
be exchanged for a single certificate reflecting the Exchange Warrant[s] in
accordance with Section 2.2 of the Merger Agreement.  No certificate
representing a warrant to purchase GCA Common Stock, however, shall be delivered
to any individual or entity otherwise entitled to a certificate based on their
having previously held Bixby Warrants who is an “affiliate” of Bixby as of the
date hereof until such person shall have executed and delivered to GCA a written
agreement substantially in the form annexed hereto as Exhibit B.

3.           Registration on Form S-4.  The Warrantholder hereby acknowledges
that it has received and read a copy of that certain registration statement on
SEC Form S-4, and the prospectus included as part thereof, filed with the SEC by
GCA relating to the Merger and covering the issuance of securities by GCA in
connection therewith, including without limitation the Exchange Warrant[s] and
the GCA Common Stock issuable upon exercise of the Exchange Warrant[s].
 
4.           Lock-Up.  Any GCA Common Stock issued pursuant to exercise of the
Exchange Warrant[s] shall be delivered upon the condition, and subject to the
requirements that, whether or not registered or otherwise eligible for resale,
ninety percent (90%) of such shares may not be sold except in accordance with
the following schedule (calculated on a cumulative basis):

Up to 5%
 
90 days following the first date on which the shares of GCA common stock are
listed or quoted for trading on a national stock exchange and/or the OTCBB (the
“Listing Date”)
Up to additional 5%
 
180 days following the Listing Date
Up to additional 5%
 
270 days following the Listing Date
Up to additional 5%
 
365 days following the Listing Date
Up to additional 10%
 
455 days following the Listing Date
Up to additional 15%
 
545 days following the Listing Date
Up to additional 20%
 
635 days following the Listing Date
Up to additional 25%
 
730 days following the Listing Date

The above transfer limitation condition shall not apply to transfers (i) by gift
to an immediate family member, (ii) by will or intestacy or distribution, or
(iii) to a trust for the benefit of the transferor or a family
member.  Additionally:

 
2

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(a)           notwithstanding anything contained in the schedule set forth above
in this Section 4 to the contrary, if the Listing Date shall not have occurred
as of the date one (1) year following the closing date of the Merger, then, and
in such event, for purposes of the schedule set forth above in this Section 4,
the Listing Date shall be deemed to be the date one (1) year following the
closing date of the Merger; and

(b)           GCA Common Stock owned by affiliates of Bixby immediately
preceding the closing of the Merger shall be subject to, and limited by,
transfer restrictions imposed upon affiliates under securities law that are more
restrictive than the above transfer limitation condition, to the extent
applicable.

5.           Miscellaneous.

5.1           Notices.  Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given: (a) on the date established by the sender as
having been delivered personally; (b) on the date delivered by FedEx, UPS, USPS,
or DHL as established by the sender by evidence obtained from such courier;
(c) on the date sent by facsimile, with confirmation of transmission, if sent
during normal business hours of the recipient, if not, then on the next business
day; or (d) on the fifth (5th) day after the date mailed, by certified or
registered mail, return receipt requested, postage prepaid.  Such
communications, to be valid, must be addressed to the recipient Party at the
address set forth in the preamble to this Agreement or to such other address or
to the attention of such person or persons as the recipient Party has specified
by prior written notice to the sending Party (or in the case of counsel, to such
other readily ascertainable business address as such counsel may hereafter
maintain). If more than one method for sending notice as set forth above is
used, the earliest notice date established as set forth above shall control.

5.2           Severability.  If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transaction is not affected in any manner materially adverse to any
Party.  Upon a determination that any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in a mutually acceptable manner in order that
the transaction be consummated as originally contemplated to the fullest extent
possible.

5.3           Assignment; Binding Effect; Benefit.  Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the Parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other Parties.  This Agreement shall be binding
upon and shall inure to the benefit of the Parties hereto and their respective
executors, heirs, personal representatives successors and assigns.  Nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the Parties or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.

5.4           Governing Law.  This Agreement shall be governed by and
interpreted and enforced in accordance with the Laws of the State of New York,
without giving effect to any choice of law or conflict of laws rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.

 
3

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5.5           Consent to Jurisdiction; Waiver of Jury Trial.  Each Party
irrevocably submits to the exclusive jurisdiction of (a) New York County, New
York, and (b) the United States District Court for the Southern District of New
York, for the purposes of any proceeding arising out of this Agreement.  Each
Party agrees to commence any such proceeding either in the United States
District Court for the Southern District of New York or if such proceeding may
not be brought in such court for jurisdictional reasons, in the Supreme Court
sitting in New York County (including its Appellate Division). Each Party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party’s respective address set forth above shall be
effective service of process for any proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 5.  Each Party
irrevocably and unconditionally waives any objection to the laying of venue of
any proceeding arising out of this Agreement in (i) the United States District
Court for the Southern District of New York, or (ii) the Supreme Court sitting
in New York County (including its Appellate Division), and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such proceeding brought in any such court has been brought
in an inconvenient forum.  EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

5.6           Headings.  The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

5.7           Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different Parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

5.8           Entire Agreement.  This Agreement and any documents delivered by
the Parties in connection herewith constitute the entire agreement among the
Parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the Parties with respect thereto.  Except as
otherwise provided herein, no addition to or modification of any provision of
this Agreement shall be binding upon any Party hereto unless made in writing and
signed by all Parties hereto.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 
4

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IN WITNESS WHEREOF, the Parties have executed this Agreement or caused this
Agreement to be executed by the respective officers thereunto duly authorized,
in each case as of the date first written above.

BIXBY ENERGY SYSTEMS, INC.
   
By:
 
Name:     Robert A. Walker
Title:       President & Chief Executive Officer
   
GCA I ACQUISITION CORP.
   
By:
 
Name:     Michael M. Membrado
Title:       President & Chief Executive Officer
   
WARRANTHOLDER
       
[NAME]

 
5

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EXHIBIT A

BIXBY WARRANT CERTIFICATE(S)

 
 

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

 

EXHIBIT B

AFFILIATE AGREEMENT

 
 

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

 

EXHIBIT L

FORM OF SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT
 EXCHANGE AGREEMENT
 
EXHIBIT L
 

SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT
EXCHANGE AGREEMENT

This Series A Convertible Preferred Stock Purchase Warrant Agreement (this
“Agreement”), dated as of __________ __, 200_ (this “Agreement”), among Bixby
Energy Systems, Inc., a Delaware corporation with its principal place of
business located at 6893 139th Lane N.W., Ramsey, MN 55303 (the “Bixby”),
_____________________________ [an individual residing at][a
_______________________ with its principal place of business located at]
_____________________________ (“Warrantholder”), and GCA I Acquisition Corp., a
Delaware corporation with its principal place of business located at 115 East
57th Street, Suite 1006, New York, New York 10022 (“GCA”) (Bixby, Warrantholder
and GCA may hereinafter be referred to individually as a “Party” or collectively
as the “Parties”).

WHEREAS, Warrantholder is the holder of record as of the date hereof of one or
more warrants to purchase up to ______ shares of Series A convertible preferred
stock of Bixby, par value $.0001 per share (the “Bixby Series A Convertible
Preferred Stock”) in the aggregate for a price of ________________________
($________) per share up through _______________, 20__ (the “Bixby Warrant[s]”),
copies of the certificate(s) for which are annexed hereto as Exhibit A (the
“Bixby Warrant Certificate[s]”);

WHEREAS, in accordance with the Certificate of Desigations relating to the Bixby
Series A Convertible Preferred Stock (included as part of Bixby’s Certificate of
Incorporation), each share of Bixby Series A Convertible Preferred Stock is
convertible into two (2) shares of common stock, par value $.0001 per share of
Bixby (“Bixby Common Stock”);

WHEREAS, Bixby is currently a private company and GCA is currently a public
reporting company with its common stock, par value $.0001 per share (“GCA Common
Stock”), registered as a class under the Securities Exchange Act of 1934;

WHEREAS, it is anticipated by the Parties that a public trading market will be
developed over time in GCA Common Stock;

WHEREAS, Bixby and GCA, inter alia, have entered into a certain Amended &
Restated Agreement and Plan of Merger as of March 27, 2009 (the “Merger
Agreement”) pursuant to which a special-purpose wholly-owned subsidiary of GCA
will merge with and into Bixby, thereby effectively causing Bixby to become the
sole operating subsidiary of a public reporting parent company (the “Merger”);

WHEREAS, all shares of Bixby Common Stock, are being exchanged as part of the
Merger for shares of GCA Common Stock;

WHEREAS, unless the Parties otherwise agree, the Warrantholder shall continue to
hold [a] Bixby Warrant[s] following consummation of the Merger, and the shares
of Bixby Series A Convertible Preferred Stock for which such Bixby Warrant[s]
are exercisable shall likely remain illiquid indefinitely;

 
1

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

 

WHEREAS, in order to provide Warrantholder with an opportunity to benefit from
the increased liquidity expected to be realized over time by Bixby common
stockholders as a result of the Merger, Bixby and GCA have agreed to provide
Warrantholder with an opportunity to exchange the Bixby Warrant[s], upon
consummation of the Merger, for a warrant to purchase shares of GCA Common Stock
substantially equivalent in substance and form to the Bixby Warrant[s] for which
they are being exchanged upon the terms and conditions set forth herein;

WHEREAS, Warrantholder is now desirous of exchanging the Bixby Warrant[s], upon
consummation of the Merger, for a warrant to purchase shares of GCA Common Stock
substantially equivalent in substance and form to the Bixby Warrant[s] for which
[it is][they are] being exchanged;
 
NOW, THEREFORE, in consideration of the covenants, promises and representations
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
 
1.           Exchange.  At the effective time of the Merger, and in connection
therewith, the Bixby Warrant[s] shall be exchanged for all purposes for one or
more warrants (i) to purchase, in the aggregate, up to twice (2x) the number of
shares of GCA Common Stock for which the Bixby Warrant[s] [collectively] had
been exercisable (for shares of Bixby Series A Convertible Preferred Stock)
immediately prior to the effective time of the Merger and at a price per share
of GCA Common Stock equal to one-half (½) the exercise price per share of Bixby
Series A Convertible Preferred Stock at which the Bixby Warrant[s] [was][were]
exercisable immediately prior to the effective time of the Merger, and (ii) that
shall have, and be subject to, the same terms and conditions as the Bixby
Warrant[s] had in effect immediately prior to the effective time of the Merger,
including any repurchase rights, risk of forfeiture, or vesting provisions and
any related provisions regarding the acceleration of vesting and exercisability
in the event of certain transactions (the “Exchange Warrant[s]”).
 
2.           Exchange of Certificates.  The Bixby Warrant Certificate(s) shall
be exchanged for a single certificate reflecting the Exchange Warrant[s] in
accordance with Section 2.2 of the Merger Agreement.  No certificate
representing a warrant to purchase GCA Common Stock, however, shall be delivered
to any individual or entity otherwise entitled to a certificate based on their
having previously held Bixby Warrants who is an “affiliate” of Bixby as of the
date hereof until such person shall have executed and delivered to GCA a written
agreement substantially in the form annexed hereto as Exhibit B.

3.           Registration on Form S-4.  The Warrantholder hereby acknowledges
that it has received and read a copy of that certain registration statement on
SEC Form S-4, and the prospectus included as part thereof, filed with the SEC by
GCA relating to the Merger and covering the issuance of securities by GCA in
connection therewith, including without limitation the Exchange Warrant[s] and
the GCA Common Stock issuable upon exercise of the Exchange Warrant[s].
 
4.           Lock-Up.  Any GCA Common Stock issued pursuant to exercise of the
Exchange Warrant[s] shall be delivered upon the condition, and subject to the
requirements that, whether or not registered or otherwise eligible for resale,
ninety percent (90%) of such shares may not be sold except in accordance with
the following schedule (calculated on a cumulative basis):

 
2

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

 
 
Up to 5% 
 
90 days following the first date on which the shares of GCA common stock are
listed or quoted for trading on a national stock exchange and/or the OTCBB (the
“Listing Date”)
Up to additional 5% 
 
180 days following the Listing Date
Up to additional 5% 
 
270 days following the Listing Date
Up to additional 5% 
 
365 days following the Listing Date
Up to additional 10% 
 
455 days following the Listing Date
Up to additional 15% 
 
545 days following the Listing Date
Up to additional 20% 
 
635 days following the Listing Date
Up to additional 25% 
 
730 days following the Listing Date

The above transfer limitation condition shall not apply to transfers (i) by gift
to an immediate family member, (ii) by will or intestacy or distribution, or
(iii) to a trust for the benefit of the transferor or a family
member.  Additionally:

(a)           notwithstanding anything contained in the schedule set forth above
in this Section 4 to the contrary, if the Listing Date shall not have occurred
as of the date one (1) year following the closing date of the Merger, then, and
in such event, for purposes of the schedule set forth above in this Section 4,
the Listing Date shall be deemed to be the date one (1) year following the
closing date of the Merger; and

(b)           GCA Common Stock owned by affiliates of Bixby immediately
preceding the closing of the Merger shall be subject to, and limited by,
transfer restrictions imposed upon affiliates under securities law that are more
restrictive than the above transfer limitation condition, to the extent
applicable.

5.           Miscellaneous.

5.1           Notices.  Any notice, request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given: (a) on the date established by the sender as
having been delivered personally; (b) on the date delivered by FedEx, UPS, USPS,
or DHL as established by the sender by evidence obtained from such courier;
(c) on the date sent by facsimile, with confirmation of transmission, if sent
during normal business hours of the recipient, if not, then on the next business
day; or (d) on the fifth (5th) day after the date mailed, by certified or
registered mail, return receipt requested, postage prepaid.  Such
communications, to be valid, must be addressed to the recipient Party at the
address set forth in the preamble to this Agreement or to such other address or
to the attention of such person or persons as the recipient Party has specified
by prior written notice to the sending Party (or in the case of counsel, to such
other readily ascertainable business address as such counsel may hereafter
maintain). If more than one method for sending notice as set forth above is
used, the earliest notice date established as set forth above shall control.

5.2           Severability.  If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transaction is not affected in any manner materially adverse to any
Party.  Upon a determination that any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Parties as closely as possible in a mutually acceptable manner in order that
the transaction be consummated as originally contemplated to the fullest extent
possible.

 
3

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5.3           Assignment; Binding Effect; Benefit.  Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the Parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other Parties.  This Agreement shall be binding
upon and shall inure to the benefit of the Parties hereto and their respective
executors, heirs, personal representatives successors and assigns.  Nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the Parties or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.

5.4           Governing Law.  This Agreement shall be governed by and
interpreted and enforced in accordance with the Laws of the State of New York,
without giving effect to any choice of law or conflict of laws rules or
provisions (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the State
of New York.

5.5           Consent to Jurisdiction; Waiver of Jury Trial.  Each Party
irrevocably submits to the exclusive jurisdiction of (a) New York County, New
York, and (b) the United States District Court for the Southern District of New
York, for the purposes of any proceeding arising out of this Agreement.  Each
Party agrees to commence any such proceeding either in the United States
District Court for the Southern District of New York or if such proceeding may
not be brought in such court for jurisdictional reasons, in the Supreme Court
sitting in New York County (including its Appellate Division). Each Party
further agrees that service of any process, summons, notice or document by U.S.
registered mail to such Party’s respective address set forth above shall be
effective service of process for any proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 5.  Each Party
irrevocably and unconditionally waives any objection to the laying of venue of
any proceeding arising out of this Agreement in (i) the United States District
Court for the Southern District of New York, or (ii) the Supreme Court sitting
in New York County (including its Appellate Division), and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such proceeding brought in any such court has been brought
in an inconvenient forum.  EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

5.6           Headings.  The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.

5.7           Counterparts.  This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different Parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.

5.8           Entire Agreement.  This Agreement and any documents delivered by
the Parties in connection herewith constitute the entire agreement among the
Parties with respect to the subject matter hereof and supersede all prior
agreements and understandings among the Parties with respect thereto.  Except as
otherwise provided herein, no addition to or modification of any provision of
this Agreement shall be binding upon any Party hereto unless made in writing and
signed by all Parties hereto.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 
4

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IN WITNESS WHEREOF, the Parties have executed this Agreement or caused this
Agreement to be executed by the respective officers thereunto duly authorized,
in each case as of the date first written above.

 
BIXBY ENERGY SYSTEMS, INC.
       
By:
   
Name:      Robert A. Walker
 
Title:        President & Chief Executive Officer
       
GCA I ACQUISITION CORP.
     
By:
   
Name:      Michael M. Membrado
 
Title:        President & Chief Executive Officer
     
WARRANTHOLDER
           
[NAME]

 
 
5

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EXHIBIT A

BIXBY WARRANT CERTIFICATE(S)

 

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

 

EXHIBIT B

AFFILIATE AGREEMENT

 

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

 
 
EXHIBIT M
 
FORM OF REGISTRABLE SECURITIES LOCK-UP AGREEMENT
 
EXHIBIT M
 
REGISTRABLE SECURITIES LOCK-UP AGREEMENT
 
This Registrable Securities Lock-Up Agreement (this “Agreement”) is made as of
_______ __, 200_, by and among Bixby Energy Systems, Inc. (formerly known as GCA
I Acquisition Corp.), a Delaware corporation (the “Company”) and
_____________________________________, an individual stockholder of Company (the
“Stockholder”).
 
WHEREAS, as of the date hereof, the Stockholder is the holder of record of
_________________ (__________) shares of common stock, par value $0.0001 per
share, of the Company (the “Registrable Securities”); and
 
WHEREAS, in order to compel the Company to register the Registrable Securities
in accordance with the terms of Section 7.14 of that certain Amended & Restated
Agreement and Plan of Merger dated March 27, 2009 by and among GCA I Acquisition
Corp., Bixby Energy Acquisition Corp., and Bixby Energy Systems, Inc. (the
“Merger Agreement”), the Stockholder has agreed to enter into this Agreement;
 
NOW, THEREFORE, in consideration of the foregoing premises and of the covenants
and agreements set forth herein and in the Merger Agreement, and intending to be
legally bound hereby, the parties agree as follows:
   
1.           Lock-up. In consideration of the registration of the Registrable
Securities by the Company pursuant to Section 7.13 of the Merger Agreement, the
Stockholder hereby agrees that, whether or not registered, he or she shall only
be permitted to sell shares in accordance with the schedule specifically set
forth in Section 2.2(i)(1) of the Merger Agreement (the “Release Schedule”) as
if the Stockholder were a recipient of shares of Parent Common Stock (as defined
in the Merger Agreement) in connection with the Merger Agreement.
 
2.           Assignment.   This Agreement may not be assigned by any party
hereto without the prior written consent of the other party. Subject to the
foregoing, all of the terms and provisions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
executors, heirs, personal representatives, successors and assigns.
 
3.           Entire Agreement.   This Agreement and the documents, instruments
and other agreements specifically referred to herein or delivered pursuant
hereto, set forth the entire understanding of the parties with respect to the
subject matter hereof. Any and all previous agreements and understandings
between or among the parties regarding the subject matter hereof, whether
written or oral, are superseded by this Agreement.
 
4.           Notices.   Any notice, request, demand, waiver, consent, approval
or other communication made in connection with this Agreement shall be in
writing and shall be deemed given (a) on the date established by the sender as
having been delivered personally; (b) on the date delivered by a private courier
as established by the sender by evidence obtained from the courier; (c) on the
date sent by facsimile, with confirmation of transmission, if sent during normal
business hours of the recipient, if not, then on the next business day; or
(d) on the fifth day after the date mailed, by certified or registered mail,
return receipt requested, postage prepaid. Such communications, to be valid,
must be addressed as follows:

 
 

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

 

If to the Company, to:
 
Bixby Energy Systems, Inc.
6893 139th Lane N.W.
Ramsey, MN 55303
  Att:  Robert Walker, CEO

Fax:  763-428-7903

with a copy to:

Davisson & Associates, PA
4124 Quebec Avenue North, Suite 306
Minneapolis, MN 55427
  Att:  Peder K. Davisson, Esq.

Fax:  763-355-5679
 
If to the Stockholder:
 
 
 
 
 

Facsimile:
 

 
With a required copy to:
 
 
 
 
Attn:
 

Facsimile:
 

 
or to such other address or to the attention of such person or persons as the
recipient party has specified by prior written notice to the sending party (or
in the case of counsel, to such other readily ascertainable business address as
such counsel may hereafter maintain).  If more than one method for sending
notice as set forth above is used, the earliest notice date established as set
forth above shall control.
 
5.  Severability; Enforcement.   Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 
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6.  Consent to Jurisdiction.   Each party irrevocably submits to the exclusive
jurisdiction of (a) New York County, New York, and (b) the United States
District Court for the Southern District of New York, for the purposes of any
action, suit or proceeding arising out of this Agreement or any transaction
contemplated hereby. Each party agrees to commence any such action, suit or
proceeding either in the United States District Court for the Southern District
of New York or if such action, suit or proceeding may not be brought in such
court for jurisdictional reasons, in the Supreme Court sitting in New York
County (including its Appellate Division).  Each party further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party’s respective address set forth above shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 6.  Each party
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the United States District Court for the Southern
District of New York, or (ii) the Supreme Court sitting in New York County
(including its Appellate Division), and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
 
7.  Governing Law.   This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York, without giving
effect to any choice of law or conflict of laws rules or provisions (whether of
the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York,
except to the extent that the voting of the Subject Shares is subject to the
corporate law of the State of Delaware.
 
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto
all as of the day and year first above written.

BIXBY ENERGY SYSTEMS, INC.

By:
 
Name:
Title:     President and Chief Executive Officer

STOCKHOLDER: 

 
[NAME]

 
 
3

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SCHEDULES

Schedule A
Company Disclosure Schedule
Organization and Qualification; Subsidiaries
Section 4.1
Capitalization
Section 4.4
No Conflict; Required Filings and Consents
Section 4.6
Permits; Compliance
Section 4.7
Financial Statements
Section 4.8
Taxes
Section 4.11
Inventory
Section 4.14
Product Warranty
Section 4.15
Real Property
Section 4.17
Intellectual Property
Section 4.18
Material Contracts
Section 4.19
Litigation
Section 4.20
Employee Benefit Plans
Section 4.21
Environmental
Section 4.23
Related Party Transactions
Section 4.24
Insurance
Section 4.25
Absence of Certain Changes or Events
Section 4.26
Change in Control
Section 4.33
Conduct of Business by the Company Pending the Merger
Section 6.1
   
Schedule B
Parent Disclosure Schedule
Capitalization
Section 5.4
No Conflict; Required Filings and Consents
Section 5.6
Taxes
Section 5.8
Absence of Certain Changes or Events
Section 5.12
Conduct of Business by Parent Pending the Merger
Section 6.2

 
 
 

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

 
 
Company Disclosure Schedule:  Section 4.1

Organization and Qualification; Subsidiaries

The Company was originally organized under the laws of the State of Minnesota
and subsequently changed its domicile to Delaware through a merger.  It is
qualified to do business in the State of Minnesota.  The Company’s subsidiary,
SS Acquisition Corp. is a corporation organized under the laws of the State of
Minnesota. The Company and its subsidiary are qualified to do business in each
jurisdiction in which they have determined they are required to do so.

 
 

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

 

Company Disclosure Schedule:  Section 4.4

Capitalization

Section 4.4(a)

   
Shares
   
Common Stock
Equivalents
 
Common Stock
    36,443,290       36,443,290                    
Series A Convertible Preferred Stock
    817,534       1,635,068                    
Series A Convertible Preferred Stock Purchase Warrants
    237,500       475,000                    
Common Stock Purchase Warrants
    38,731,943       38,731,943                    
Employee/Board Common Stock Options
            2,109,000                    
Convertible Debt
            4,049,333                    
Total
            82,845,319  

Section 4.4b

[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.4 (cont’d).

Section 4.4c

Debentures and Promissory Notes Outstanding:

Type
 
$ Amount
 
Due Date
 
Conversion Price
             
Debenture
 
1,025,000
 
Nov 2010
 
$1.60/share
             
Promissory Notes
 
50,000
 
April 2009
 
N/A
   
600,000
 
May 2009
 
$1.60/share + ½ Warrant
   
262,000
 
Oct 2009
 
$2.00/share + 1 Warrant @ $2 Strike
   
150,000
 
Nov 2009
 
$2.00/share + 1 Warrant @ $2 Strike
   
30,000
 
Dec 2009
 
$2.00/share + 1 Warrant @ $2 Strike
   
100,000
 
Jan 2010
 
$1.60/share
   
125,000
 
Feb 2010
 
$1.60/share
   
1,700,000
 
March 2010
 
$1.60/share + ½ Warrant
   
150,000
 
Apr 2010
 
$2.50/share
   
200,000
 
Nov 2010
 
$2.50/share
   
250,000
 
Feb 2012
 
$4.00/share
   
1,000,000
 
Mar 2012
 
$3.00/share

 
 

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

 

Company Disclosure Schedule:  Section 4.6

No Conflict; Required Filings and Consents

[INTENTIONALLY BLANK]
 

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

 
Company Disclosure Schedule:  Section 4.7

Permits; Compliance

[INTENTIONALLY BLANK]
 

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

 
Company Disclosure Schedule:  Section 4.8

Financial Statements

Section 4.8(a)
 
BIXBY ENERGY SYSTEMS, INC.
 
Consolidated Financial Statements
 
Years Ended May 31, 2008 and May 26, 2007

 
 

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

 

BIXBY ENERGY SYSTEMS, INC.
 
Table of Contents
 

 
Page
   
Consolidated Balance Sheets
2
   
Consolidated Statements of Operations
3
   
Consolidated Statements of Stockholders’ Deficit
4
   
Consolidated Statements of Cash Flows
5
   
Notes to Consolidated Financial Statements
6

 
 

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

 
 
BIXBY ENERGY SYSTEMS, INC.
Consolidated Balance Sheets
May 31, 2008 and May 26,2007

   
2008
   
2007
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 1,375,156     $ 286,672  
Trade Accounts Receivable, less allowance for doubtful accounts of $36,868 and
$264,226 in 2008 and 2007, respectively
    272,507       260,033  
Inventories
    2,796,176       3,508,171  
Other current assets
    365,664       393,955  
Total current assets
    4,809,503       4,448,831  
Property and equipment
    1,731,670       1,684,037  
Less accumulated depreciation and amortization
    (1,114,586 )     (752,046 )
Net property and equipment
    617,084       931,991  
Other assets:
               
Long-lived assets, net
    411,905       568,387  
Deposits
    56,182       56,182  
Other
    134,948       83,176  
Total other assets
    603,035       707,745  
Total assets
  $ 6,029,622     $ 6,088,567  
Liabilities and Stockholders’ Deficit
               
Current liabilities:
               
Trade accounts payable
  $ 1,510,789     $ 3,300,535  
Accrued expenses
    1,651,656       1,965,417  
Current portion of capital leases
    38,054       38,682  
Current portion of long-term debt
    85,051       46,644  
Short term notes, net of debt discount of $78,381 and $431,594  in 2008 and
2007, respectively
    121,619       768,405  
Short term convertible debt, net of debt discount of $251,012 and $40,938  in
2008 and 2007, respectively
    698,987       59,062  
Miscellaneous loans
    —       160,945  
Unearned income
    —       41,224  
Total current liabilities
    4,106,156       6,380,914  
Long-term capital leases, less current portion of $38,054 and $38,682  in 2008
and 2007, respectively
    —       38,092  
Long-term debt, less current portion of $85,051 and $46,644  in 2008 and 2007,
respectively
    412,699       494,377  
Convertible debt, net of debt discount of $2,069,270 and $252,184  in 2008 and
2007, respectively
    1,522,730       772,816  
Other long-term liabilities
    290,700       290,700  
Total liabilities
    6,332,285       7,976,899  
Commitments and contingencies
               
Stockholders’ deficit:
               
Undesignated preferred stock, $.001 par value.
               
Authorized 23,900,000 shares; none issued and outstanding in 2008 and 2007
               
Series A convertible preferred stock, $0.001 par value.
               
Authorized 1,100,000 shares; issued and outstanding 998,235 shares in 2008 and
1,046,846 shares in 2007 ($998,325 liquidation preference in 2008 and $1,046,846
liquidation preference in 2007)
    998       1,047  
Common stock $0.001 par value. Authorized 100,000,000 shares; issued and
outstanding 33,024,380 shares in 2008 and 27,983,894 shares in 2007
    33,024       27,984  
Additional paid-in capital
    48,392,034       33,058,327  
Accumulated deficit
    (48,728,719 )     (34,975,690 )
Total stockholders’ deficit
    (302,663 )     (1,888,332 )
Total liabilities and stockholders’ deficit
  $ 6,029,622     $ 6,088,567  

See accompanying notes to consolidated financial statements.

 
2

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Statements of Operations
Years ended May 31, 2008 and May 26, 2007

   
2008
   
2007
 
Net sales
  $ 3,252,334     $ 7,193,020  
Cost of goods
    3,366,369       7,612,566  
Loss from write down of inventory to market
    —       1,212,864  
Gross profit (loss)
    (114,036 )     (1,632,410 )
Operating expenses:
               
Selling, general, and administrative
    5,587,610       7,402,861  
Research and development
    3,724,736       1,208,191  
Total operating expenses
    9,312,346       8,611,052  
Other income (expense):
               
Miscellaneous income
    —       —  
Interest expense
    (1,204,611 )     (248,076 )
Other, net
    (3,122,035 )     (1,445,787 )
Net loss
  $ (13,753,028 )   $ (11,937,325 )                  
Net loss per common share:
               
Basic and Diluted
  $ (0.46 )   $ (0.45 )                  
Weighted Average shares outstanding:
               
Basic and Diluted
    30,141,647       26,671,194  

See accompanying notes to consolidated financial statements.

 
3

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)
Years Ended May 31, 2008 and May 26, 2007

         
Series A convertible
         
Additional
         
Total
     
Undesignated preferred stock
   
preferred stock
   
Common stock
   
paid-in
   
Accumulated
   
stockholders’
     
Shares< /font>
 
Amount< /font>
   
Shares< /font>
   
Amount< /font>
   
Shares< /font>
   
Amount< /font>
   
capital
   
deficit
   
equity (deficit)
 
Balances at May 27, 2006
    —   $ —       1,046,846     $ 1,047       24,364,721     $ 24,365     $
26,911,438     $ (23,038,365 )   $ 3,898,485  
Shares issued in connection with warrants exercised
                                  13,348       13       19,585              
19,598  
Shares issued in connection with private placement, less issuance costs of
$599,981
                                  3,605,825       3,606       5,165,733        
      5,169,339  
Warrants issued for debt issuance costs
                                                  676,447               676,447
 
Stock based compensation
                                                  285,124               285,124
 
Net loss for the year
                                                          (11,937,325 )    
(11,937,325 )
Balances at May 26, 2007
    —   $ —       1,046,846     $ 1,047       27,983,894     $ 27,984     $
33,058,327     $ (34,975,690 )   $ (1,888,332 )
Shares issued in connection with conversion of preferred stock to common stock
                  (48,521 )     (49 )     97,042       97       (48 )          
  —  
Shares issued in connection with warrants exercised
                                  48,638       48       97,228              
97,276  
Shares issued in connection with debt conversion
                                  100,000       100       159,900              
160,000  
Shares issued in connection with private placement, less issuance costs of
$687,185
                                  4,794,806       4,795       7,417,570        
      7,422,365  
Warrants issued for debt issuance costs
                                                  4,757,242              
4,757,242  
Stock based compensation
                                                  2,901,815              
2,901,815  
Net loss for the year
                                                          (13,753,028 )    
(13,753,028 )
Balances at May 31, 2008
    —   $ —       998,325     $ 998       33,024,380     $ 33,024     $
48,392,034     $ (48,728,718 )   $ (302,662 )

See accompanying notes to consolidated financial statements.

 
4

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Statements of Cash Flows
Years ended May 31, 2008 and May 26, 2007

   
2008
   
2007
 
Cash flows from operating activities:
           
Net loss
  $ (13,753,028 )   $ (11,937,325 )
Adjustments to reconcile net loss to net cash
               
used in operating activities:
               
Depreciation and amortization
    521,237       753,396  
Amortization of debt discount
    2,934,495       281,907  
Inventories writedown to market
    —       1,212,642  
Impairment of long lived assets
    —       953,703  
Non cash interest expense
    289,047       10,062  
Non cash compensation for lease guarantee
    134,000       —  
Share based compensation
    2,901,815       285,124  
Loss on disposal of property and equipment
    2,485       30,610  
Change in current assets and current liabilities:
               
Accounts receivable
    214,884       (73,264 )
Allowance for doubtful accounts
    (227,358 )     258,136  
Other receivables
    —       512,570  
Inventories
    541,324       (2,290,049 )
Other assets
    12,291       94,778  
Trade accounts payable
    (1,789,747 )     1,119,987  
Accrued expenses
    (313,761 )     985,393  
Unearned income
    (41,224 )     —  
Net cash used in operating activities
    (8,573,540 )     (7,802,330 )
Cash flows from investing activities:
               
Additions to property and equipment
    (53,633 )     (267,576 )
Proceeds from sale of property and equipment
    1,300       6,000  
Increase in loan receivable
    (14,000 )     (125,000 )
Purchase of asset held for resale
    (20,000 )     (80,000 )
Additions to other assets
    (1,772 )     —  
Net cash used in investing activities
    (88,104 )     (466,576 )
Cash flows from financing activities:
               
Principal payments on capital leases
    (38,721 )     (33,795 )
Proceeds from issuance of debt
    4,012,000       1,453,682  
Principal payments on debt
    (1,742,792 )     (326,685 )
Proceeds from issuance of common stock and exercise of warrants
    7,519,641       5,188,937  
Net cash provided by financing activities
    9,750,128       6,282,139  
Net increase (decrease) in cash and cash equivalents
    1,088,484       (1,986,767 )
Cash and cash equivalents at beginning of year
    286,672       2,273,439  
Cash and cash equivalents at end of year
  $ 1,375,156     $ 286,672                    
Supplemental Disclosure of Cash Flow Information:
                                 
Cash paid for interest
  $ 697,034     $ 111,877                    
Other non-cash financing transactions:
                                 
Conversion of debt to common stock
  $ 160,000     $ —  
Conversion of preferred stock to common stock
  $ 315,192     $ —  
Warrants issued in connection with debt
  $ 4,757,242     $ 676,447  

See accompanying notes to consolidated financial statements.

 
5

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(1)  Organization, Description of Business and Going Concern
 
Bixby Energy Systems, Inc. (the Company) was incorporated as a Delaware
corporation on April 1, 2002.  The Company designs, assembles, markets,
services, and sells alternative energy heating systems.  The Company sells its
products through dealers located in the northern part of the US and all of
Canada. Its wholly-owned subsidiary, SS Acquisition d/b/a Bixby Energy Delivery
Services (Delivery) which acquired Step Saver, Inc. in October, 2004, delivers
water softener salt to residential and commercial customers in Southern
Minnesota, Northwestern Wisconsin and Southeastern South Dakota.  Delivery also
licenses its delivery technology to similar operations in the states of
Minnesota, Iowa, Indiana, Idaho and Utah.  The Company’s headquarters are
located in Ramsey, MN.
 
The Company’s fiscal year end is the calendar end of May.  At the end of Fiscal
Year 2005 (May 31, 2005), the Company instituted a year end of the last Saturday
in May and instituted month ends based on a 5 week, 4 week, 4 week quarter.  For
the year end of May 31, 2008, this resulted in a 53 week year for the Fiscal
Year 2008.  The fiscal year ending May 26, 2007 was a 52 week year.  As Fiscal
Year 2008 ended on May 31, 2008, the Company has decided to eliminate confusion
and ease reporting by reverting back to a May 31st year end with calendar month
endings during the fiscal year.
 
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going
concern.  While the Company had positive working capital of approximately,
$703,000 as of May 31, 2008, the Company had an accumulated deficit of $48.7
million and $35 million, and a stockholders’ deficit of $303,000 and $1.9
million as of May 31, 2008 and May 26, 2007, respectively.
 
As reflected in the consolidated financial statements, the Company has incurred
net losses of $13.7 million and $11.9 million for the fiscal years ended May 31,
2008 and May 26, 2007, respectively.  In this regard, the Company has been a net
consumer, as opposed to generator, of cash from operations.  The Company has
attempted during the period to use its resources to develop viable commercial
products and to provide for its working capital needs.  These results of
operations, when viewed in conjunction with the Company’s accumulated deficit
and liquidity as referenced in the preceding paragraph raise substantial doubt
as to the Company's ability to continue as a going concern.
 
To date, the Company has consistently been able to raise sufficient funds for
its R&D and working capital requirements through the private issuance of a
combination of equity and debt securities; however, there can be no assurance
that it will be able to continue to raise capital in the future or that any
capital obtained will be adequate to meet the Company’s needs.  Management's
efforts to date have been directed towards the development and implementation of
a plan to generate sufficient revenues to meet its ongoing capital
requirements.  The plan includes, among other things, the development of the
Company’s initial reference facility for its carbon conversion technology.  It
also involves cost-cutting initiatives including the elimination of all
non-essential costs, as well as the possible sale of certain assets related to
non-core operations.
 
As regards asset recoverability, approximately $4.3 million or 72% of the asset
values stated in the accompanying balance sheet are dependent upon the continued
operations of the Company.  This, in turn, is dependent upon the Company's
future ability to generate sufficient revenue so as to be self-sustaining and,
in the interim, to meet its financing requirements on a continuing basis.  The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that may become necessary in the event that the
Company is unable at some point in the future to continue as a going concern.

 
6

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

 

  (2)  Summary of Significant Accounting Policies and Practices
 
 
(a)
Principles of Consolidation

 
The consolidated financial statements include the financial statements of Bixby
Energy Systems, Inc. and its wholly owned subsidiary SS Acquisition d/b/a Bixby
Energy Delivery Services. All significant intercompany balances and transactions
have been eliminated in consolidation.
 
 
(b)
Cash Equivalents

 
Cash equivalents of approximately $1,375,000 and $287,000 at May 31, 2008 and
May 26, 2007, respectively, consist of highly liquid cash investments with a
maturity of three months or less at the date of purchase.
 
The Company maintains cash and cash equivalents in accounts with a financial
institution in excess of the amount insured by the Federal Deposit Insurance
Corporation.  The Company monitors the financial stability of this institution
regularly and management does not believe there is significant credit risk
associated with deposits in excess of federally insured amounts.

 
(c)
Accounts Receivable and Allowance for Doubtful Accounts

 
The Company sells its products on account to retail and commercial
customers.  Payments from customers are received and applied to their account.
 
The Company records an allowance for doubtful accounts based on specifically
identified amounts that it believes to be uncollectible.  If actual collections
experience changes, revisions to the allowance may be required. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance.  However, actual write-offs might exceed the recorded
allowance. A review of open accounts resulted in a reserve for doubtful accounts
of $36,868 and $264,226 at May 31, 2008 and May 26, 2007, respectively.  Based
on the information available to it, the Company believes its allowance for
doubtful accounts is adequate.

 
(d)
Inventories

 
Inventories are stated at the lower of cost (first-in, first-out) or
market.  The Company reviews inventory for obsolescence and excess quantities to
determine that items deemed obsolete or excess are appropriately reserved.  At
the end of fiscal 2007, the Company determined that the market price for its
finished stove inventory was below the Company’s inventory cost necessitating an
adjustment of $1,212,642 to write down inventory values to market.  No
adjustment was required for the fiscal year ended May 31, 2008.
 
 
(e)
Other Current Assets

 
Other current assets consist of miscellaneous receivables from activities other
than customer sales and prepaid expenses.
 
 
(f)
Property and Equipment

 
Property and equipment are recorded at cost.   Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets. The estimated useful lives of property and equipment range
from two to ten years.

 
7

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

 

 
(g)
Impairment of Long Lived Assets

 
The Company reviews long-lived assets for impairment annually or more frequently
if the occurrence of events or changes in circumstances indicates that the
carrying amount of the assets may not be fully recoverable or the useful lives
of these assets are no longer appropriate.  Each impairment test is based on a
comparison of the carrying amount of an asset to future net undiscounted cash
flows. If impairment is indicated, the asset is written down to its estimated
fair value.
 
 
(h)
Deposits

 
 
The Company has made deposits as part of its long term capital and real estate
leases.  These deposits totaled $56,182 as of May 31, 2008 and May 27, 2007.

 
 
(i)
Other Assets

 
Other assets consist primarily of 1) an asset being held for resale in the
amount of $100,000 and $80,000 as of May 31, 2008 and May 27, 2007, respectively
and 2) a receivable of $30,000 which was advanced related to a technology
development agreement in 2008.
 
 
(j)
Revenue Recognition

 
The Company recognizes revenue in accordance with Staff Accounting Bulletin
(SAB) 104, which requires evidence of an agreement, delivery of the product or
services at a fixed or determinable price, and assurance of collection within a
reasonable period of time.  The Company sells stoves to dealers.  The title
transfers to the dealer upon shipment.  The Company does not offer a right to
return products, unless they are damaged.  The Company recognizes revenue upon
shipment.  The dealers display the stoves and provide installation services to
customers if necessary.  Delivery recognizes revenue upon deliver of salt to the
customer.  Each delivery is billed as a separate invoice.
 
For the fiscal year ended May 31, 2008, one customer’s sales accounted for 11%
of the company’s total sales.
 
 
(k)
Research and Development

 
The Company expenses research and development costs as incurred.
 
 
(l)
Income Taxes

 
Income taxes are accounted for under the asset-and-liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
 
 
(m)
Stock Option Plan

 
The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123R
requires companies to expense the value of employee stock options and similar
awards and applies to all outstanding and vested stock-based awards.

 
8

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

 

In computing the impact, the fair value of each option is estimated on the date
of grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected remaining
lives of the awards. The assumptions used in calculating the fair value of
share-based payment awards represent management’s best estimates, but these
estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, the Company’s stock-based compensation expense could be materially
different in the future. In addition, the Company is required to estimate the
expected forfeiture rate and only recognize expense for those shares expected to
vest. In estimating the Company’s forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company’s actual forfeiture rate is materially different from its estimate, or
if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what we have recorded
in the current period. The impact of applying SFAS No. 123R approximated
$1,087,171 and $285,124 in additional compensation expense for the years ended
May 31, 2008 and May 26, 2007, respectively.  Such amount is included in general
and administrative expenses on the statement of operations.
 
(n)
Fair Value of Financial Instruments

 
Fair Value of Financial Instruments. Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of information about the fair value of certain financial instruments
for which it is practicable to estimate the value.  For purpose of this
disclosure, the fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.
 
The carrying amounts of the Company’s short-term financial instruments,
including cash, other current assets, accounts payable, accrued expenses and
notes payable approximate fair value at May 31, 2008 and May 26, 2007 due to the
relatively short period to maturity for these instruments.
 
 
(o)
Advertising

 
 
Advertising costs are charged to expense as incurred.

 
 
(p)
Use of Estimates

 
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
 
 
(q)
Shipping and Handling Costs

 
The Company classifies freight costs billed to customers as revenue.  Costs
related to freight are classified as costs of sales.

 
(r)
Recent Accounting Pronouncements

 
In September 2006, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. Management believes that, for the
foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.

 
9

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

 

In February 2007, the FASB issued FASB Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities – Including an Amendment of FASB Statement No. 115. This Statement
permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This Statement applies to
all entities, including not-for-profit organizations. Most of the provisions of
this Statement apply only to entities that elect the fair value option. However,
the amendment to FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available-for-sale and
trading securities. The fair value option permits all entities to choose to
measure eligible items at fair value at specified election dates.
 
A business entity shall report unrealized gains and losses on items for which
the fair value option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at each subsequent
reporting date. The fair value option may be applied instrument by instrument
(with a few exceptions); is irrevocable (unless a new election date occurs); and
is applied only to entire instruments and not to portions of instruments. This
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007, provided the entity also elects to apply the
provisions of FASB Statement No. 157, Fair Value Measurement. The Company does
not expect the adoption of SFAS 159 to materially effect the Company’s financial
position or results of operations.
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) retains the fundamental
requirements of the original pronouncement requiring that the purchase method be
used for all business combinations. SFAS No. 141(R) defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination, establishes the acquisition date as the date that the acquirer
achieves control and requires the acquirer to recognize the assets acquired,
liabilities assumed and any noncontrolling interest at their fair values as of
the acquisition date. SFAS No. 141(R) also requires that acquisition-related
costs be recognized separately from the acquisition. SFAS No. 141(R) is
effective for fiscal years beginning on or after December 15, 2008. The Company
is currently assessing the impact of SFAS No. 141(R) on its consolidated
financial statements.
 
In December, 2007, the FASB issued FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements. Statement 160 requires all
entities to report noncontrolling (minority) interests in subsidiaries in the
same way—as equity in the consolidated financial statements. Moreover, Statement
160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions. FASB No.160 is effective for fiscal years
beginning after December 15, 2008. The Company does not believe that FAS No. 160
will have any impact on its financial statements.
 
In February 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 157-1, Application of FASB Statement No. 157 to FASB Statement
No. 13 and Its Related Interpretive Accounting Pronouncements That Address
Leasing Transactions, and FSP FAS 157-2, Effective Date of FASB Statement No.
157. FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value
Measurements.” FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008
to 2009 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). See SFAS No. 157 discussion above.

 
10

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In March 2008, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133, which requires additional
disclosures about the objectives of the derivative instruments and hedging
activities, the method of accounting for such instruments under SFAS No. 133 and
its related interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position, financial
performance, and cash flows. SFAS No. 161 is effective for the Company beginning
November 30, 2008. Management believes that, for the foreseeable future, this
Statement will have no impact on the financial statements of the Company once
adopted.
 
In May 2008, the FASB issued Statements of Financial Standards No. 162 (SFAS
162), The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles (GAAP) for nongovernmental entities.  Prior to
the issuance of SFAS 162, GAAP hierarchy was defined in the American Institute
of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69
(SAS 69), The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. SAS 69 has been criticized because it is directed to the
auditor rather than the entity. SFAS 162 addresses these issues by establishing
that the GAAP hierarchy should be directed to entities because it is the entity
(not its auditor) that is responsible for selecting accounting principles for
financial statements that are presented in conformity with GAAP.  SFAS 162 is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board Auditing amendments to AU Section 411, ”The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles.” The Company
does not expect SFAS 162 to have a material effect on its consolidated financial
statements.
 
In May 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 142-3, Determination of the Useful Life of Intangible Assets,
which is effective for fiscal years beginning after December 15, 2008 and for
interim periods within those years. FSP FAS 142-3 provides guidance on the
renewal or extension.  The Company is currently evaluating the impact that FSP
FAS 142-3 may have on the consolidated financial statements.
 
 (3)
Other Receivables

 
In September 2007, the Company entered into an agreement to dissolve the license
and investment agreement by which it received the rights to certain
technologies.  The Company had advanced $200,000 as a loan at the time of the
dissolution of which $125,000 had been advanced as of May 27, 2007.  As part of
the dissolution agreement, the Company received a promissory note for $109,000
from one of the principals.  At the time of the dissolution this individual
became a Consultant to the Company to further advance the technology.  In June
2008, this person became an employee of the Company.  The Company and the
employee agreed that the promissory note will be forgiven over three years in
equal amounts provided that the individual remains an employee over this period.

 
11

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(4)
Inventories

 
Inventory consists of the following:
 

   
May 31, 2008
   
May 26, 2007
 
Raw materials
  $ 1,603,676     $ 1,224,432  
Finished Goods
    1,192,500       2,283,739       $ 2,796,176     $ 3,508,171  

 
(5)
Property and Equipment

 
Property and equipment cost consists of the following:
 

   
May 31, 2008
   
May 26, 2007
 
Machinery and Equipment
  $ 1,604,722     $ 1,557,090  
Leasehold Improvements
    100,723       100,723  
Furniture
    26,224       26,224         1,731,670       1,684,037  
Less: accumulated depreciation
    (1,114,586 )     (752,046 )
Property and equipment, net
  $ 617,084     $ 931,991  

 
Depreciation expense for the years ended May 31, 2008 and May 26, 2007, was
$364,755 and $335,872 respectively.
 
(6)
Leases

 
The Company leases its facilities and certain equipment under noncancelable
operating leases. Future minimum lease payments as of May 31, 2008, excluding
operating costs, under these leases are as follows:
 

   
Operating
     
leases
         
FY2009
    $ 156,343  
FY2010
    71,839   
FY2011
    5,688   
Total minimum lease payments
  $ 233,870  

 
In June 2007, the Company issued a warrant to purchase 200,000 shares of the
Company’s common stock in return for a personal guarantee on a one-year
operating lease.  The warrants are at an exercise price of $1.60 per share and
with an exercise period of 5 years.  The Company utilizes the Black-Scholes
option-pricing model to calculate the fair value of the warrants issued.  A fair
value of $134,000 was determined and expensed in 2008.
 
Rent expense for all operating leases for the years ended May 31, 2008 and May
26, 2007 was $496,788 and $628,744, respectively.

 
12

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(7) 
Long-Lived Assets

 
During the fiscal years ended, 2005 and 2006, the Company acquired a salt
delivery company which resulted in intangibles of $3,831,980 and customers of
$235,000.  In accordance with SFAS 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets,” the Company determined through a review of
Delivery’s expected undiscounted cash flows that the current value of the
intangibles exceeded its carrying value as follows:
 

   
May 31, 2008
   
May 26, 2007
               
Intangible, Step Saver Acquisition
  $ 3,831,980     $ 3,831,980  
Customer Lists
    235,000       235,000  
Accumulated Amortization
    (1,306,379 )     (1,149,897 )
Total impairment charges
    (2,348,696 )     (2,348,696 )     $ 411,905     $ 568,387  

 
Intangible assets are being amortized on a straight line basis over 8 years and
customer lists are being amortized over 3 years. Amortization expense for the
years ended May 31, 2008 and May 26, 2007 was $156,482 and $382,957,
respectively.
 
In fiscal years 2005 and 2006 the Company recorded total impairment charges of
approximately $1.4 million related to the goodwill and intangible asset from the
acquisition of Step Saver.  During the year ended May 26, 2007, the Company
recorded an impairment charge of approximately $950,000 related to the
intangible asset.
 
(8)
Related Party Transactions

 
In 2007, an officer of the Company advanced the Company funds through a series
of personal credit cards for a total amount of $85,000.  The Company paid all
charges and made the required payments on the cards.  In return for the advances
the Company issued a warrant to purchase 65,000 shares of common stock at an
exercise price of $2.00 per share for a period of three years.  Utilizing the
Black-Scholes valuation model, the Company recorded an expense of $39,950 for
the value of the warrants.  The balances remaining on these credit cards were
$53,574 and $85,572 as of May 31, 2008 and May 26, 2007, respectively.  The
amounts are listed with other credit card debt under accounts payable.
 
In September, 2007, a Company officer loaned $50,000 to the Company.  The
Company repaid the loan in two installments of $25,000 in October and November
of 2007.  The loan had an interest rate of 12%.  The Company also issued a
warrant to purchase 100,000 shares of common stock at an exercise price of $1.60
per share for a period of five years.  Utilizing the Black-Scholes valuation
model, the Company recorded an expense of $28,632 for the value of the warrants.
 
(9) 
Short-term and Long-term Debt

 
The Company has entered into short-term notes, long-term notes and long-term
debentures with investors.  In addition to interest on the principal amount of
the note or debenture, the notes may include provisions for receipt of warrants
to purchase the Company’s common stock and the right to convert the principal
and, where included, the interest into the common stock of the Company.  The
Company uses a version of the Black-Scholes model to value any warrants
granted.  An amount equal to the warrants share of the total value of the
transaction is treated as Additional Paid-In Capital and the debt is reduced
accordingly.  This loan discount is then amortized over the life of the loan
agreement.  A new loan may be executed to replace an expiring loan.  In those
cases the old loan is treated as paid in full.  The new loan and any additional
grants of warrants are treated as a new transaction.

 
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Short-term debt consists of the following:
 

       
May 31, 2008
   
May 26, 2007
 
Bridge Notes
 
(8) and (10)
  $ 200,000     $ 1,200,000  
Convertible Notes
 
(9) and (11)
    950,000       100,000                        
Less remaining discount for BCF and value of warrants
 
(8), (9), (10), (11)
    (329,393 )     (472,533 )
Miscellaneous Loan
 
(7)
    —       160,945  
Total short-term debt
      $ 820,607     $ 988,412  

 
Long-term debt consists of the following:
 

       
May 31, 2008
   
May 26, 2007
 
Capital Leases
 
(4)
  $ 38,054     $ 76,775  
Bank Loan
 
(3)
    132,236       158,413  
Note Payable
 
(5)
    241,239       238,333  
State of Minnesota Loan
 
(1)
    124,275       144,275  
Less current installments
        (123,105 )     (85,327 )
Total long term debt, net of current portion
      $ 412,699     $ 532,469                        
Convertible Debt - Gross Amount
 
(6) and (12)
    3,592,000       1,025,000  
Less remaining discount for value of warrants
 
(6) and (12)
    (2,069,270 )     (252,184 )
Convertible Debt - net of debt discount
      $ 1,522,730     $ 772,816                        
Other long-term liabilities
 
(2)
    290,700       290,700  
Total long-term debt
 
 
  $ 2,226,129     $ 1,595,985  

 
 
(1)
Prior to the acquisition of Delivery in October 2004, Delivery had entered into
agreements with the Minnesota Department of Transportation to provide funds for
improvement of rail sites in Woodlake, MN and Morton, MN.  The State provided a
no interest loan in the amount of $75,000 of which $65,463 was utilized for
Woodlake in January, 1999, with quarterly payments of $1,875 and in the amount
of $200,000 of which $189,500 was utilized for Morton with equal quarterly
payments of $5,000.  Payments are for 10 years or until the loan is repaid.  In
March 2007, Delivery made a final payment of $3,578 to retire the loan agreement
for the Woodlake rail site.  As of May 31, 2008 and May 26, 2007, the remaining
amount due was $124,275 and $144,275, respectively.

 
 
(2)
As part of the acquisition of Delivery in October 2004, the Company issued
warrants to purchase 190,000 preferred shares in the Company with an exercise
price of $3.20 to Delivery’s debenture holders in exchange for warrants to
purchase Delivery’s common stock. These warrants were valued at approximately
$224,000. In addition, as part of the merger, the Board members of Delivery
exchanged warrants for shares of Delivery common stock for 47,500 warrants for
Bixby Convertible Preferred stock with an exercise price of $2.50.  These
warrants were valued at approximately $ 66,000. The preferred warrants expire in
July 2009 and are subject to redemption..  As part of the total acquisition
price, the Company recorded a long-term liability of $290,700 which represented
the value of these warrants at the time of acquisition using the Black-Scholes
model.

 
 
14

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(3)
In June, 2005, the Company entered into a long-term bank loan in the amount of
$204,100 secured by the assets of its Delivery operation with a fixed interest
rate of 7.5% and fixed payments of $3,135.77 per month for 7 years.  As of May
31, 2008, payments on the loan were current with a total outstanding loan
balance of $132,236.

 
 
(4)
Beginning in June 2005, the Company acquired certain equipment under a capital
lease arrangement.  The terms of the arrangements call for monthly payments and
range in length from 36 to 48 months.  No assets were acquired under a capital
lease in fiscal year 2008 and 2007.  As of May 31, 2008, the total accumulated
depreciation expense for the capital lease assets was $56,337.  As of May 31,
2008 and May 26, 2007, capital lease obligations amounted to $38,054 and
$76,775, respectively.

 
 
(5)
In January 2006, Delivery agreed to acquire a licensee utilizing its delivery
technology serving the Eastern Minnesota/Western Wisconsin area.  As part of
this purchase, Delivery entered into two notes with the licensee, one in the
amount of $216,000 with equal principal payments plus interest due monthly for a
term of 7 years and a second for $60,000 with interest accruing in the first
year and with equal principal payments plus interest for the remaining 6 years
of the 7 year term.  Each loan has an interest rate of 1% above the prime rate
published by The Wall Street Journal on the last business day of each month.  In
April, 2007, Delivery requested and received a suspension of payments for 5
months.  In addition to the agreed payments on the notes, Delivery made a
one-time payment of principal of $5,000 in May, 2008.  As of May 31, 2008, the
total amount due on the two notes was $241,239.  Subsequent to May 31, 2008,
Delivery has made an additional one-time payment and is considered current on
the notes.

 
 
(6)
In October 2005, the Company issued convertible debentures in the amount of
$1,125,000 bearing interest at the rates of 6% to 10% for a term of 5
years.  Interest is accrued and payable at the end of the term.  Principal and
interest are convertible into the shares of the Company’s common stock at $1.60
per share.  In fiscal year 2007, the Company made a payment against this loan
amounting to $100,000.  In accordance with EITF 00-27 and 98-5, the Company
recorded a discount for the Beneficial Conversion Feature (“BCF”) on the
convertible debt amounting to $108,000 and is amortized over the life of the
debentures.  The amount of the BCF discount was calculated using the
Black-Scholes model. Additionally, in connection with these debentures the
Company issued warrants to purchase shares of common stock valued at
approximately $356,000 of which $269,000 were recorded as a discount and were
being amortized over the life of the loan.  The Company recorded a discount
amortization expense of approximately $74,000 in year ending May 31, 2008 and
$78,000 in year ending May 26, 2007, with a remaining unamortized balance of the
discount of approximately, $178,000 and $252,000 as of May 31, 2008 and May 26,
2007, respectively.

 
 
(7)
In February, 2007, the Company agreed to the return of stoves from a dealer and
entered into a promissory note for payment to the dealer in the amount of
$153,682 bearing interest at the rate of 15% due on August 31, 2007.  The
returned stoves served as collateral for the note.  The Company recorded $7,263
of accrued interest as of May 31, 2008.  On August 31, 2007, the Company entered
into a forbearance agreement in which the Company agreed to pay for additional
returned stoves and parts for a total amount due including accrued interest of
$214,040 and a warrant to purchase 20,000 shares of the Company’s common
stock.   A fair value of $14,800 was determined using the Black Scholes model,
and expensed in 2008.  In November 2007, the Company signed a mutual release in
which it satisfied the original note by transferring the original collateral to
the dealer and agreed to pay $13,912 for the additional stoves and parts which
were part of the forbearance agreement.

 
 
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(8)
From February through May 2007, the Company entered into various bridge notes
amounting to $1.2 million bearing interest at the rates of 12% to 20% payable in
full in 6 months or less.  In connection with these bridge loans warrants were
issued to purchase shares of the Company's stock valued at approximately $1.4
million of which $589,000 were recorded as a discount and were being amortized
over the life of the loans.  The Company recorded a discount amortization
expense of approximately $432,000 in the year ending May 31, 2008 and $158,000
in the year ending May 26, 2007.

 
 
(9)
In May 2007, the Company entered into a convertible note bearing an interest
rate of 15% and is convertible into shares of Company's common stock at $1.60
per share or payable in full on November 10, 2007.  In accordance with EITF
00-27 and 98-5, the Company recorded a discount for the Beneficial Conversion
Feature (“BCF”) on the convertible debt amounting to $16,000 which was amortized
over the life of the loan.  The amount of the BCF discount was calculated using
the Black-Scholes model. Additionally, in connection with this loan warrants
were issued to purchase shares of the Company's stock valued at approximately
$44,000 of which $30,000 were recorded as a discount and being amortized over
the life of the loan.  The Company amortized approximately $41,000 in the year
ending May 31, 2008 and approximately $5,000 in the year ending May 26, 2007.

 
(10)
During 2008, the Company entered into various short-term bridge notes amounting
to $1,650,000 bearing interest at the rates of 12% to 20% payable in full in 6
months or less.  In connection with these bridge loans warrants were issued to
purchase shares of the Company's stock valued at approximately $1,087,000 of
which approximately $610,000 were recorded as a discount and amortized over the
life of the loans.  The Company recorded a discount amortization expense of
approximately $531,000 in the year ending May 31, 2008.

 
(11)
During 2008, the Company entered into several short-term convertible notes with
a total face amount of $2,345,000 bearing interest rates of 12% to 15% payable
in full in twelve months or less and which are convertible into shares of
Company's common stock at $1.60 per share and warrants to purchase additional
shares of common stock at an exercise price from $1.00 to $2.00 per share.  Some
notes also call for additional warrants to purchase common shares to be issued
should the notes be converted.  In accordance with EITF 00-27 and 98-5 and
utilizing the Black-Scholes valuation model, the Company discounted the notes as
follows: 1) for the Beneficial Conversion Feature (“BCF”) on the convertible
debt a discount amounting to approximately $488,000 and being amortized over the
life of the loans and 2) for the warrants issued with the notes which had a
value of $3,256,000 of which approximately $1,154,000 were recorded as a
discount and being amortized over the life of the loans.  The warrants which
would be issued upon conversion have an approximate value of $518,000 of which
approximately $273,000 has been allocated should the loans be converted.  The
Company recorded an amortization expense of approximately $1,508,000 in the year
ending May 31, 2008 of which approximately $17,000 was for the value of warrants
issued related to the conversion of notes.  At May 31, 2008, there remained
approximately $137,000 of discounted value for warrants subject to issue upon
conversion of the remaining open notes.

 
 
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(12)
During 2008, the Company entered into multiple long-term convertible notes with
a total face amount of $2,567,000 bearing an interest rate of 12% and which are
convertible into shares of Company's common stock at prices from $1.60 to $2.50
per share and warrants to purchase additional shares of common stock at an
exercise price from $2.00 to $3.00 per share.  Some notes also call for
additional warrants to purchase common shares to be issued should the notes be
converted.  In accordance with EITF 00-27 and 98-5 and utilizing the
Black-Scholes valuation model, the Company discounted the notes as follows: 1)
for the Beneficial Conversion Feature (“BCF”) on the convertible debt a discount
amounting to approximately $640,000 and being amortized over the life of the
loans and 2) for the warrants issued with the notes which had a value of
$3,098,000 of which approximately $1,600,000 were recorded as a discount and
being amortized over the life of the loans.  The warrants which would be issued
upon conversion have an approximate value of $470,000 of which approximately
$244,000 has been allocated should the loans be converted.  The Company recorded
an amortization expense of approximately $349,000 in the year ending May 31,
2008.  None of the notes were converted during the year ended May 31, 2008. At
May 31, 2008, there remained approximately $1.9 million of discounted value for
warrants and BCF.

 
The aggregate annual maturities of long-term debt subsequent to May 31, 2008 are
as follows for the fiscal years ended:
 
2009
 
2010
   
2011
   
2012
   
2013 and
thereafter
                                      $
123,105
  $ 2,966,503     $ 1,136,351     $ 113,965     $ 78,581  

 
(10) 
Income Taxes

 
There was an income tax expense (benefit) attributable for the years ended May
31, 2008 and May 26, 2007 that differed from the amounts computed by applying
the U.S. federal income tax rate of 34% and the state income tax rate of 4% to
pretax loss as a result of the following:
 

   
May 31, 2008
   
May 26, 2007
 
Expected Federal income tax (benefit)
  $ (4,676,020 )   $ (4,058,580 )
State tax benefit (net of Federal effect)
    (550,120 )     (477,480 )
Permanent differences
    212,040       18,240  
Change in valuation allowance
    5,014,100       4,517,820       $ —     $ —  

 
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at May 31, 2008 and May
26, 2007 are presented below.

 
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May 31, 2008
   
May 26, 2007
 
Deferred tax assets (liabilities):
           
Net operating loss
  $ 14,231,760     $ 9,984,880  
Temporary differences:
               
Contributions
    1,900       1,900  
Depreciation
    (31,920 )     (15,960 )
Accrued salaries
    —       8,740  
Stock based compensation
    1,102,760       —  
Addition to bad debt reserve
    —       9,500  
Professional fees
    111,340       111,340  
Research and development
    183,540       513,380  
Increase in accrued warranty
    —       23,560  
Other
    (3,040 )     (2,280 )
Impairment of intangibles
    1,312,140       1,259,320  
Total deferred tax asset
  $ 16,908,480     $ 11,894,380  
Valuation allowance
    (16,908,480 )     (11,894,380 )
Net deferred tax asset
  $ —     $ —  

 
The Company has provided a full valuation allowance for the full tax benefit of
the operating loss carryovers and other deferred tax assets due to the
uncertainty regarding realization.. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considered the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment.
 
At May 31, 2008, the Company has net operating loss carryforwards for federal
income tax purposes of $37,452,000, which are available to offset future federal
taxable income, if any, and expire in 2021 through 2028. Sections 382 and 383 of
the Internal Revenue Code of 1986 limit the use of the Company’s net operating
loss carryforwards and credits as of the date of a more than 50% change in
ownership. As a result of prior ownership changes, a portion of the net
operating losses and credits may be limited in use in any one year. Subsequent
ownership changes may further limit the use of the net operating losses in any
one year.
 
(11)
Stockholders’ Deficit

 
 
(a)
Preferred Stock

 
The Company has 25,000,000 shares of $0.001 par value preferred stock
authorized, of which 1,100,000 shares have been designated as Series A
convertible preferred stock (Series A).  The Series A stock is convertible into
two shares of the Company’s common stock.  During 2008, preferred stockholders
converted 48,521 shares of preferred stock for 97,042 shares of the Company’s
common stock.  An aggregate of 998,325 and 1,046,846 shares of Series A were
outstanding at May 31, 2008 and May 26, 2007, respectively.
 
After December 31, 2006, in the event of liquidation, which is defined as the
sale, conveyance or other disposition of all or substantially all of the assets
of the Company, preferred stockholders are entitled to receive $1.00 per share
prior to and in preference to any common stockholder.
 
The Series A holders have voting rights after December 31, 2006 on an as-if
converted basis to common stock.

 
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(b)
Common Stock

 
The Company has 100,000,000 shares of $0.001 par value common stock
authorized.  The Company offered additional shares for investment during the
year ending May 31, 2008.  Prior to April, 2008, the Company sold units for
$40,000 which consisted of 25,000 shares of common stock and a warrant to
purchase up to 12,500 shares of common stock at an exercise price of $2.00 per
share for a period of three years from date of issuance.  As of April 2008, the
Company began offering additional shares at $2.50 per share.  During the year
ending May 31, 2008, the Company sold 4,794,806 shares of common stock with
gross proceeds of approximately $8,109,000.  After payment of fees of
approximately $634,000, the net proceeds from the sale of common stock were
approximately $7,422,000 for 2008.
 
During the fiscal year ended May 31 2008, the Company issued 100,000 shares of
the Company’s  common stock in connection with the conversion of $160,000
convertible bridge loans.
 
 
(c)
Stock Option Plan

 
In 2001, the Company adopted a stock option plan (the Plan) allowing the
granting of stock options to officers and key employees to purchase up to
5,000,000 shares of authorized but unissued common stock. Stock options are
granted with an exercise price equal to the common stock’s fair market value at
the date of grant.  The exercise period of Stock options can vary but in no
event can Stock Options expire later than ten years from the date of grant.  At
May 31, 2008, there remained 2,900,000 shares available for grant under the
Plan.
 
A summary of the status of the Company’s outstanding stock options and related
changes is as follows:

 

         
Average
           
Exercise
     
Shares
   
Price
 
Outstanding at May 27, 2006
    1,888,666     $ 1.54  
Granted
    225,000       1.77  
Exercised
    —          
Canceled
    (882,166 )     1.42  
Outstanding at May 26, 2007
    1,231,500       1.67  
Granted
    1,320,000       2.73  
Exercised
    (110,000 )     0.66  
Canceled
    (367,500 )     1.95  
Outstanding at May 31, 2008
    2,074,000       2.36  
Exercisable at May 31, 2008
    1,822,000     $ 2.40  

 
At May 31, 2008, the range of exercise prices and weighted average remaining
contractual life of outstanding options was $0.80 to $3.00 and 3.63 years,
respectively.
 
The Company has adopted SFAS No. 123 (Revised 2004), “Share-Based Payment.” and
SFAS No. 123R (a revision of SFAS No. 123), “Accounting for Stock-Based
Compensation”.  SFAS No. 123R focuses primarily on accounting for transactions
in which an entity obtains employee services through share-based payment
transactions.  SFAS No. 123R requires an entity to measure the cost of employee
services received in exchange for the award of equity instruments based on the
fair value of the award at the date of grant.  The cost is recognized over the
period during which an employee is required to provide services in exchange for
the award.  The Company utilized an options valuation model to determine the
value of the options granted as follows:

 
19

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May 31, 2008
   
May 26, 2007
 
Share Compensation Values:
           
Options granted in current year
  $ 963,490     $ 5,250  
Expired options in current year
               
(includes options granted and expired in same year)
    82,895       216,000  
Options granted in prior year
    40,786       63,874  
Total Share Value
  $ 1,087,171     $ 285,124  

 
As of May 31, 2008, there remained $84,320 of stock compensation to be expensed
in future years.
 
The Company utilizes the Black-Scholes option-pricing model to calculate the
fair value of each individual issuance of options.  The following assumptions
were used for grants during the years ended May 31, 2008 and May 26, 2007:
 

   
May 31, 2008
   
May 26, 2007
 
Expected dividend yield
   
0.00%
     
0.00%
 
Risk-free interest rate
   
3.41%
 
   
4.95%
 
Expected volatility
   
100.00%
     
100.00%
 

 
In order to determine the value of a warrants and options issued, the Company
ensured that they selected the appropriate volatility factor for the common
stock to apply the Black Scholes calculation.  In order to determine the
appropriate volatility factor the Company reviewed the volatility data along
with stock market and historical financial performance of a large number of
companies involved in the same industry as Bixby.  In selecting the 100%
volatility for Bixby, the Company considered Bixby’s historical financial
performance, financial conditions, and business risk in comparison to comparable
companies.
 
 
 (d)
Other Stock-based Compensation

 
In October and November, 2007, the Company issued warrants to purchase 65,000
shares of the Company’s common stock to employees who were laid off.  The
warrants are at an exercise price of $2.00 per share and with an exercise period
of 3 to 5 years.  The Company utilizes the Black-Scholes option-pricing model to
calculate the fair value of the warrants issued.  A fair value of approximately
$35,000 was determined and expensed in 2008.
 
In March, 2008, the Company issued warrants to purchase 495,000 shares of the
Company’s common stock to employees in exchange for non-compete agreements.  The
warrants are at an exercise price of $2.00 per share and with an exercise period
of 5 years.  The Company utilizes the Black-Scholes option-pricing model to
calculate the fair value of the warrants issued.  A fair value of approximately
$307,000 was determined and expensed in 2008.

 
20

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In March, 2008, the Company issued a warrant to purchase 10,000 shares of the
Company’s common stock as settlement on a failed investment.  The warrants are
at an exercise price of $2.00 per share and with an exercise period of 1
year.  The Company utilizes the Black-Scholes option-pricing model to calculate
the fair value of the warrants issued.  A fair value of $1,600 was determined
and expensed in 2008.
 
In March, 2008, the Company issued a warrant to purchase 300,000 shares of the
Company’s common stock to its legal counsel.  The warrants are at an exercise
price of $2.00 per share and with an exercise period of 5 years.  The Company
utilizes the Black-Scholes option-pricing model to calculate the fair value of
the warrants issued.  A fair value of $186,000 was determined and expensed in
2008.
 
On April 1, 2008, the Company signed an agreement with TekGar, LLC which
provides the Company with an exclusive license for the use of technology that
will convert coal based activated carbon into diesel or jet fuel.  As part of
the agreement, TekGar received warrants to purchase 2,000,000 common shares of
its common stock exercisable at $2 per share for 5 years, a royalty fee on
revenues from the sale of the fuel, and fees for periodic engineering services
and for the successful installation of the technology.  The Company utilizes the
Black-Scholes option-pricing model to calculate the fair value of the warrants
issued.  A fair value of $1,260,000 was determined and expensed to Research and
Development costs in 2008.
 
In April 2008, the Company issued a warrant to purchase 40,625 shares of the
Company’s common stock for consulting services.  The warrants are at an exercise
price of $2.00 per share and with an exercise period of 5 years.  The Company
utilizes the Black-Scholes option-pricing model to calculate the fair value of
the warrants issued.  A fair value of approximately $26,000 was determined and
expensed in 2008.
 
 
 (e)
Stock Warrants

 
As of May 31, 2008, the Company has outstanding warrants to purchase 36,847,860
shares of its common stock at prices ranging between $0.40 and $3.00.  These
warrants have been issued as part of a unit investment in the Company, as part
of loan agreements with the Company, for assistance in raising money for the
Company and for other contractual purposes.
 
As of May 31, 2008, the Company had outstanding warrants to purchase 237,500
shares of its Series A convertible preferred stock at share prices ranging from
$2.50 to $3.20.
 
A summary of the Company’s stock warrant activity and related information for
the years ended May 31, 2008 and May 26, 2007 is as follows:

 
21

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Weighted
         
Weighted
           
Average
         
Average
     
Common
   
Exercise
   
Preferred
   
Exercise
     
Shares
   
Price
   
Shares
   
Price
 
Outstanding at May 27, 2006
    13,309,092     $ 1.33       237,500     $ 3.06  
Issued
    6,356,727       1.83                  
Exercised
    (13,348 )     1.47                  
Expired
    —                          
Outstanding at May 26, 2007
    19,652,471       1.49       237,500       3.06  
Issued
    18,189,451       2.03                  
Exercised
    (48,638 )     2.00                  
Expired
    (916,049 )     1.99                  
Outstanding at May 31, 2008
    36,877,235     $ 1.74       237,500     $ 3.06  

 
(12)
Commitments and Contingencies

 
In December, 2006, the Company ceased production of its heating stoves due to
market conditions and over production.  As a result, the Company had to extend
payments on outstanding balances owed to suppliers and other vendors.  During
the year ending May 31, 2008, the Company made payments of approximately
$1,700,000 on the amounts due.  As of May 31, 2008, approximately $400,000
remained to be paid.
 
In October, 2007, the Company signed an agreement in which it agreed to pay a
total of $360,000 in settlement for services rendered prior to May 26,
2007.  This amount was accrued as of May 26, 2007.  The Company paid $3,000 upon
signing of the agreement and agreed to make additional payments as follows: 1)
$3,000 per month through July, 2008, 2) $6,000 per month from August, 2008
through July, 2011, 3) $7,500 per month after July, 2011 and until the total
amount is paid in full.
 
In January, 2008, the Company signed an agreement in which it agreed to pay a
total of $570,000 in settlement for services rendered by a legal firm prior to
May 26, 2007.  This amount has been accrued as of May 26, 2007.  The Company
paid $110,000 at time of signing the agreement and agreed to make additional
payments as follows:  1) $8,000 per month for 11 consecutive months commencing
March 1, 2008, 2) $12,000 per month for 13 months commencing February 1, 2009
and 3) $18,000 per month for 12 consecutive months commencing on March 1, 2010.
 
On April 21, 2008, the Company signed a series of agreements with Industrial
Process Solutions (IPS) in which IPS will design and construct for the Company a
fluidized-bed gasification system.  As part of these agreements, IPS is entitled
to a warrant to purchase 500,000 common shares of the Company upon completion of
a quarter scale and a full scale gasification units.  IPS is also entitled to a
royalty fee on revenues from the sale of the gas and carbon produced by each
unit subsequent to these units.
 
On May 7, 2008, the Company entered into a definitive agreement to complete a
“reverse merger” into a public reporting shell company, GCA I Acquisition Corp.,
a Delaware corporation affiliated with Greyline Capital Advisors, LLC, a New
York based corporate finance advisory firm.  The Company’s common stockholders
would receive one share in the public company for every one share currently held
in the Company.  Ten percent of the shares received in the transaction by the
Company’s common stockholders would be eligible for resale immediately upon
closing of the transaction, while the remaining ninety percent would become
eligible for resale gradually in incremental blocks over time pursuant to a
contractual lock-up provision intended to facilitate an orderly market in the
Company’s stock.  Subject to the satisfaction of all the closing conditions and
the approval of the Company’s stockholders, it is expected that the transaction
would close in the second calendar quarter of 2009, subject to the approval of
the Securities and Exchange Commission, and that, within a couple of months of
that occurrence, the Company would obtain a trading symbol and be eligible for
public listing/quotation.

 
22

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

 

On May 23, 2008, the Company signed an agreement with Kisstech, Inc. and its
owners (Kisstech) in which Kisstech will design and construct for the Company a
gas vaporization technology.  Upon completion of a viable working prototype, the
Company will grant the owners of Kisstech warrants to purchase 750,000 common
shares of the Company.  Kisstech shall also be entitled to receive royalty
payments from the Company on the sale of products which utilize the gas
vaporization technology.
 
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
Company’s consolidated financial statements or results of operations.
 
(13)  Business Segment Information
 
The Company is organized and manages its business in two distinct segments: the
Alternative Energy Heating Stove segment and the Delivery Services segment.  The
Alternative Energy Heating Stove segment designs, assembles, markets, services,
and sells alternative energy heating systems.  The principal products produced
and/or marketed by this segment are the Bixby Maxfire heating stove, the Bixby
Ugly Black Box (UBB) and accessories and parts related to the Maxfire and UBB.
The operations are located in Ramsey, MN.  The Delivery Services segment
delivers water softener salt and sales/leases water softener equipment to
residential and commercial customers in Southern Minnesota, Northwestern
Wisconsin and Southeastern South Dakota.  Delivery also licenses its delivery
technology to similar operations in the states of Minnesota, Iowa, Indiana,
Idaho and Utah.  Delivery Services is based in Redwood Falls, MN and maintains
salt storage facilities in Morton, MN and Vermillion, MN.
 
An analysis and reconciliation of the Company’s business segment information to
the respective information in the consolidated financial statements are as
follows:

 
23

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For the Year Ended
     
May 31, 2008
      
May 26, 2007
 
Revenues:
           
Alternative Energy Heating Stove
  $ 919,970     $ 5,181,943  
Delivery Services
    2,332,364       2,011,077                    
Total
    3,252,334       7,193,020                    
Operating Income/(Loss):
               
Alternative Energy Heating Stove
    (696,567 )     (1,721,183 )
Delivery Services
    7,534       (639,942 )
Corporate including research & development expense
    (8,737,349 )     (7,882,337 )                  
Total
  $ (9,426,382 )   $ (10,243,462 )                  
Depreciation and Amortization:
               
Alternative Energy Heating Stove
  $ 222,586     $ 209,789  
Delivery Services
    298,651       1,497,310                    
Total
  $ 521,237     $ 1,707,099                    
Capital Additions:
               
Alternative Energy Heating Stove
  $ 50,000     $ 218,155  
Delivery Services
    3,633       49,421                    
Total
  $ 53,633     $ 267,576                    
Total Assets:
               
Alternative Energy Heating Stove
  $ 4,976,146     $ 4,688,273  
Delivery Services
    1,053,476       1,400,294                    
Total
  $ 6,029,622     $ 6,088,567  

 
(14) 
Subsequent Events

 
In August, 2008, the Company extended to the holders of its warrants and options
the opportunity to exercise warrants/options at a 50% discount of a warrant’s or
option’s actual exercise price.  Warrant and options holders of record as of
August 15, 2008, had until December 15, 2008, to exercise their warrants/options
at the reduced exercise price.  As of August 15, 2008, the Company had
outstanding warrants for approximately 37,600,000 shares of common stock with
exercise prices ranging from $0.40 to $3.00, had warrants for 237,500 shares of
preferred stock with exercise prices ranging from $2.50 to $3.20, and had
options for approximately 2,100,000 shares of common stock with exercise prices
ranging from $0.50 to $3.00 per share.  The Company issued 2,306,366 common
shares as a result of the exercise of warrants and options during this
discounted exercise price period.

 
24

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In September, 2008, the Company settled a dispute with a former dealer of its
stove operations.  The Company agreed to repurchase 96 stoves from the dealer in
exchange for the settlement of any and all claims which the dealer had
alleged.  Payment for the stoves is to be made in equal payments starting in
September, 2008 and ending in January, 2009.  Upon receipt of the final payment,
the stoves will be released to the Company.  The Company recorded a settlement
expense of $182,500 at May 31, 2008, to reflect the difference between the
settlement amount and the inventory value of the stoves actually received.

 
25

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Balance Sheets

   
November 30, 2008
       
 
 
(Unaudited)
   
May 31, 2008
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 610,983     $ 1,375,156  
Trade Accounts Receivable, less allowance for doubtful accounts of $88,665 and
$36,868 at November 30, 2008 and May 31, 2008, respectively
    218,760        272,507   
Inventories
    2,717,632        2,796,176   
Other current assets
    357,272        365,664   
Total current assets
    3,904,647        4,809,503   
Property and equipment
    1,938,002        1,731,670   
Less accumulated depreciation and amortization
    (1,274,460 )       (1,114,586 )  
Net property and equipment
    663,542        617,084   
Other assets:
               
Long-lived assets
    329,655        411,905   
Deposits
    60,056        56,182   
Other
    104,948        134,948   
Total other assets
    494,659        603,035   
Total assets
  $ 5,062,848     $ 6,029,622  
Liabilities and Stockholders’ Deficit
               
Current liabilities:
               
Trade accounts payable
  $ 944,379     $ 1,510,789  
Accrued expenses
    1,320,068        1,651,656   
Current portion of capital leases
    123,747        38,054   
Current portion of long-term debt
    352,732        85,051   
Short term notes, net of debt discount of $0 and $78,381 as of November 30, 2008
and May 31, 2008, respectively
    —       121,619   
Short term convertible debt, net of debt discount of $73,427 and $251,012 as of
November 30, 2008 and May 31, 2008, respectively
    526,573        698,987   
Unearned income
    —       —  
Total current liabilities
    3,267,499        4,106,156   
Long-term debt, less current portion of $92,589 and $85,051 as of November 30,
2008 and May 31, 2008, respectively
    372,786        412,699   
Convertible debt, less current portion of $260,143 and $0,000 and net of debt
discount of $1,633,045 and $2,069,270 as of November 30, 2008 and May 31, 2008,
respectively
    1,848,812        1,522,730   
Other long-term liabilities
    290,700        290,700   
Total liabilities
    5,779,797        6,332,285   
Commitments and contingencies
                                 
Stockholders’ deficit:
               
Undesignated preferred stock, $.001 par value. Authorized 23,900,000 shares;
none issued and outstanding as of November 30, 2008 and May 31,2008,
respectively
    —       —  
Series A convertible preferred stock, $0.001 par value. Authorized 1,100,000
shares; issued and outstanding 829,814 shares and 998,325 shares as of November
30, 2008 and May 31, 2008, respectively ($829,814 and $998,325 liquidation
preference as of November 30, 2008 and May 31, 2008, respectively)
    829        998   
Common stock $0.001 par value. Authorized 100,000,000 shares; issued and
outstanding 36,440,090 shares and 33,024,380 shares as of November 30, 2008 and
May 31, 2008, respectively
    36,440        33,024   
Additional paid-in capital
    89,178,397        48,392,034   
Accumulated deficit
    (89,932,615 )       (48,728,719 )  
Total stockholders’ deficit
    (716,949 )       (302,663 )  
Total liabilities and stockholders’ deficit
  $ 5,062,848     $ 6,029,622  

See accompanying notes to unaudited consolidated financial statements.

 
2

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Statements of Operations

   
For the three months ended
   
For the six months ended
     
November 30, 2008
   
November 24, 2007
   
November 30, 2008
   
November 24, 2007
     
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Net sales
  $ 689,443     $ 889,902     $ 1,537,123     $ 1,669,656  
Cost of goods
    603,494        981,453        1,351,772        1,804,421   
Gross profit (loss)
    85,949        (91,551 )       185,351        (134,765 )  
Operating expenses:
                               
Selling, general, and administrative
    3,205,986        967,808        6,567,548        1,992,604   
Research and development
    1,455,976        487,136        2,398,528        918,167   
Total operating expenses
    4,661,962        1,454,944        8,966,076        2,910,771   
Other income (expense):
                               
Interest expense
    (153,503 )       (297,934 )       (789,787 )       (616,738 )  
Other, net
    (474,916 )       (460,253 )       (31,633,384 )       (995,920 )  
Net loss
  $ (5,204,433 )   $ (2,304,682 )   $ (41,203,897 )   $ (4,658,194 )            
                     
Loss per common share:
                               
Basic and Diluted
  $ (0.14 )   $ (0.08 )   $ (1.18 )   $ (0.16 )                                
 
Weighted Average shares outstanding:
                               
Basic and Diluted
    35,913,057       28,922,526        34,794,923       28,662,470   

See accompanying notes to unaudited consolidated financial statements.

 
3

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Statements of Stockholders’ Equity (Deficit)

               
Series A convertible
               
Additional
         
Total
      
Undesignated preferred stock
   
preferred stock
   
Common stock
   
paid-in
   
Accumulated
   
stockholders’
      
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
deficit
   
equity (deficit)
 
Balances at May 27, 2006
    —     $ —       1,046,846      $ 1,047       24,364,721      $ 24,365     $
26,911,438     $ (23,038,365 )   $ 3,898,485  
Shares issued in connection with warrants exercised
                                    13,348        13        19,585             
  19,598   
Shares issued in connection with private placement, less issuance costs of
$599,981
                                    3,605,825        3,606        5,165,733     
          5,169,339   
Warrants issued for debt issuance costs
                                                    676,447               
676,447   
Stock based compensation
                                                    285,124               
285,124   
Net loss for the year
                                                            (11,937,325 )      
(11,937,325 )  
Balances at May 26, 2007
    —     $ —       1,046,846      $ 1,047       27,983,894      $ 27,984     $
33,058,327     $ (34,975,690 )   $ (1,888,332 )
Shares issued in connection with conversion of preferred stock to common stock
                    (48,521 )       (49 )       97,042        97        (48 )  
            —  
Shares issued in connection with warrants exercised
                                    48,638        48        97,228             
  97,276   
Shares issued in connection with debt conversion
                                    100,000        100        159,900           
    160,000   
Shares issued in connection with private placement, less issuance costs of
$687,185
                                    4,794,806        4,795        7,417,570     
          7,422,365   
Warrants issued for debt issuance costs
                                                    4,757,242               
4,757,242   
Stock based compensation
                                                    2,901,815               
2,901,815   
Net loss for the year
                                                            (13,753,028 )      
(13,753,028 )  
Balances at May 31, 2008
    —     $ —       998,325      $ 998       33,024,380      $ 33,024     $
48,392,034     $ (48,728,718 )   $ (302,662 )
Shares issued in connection with conversion of preferred
                                                                       
stock to common stock
                    (168,511 )       (169 )       337,022        337        (168
)               —  
Shares issued in connection with warrants and options exercised
                                    1,739,669        1,740        1,479,916     
          1,481,656   
Shares issued in connection with debt conversion
                                    113,000        113        150,387           
    150,500   
Shares issued in connection with private placement, less issuance costs of
$344,825
                                    1,226,017        1,226        3,928,585     
          3,929,811   
Warrants issued for debt issuance costs
                                                    669,428               
669,428   
Stock based compensation
                                                    3,914,130               
3,914,130   
Valuation of reduction in warrant exercise price
                                                    30,644,085               
30,644,085   
Net loss for the year
                                                            (41,203,897 )      
(41,203,897 )  
Balances at November 30, 2008 (Unaudited)
    —     $ —       829,814      $ 829       36,440,088      $ 36,440     $
89,178,397     $ (89,932,615 )   $ (716,949 )

See accompanying notes to unaudited consolidated financial statements.

 
4

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BIXBY ENERGY SYSTEMS, INC.
Consolidated Statements of Cash Flows

   
For the six months ended
      
November 30, 2008
   
November 24, 2007
     
(Unaudited)
   
(Unaudited)
 
Cash flows from operating activities:
           
Net loss
  $ (41,203,897 )   $ (4,658,194 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    242,124        258,868   
Amortization of debt discount
    902,520        888,090   
Non cash interest expense
    7,554        284,132   
Share based compensation
    3,914,130        144,045   
Non cash compensation for lease guarantee
    459,100        —  
Valuation of warrant exercise price reduction
    30,644,085        —  
Loss on disposal of property and equipment
    —       2,485   
Change in current assets and current liabilities:
               
Accounts receivable
    1,950        91,550   
Allowance for doubtful accounts
    51,797        (89,393 )  
Inventories
    78,544        576,826   
Other assets
    34,517        (119,793 )  
Trade accounts payable
    (566,410 )       (75,616 )  
Accrued expenses
    (331,587 )       18,286   
Unearned income
    —       (51,437 )  
Net cash used in operating activities
    (5,765,573 )       (2,730,151 )  
Cash flows from investing activities:
               
Additions to property and equipment
    (70,848 )       (2,379 )  
Proceeds from sale of property and equipment
    —       1,300   
Increase in loan receivable
    —       (14,000 )  
Additions to other assets
    —       (39 )  
Net cash used in investing activities
    (70,848 )       (15,118 )  
Cash flows from financing activities:
               
Principal payments on capital leases
    (49,791 )       (19,132 )  
Proceeds from issuance of debt
    —       1,807,000   
Principal payments on debt
    (289,429 )       (276,913 )  
Proceeds from issuance of common stock and exercise of warrants
    5,411,468        1,946,516   
Net cash provided by financing activities
    5,072,248        3,457,471   
Net increase (decrease) in cash and cash equivalents
    (764,173 )       712,202   
Cash and cash equivalents at beginning of period
    1,375,156        286,672   
Cash and cash equivalents at end of period
  $ 610,983     $ 998,874                    
Supplemental Disclosure of Cash Flow Information:
                                 
Cash paid for interest
  $ 215,695     $ 111,877  
Cash paid for taxes
  $ —     $ —                    
Non-cash investing and financing activities:
                                 
Equipment purchased under capital lease
  $ 135,484     $ —  
Conversion of debt to common stock
  $ 150,500     $ —  
Conversion of preferred stock to common stock
  $ 1,094,647     $ —  
Warrants issued in connection with debt
  $ 1,481,657     $ 2,173,961  

See accompanying notes to consolidated financial statements.

 
5

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 (1) Basis of Presentation
 
The accompanying unaudited consolidated financial statements of Bixby Energy
Systems, Inc and Subsidiary have been prepared in accordance with generally
accepted accounting principles for interim financial information.  Accordingly,
they do not include all the information and notes required by generally accepted
accounting principals for complete financial statements.  In the opinion of
management, all adjustments necessary to present fairly the information set
forth therein have been included.  Operating results for the three month period
ended November 30, 2008 are not necessarily indicative of the results that may
be experienced for the fiscal year ended May 31, 2009,
 
These consolidated financial statements are those of the Company and its
wholly-owned subsidiary.  All significant inter-company accounts and
transactions have been eliminated in the preparation of the consolidated
financial statements.
 
(2) Organization, Description of Business and Going Concern
 
Bixby Energy Systems, Inc. (the Company) was incorporated as a Delaware
corporation on April 1, 2002.  The Company designs, assembles, markets,
services, and sells alternative energy heating systems.  The Company sells its
products through dealers located in the northern part of the US and all of
Canada. Its wholly-owned subsidiary, SS Acquisition d/b/a Bixby Energy Delivery
Services (Delivery) which acquired Step Saver, Inc. in October, 2004, delivers
water softener salt to residential and commercial customers in Southern
Minnesota, Northwestern Wisconsin and Southeastern South Dakota.  Delivery also
licenses its delivery technology to similar operations in the states of
Minnesota, Iowa, Indiana, Idaho and Utah.  The Company’s headquarters are
located in Ramsey, MN.
 
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going
concern.  While the Company had positive working capital of approximately,
$4637,000 as of November 30, 2008, the Company had an accumulated deficit of
$89.9 million and a stockholders’ deficit of $717,000 as of November 30, 2008.
 
As reflected in the consolidated financial statements, the Company has incurred
net losses of $41.0 million for the first six months ended November 30, 2008, of
Fiscal Year 2009.  In this regard, the Company has been a net consumer, as
opposed to generator, of cash from operations.  The Company has attempted during
the period to use its resources to develop viable commercial products and to
provide for its working capital needs.  These results of operations, when viewed
in conjunction with the Company’s accumulated deficit and liquidity as
referenced in the preceding paragraph raise substantial doubt as to the
Company's ability to continue as a going concern.
 
To date, the Company has consistently been able to raise sufficient funds for
its R&D and working capital requirements through the private issuance of a
combination of equity and debt securities; however, there can be no assurance
that it will be able to continue to raise capital in the future or that any
capital obtained will be adequate to meet the Company’s needs.  Management's
efforts to date have been directed towards the development and implementation of
a plan to generate sufficient revenues to meet its ongoing capital
requirements.  The plan includes, among other things, the development of the
Company’s initial reference facility for its carbon conversion technology.  It
also involves cost-cutting initiatives including the elimination of all
non-essential costs, as well as the possible sale of certain assets related to
non-core operations.

 
6

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

As regards asset recoverability, approximately $4.3 million or 82% of the asset
values stated in the accompanying balance sheet are dependent upon the continued
operations of the Company.  This, in turn, is dependent upon the Company's
future ability to generate sufficient revenue so as to be self-sustaining and,
in the interim, to meet its financing requirements on a continuing basis.  The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that may become necessary in the event that the
Company is unable at some point in the future to continue as a going concern.

(3) Summary of Significant Accounting Policies and Practices
 
 
(a)
Principles of Consolidation

 
The consolidated financial statements include the financial statements of Bixby
Energy Systems, Inc. and its wholly owned subsidiary SS Acquisition d/b/a Bixby
Energy Delivery Services. All significant intercompany balances and transactions
have been eliminated in consolidation.
 
 
(b)
Cash Equivalents

 
Cash equivalents of approximately $611,000 and $1,375,000 at November 30, 2008,
and May 31, 2008, respectively, consist of highly liquid cash investments with a
maturity of three months or less at the date of purchase.
 
The Company maintains cash and cash equivalents in accounts with a financial
institution in excess of the amount insured by the Federal Deposit Insurance
Corporation.  The Company monitors the financial stability of this institution
regularly and management does not believe there is significant credit risk
associated with deposits in excess of federally insured amounts.

 
(c)
Accounts Receivable and Allowance for Doubtful Accounts

 
The Company sells its products on account to retail and commercial
customers.  Payments from customers are received and applied to their account.
 
The Company records an allowance for doubtful accounts based on specifically
identified amounts that it believes to be uncollectible.  If actual collections
experience changes, revisions to the allowance may be required. After all
attempts to collect a receivable have failed, the receivable is written off
against the allowance.  However, actual write-offs might exceed the recorded
allowance. A review of open accounts resulted in a reserve for doubtful accounts
of $88,665 and $36,868,at November 30, 2008 and May 31, 2008,
respectively.  Based on the information available to it, the Company believes
its allowance for doubtful accounts is adequate.

 
(d)
Inventories

 
Inventories are stated at the lower of cost (first-in, first-out) or
market.  The Company reviews inventory for obsolescence and excess quantities to
determine that items deemed obsolete or excess are appropriately reserved.  At
the end of fiscal 2007, the Company determined that the market price for its
finished stove inventory was below the Company’s inventory cost necessitating an
adjustment of $1,212,642 to write down inventory values to market.  No
adjustment was required as of November 30, 2008, and May 31, 2008, respectively.

 
7

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 
(e)
Other Current Assets

 
Other current assets consist of miscellaneous receivables from activities other
than customer sales and prepaid expenses.
 
 
(f)
Property and Equipment

 
Property and equipment are recorded at cost.   Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets. The estimated useful lives of property and equipment range
from two to ten years.
 
 
(g)
Impairment of Long Lived Assets

 
The Company reviews long-lived assets for impairment annually or more frequently
if the occurrence of events or changes in circumstances indicates that the
carrying amount of the assets may not be fully recoverable or the useful lives
of these assets are no longer appropriate.  Each impairment test is based on a
comparison of the carrying amount of an asset to future net undiscounted cash
flows. If impairment is indicated, the asset is written down to its estimated
fair value.
 
 
(h)
Deposits

 
 
The Company has made deposits as part of its long term capital and real estate
leases.  These deposits totaled $60,057 and $56,182 as of November 30, 2008 and
May 31, 2008, respectively.

 
 
(i)
Other Assets

 
Other assets as of November 30, 2008 and May 31,2008, consist primarily of an
asset being held for resale in the amount of $100,000.
 
 
(j)
Revenue Recognition

 
The Company recognizes revenue in accordance with Staff Accounting Bulletin
(SAB) 104, which requires evidence of an agreement, delivery of the product or
services at a fixed or determinable price, and assurance of collection within a
reasonable period of time.  The Company sells stoves to dealers.  The title
transfers to the dealer upon shipment.  The Company does not offer a right to
return products, unless they are damaged.  The Company recognizes revenue upon
shipment.  The dealers display the stoves and provide installation services to
customers if necessary.  Delivery recognizes revenue upon deliver of salt to the
customer.  Each delivery is billed as a separate invoice.
 
One customer’s sales accounted for 16% and 19% of the Company’s total sales for
the six months ended November 30, 2008, and May 31, 2008, respectively.
 
 
(k)
Research and Development

 
The Company expenses research and development costs as incurred.
 
 
(l)
Income Taxes

 
Income taxes are accounted for under the asset-and-liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

 
8

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 
(m)
Stock Option Plan

 
The Company adopted SFAS No. 123R, “Share Based Payments.” SFAS No. 123R
requires companies to expense the value of employee stock options and similar
awards and applies to all outstanding and vested stock-based awards.
 
In computing the impact, the fair value of each option is estimated on the date
of grant based on the Black-Scholes options-pricing model utilizing certain
assumptions for a risk free interest rate; volatility; and expected remaining
lives of the awards. The assumptions used in calculating the fair value of
share-based payment awards represent management’s best estimates, but these
estimates involve inherent uncertainties and the application of management
judgment. As a result, if factors change and the Company uses different
assumptions, the Company’s stock-based compensation expense could be materially
different in the future. In addition, the Company is required to estimate the
expected forfeiture rate and only recognize expense for those shares expected to
vest. In estimating the Company’s forfeiture rate, the Company analyzed its
historical forfeiture rate, the remaining lives of unvested options, and the
amount of vested options as a percentage of total options outstanding. If the
Company’s actual forfeiture rate is materially different from its estimate, or
if the Company reevaluates the forfeiture rate in the future, the stock-based
compensation expense could be significantly different from what we have recorded
in the current period. The impact of applying SFAS No. 123R approximated
$160,000 and $125,000 in additional compensation expense for the first six
months ended November 30, 2008 and May 31, 2008, respectively.  Such amount is
included in general and administrative expenses on the statement of operations.
 
(n)
Fair Value of Financial Instruments

 
Fair Value of Financial Instruments. Statement of Financial Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosures of information about the fair value of certain financial instruments
for which it is practicable to estimate the value.  For purpose of this
disclosure, the fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation.
 
The carrying amounts of the Company’s short-term financial instruments,
including cash, other current assets, accounts payable, accrued expenses and
notes payable approximate fair value at November 30, 2008 due to the relatively
short period to maturity for these instruments.
 
 
(o)
Advertising

 
 
Advertising costs are charged to expense as incurred.

 
 
(p)
Use of Estimates

 
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

 
9

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 
(q)
Shipping and Handling Costs

 
The Company classifies freight costs billed to customers as revenue.  Costs
related to freight are classified as costs of sales.

 
(r)
Recent Accounting Pronouncements

 
In September 2006, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. Management believes that, for the
foreseeable future, this Statement will have no impact on the financial
statements of the Company once adopted.
 
In February 2007, the FASB issued FASB Statement of Financial Accounting
Standards No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities – Including an Amendment of FASB Statement No. 115. This Statement
permits entities to choose to measure many financial instruments and certain
other items at fair value. The objective is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This Statement applies to
all entities, including not-for-profit organizations. Most of the provisions of
this Statement apply only to entities that elect the fair value option. However,
the amendment to FASB Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities, applies to all entities with available-for-sale and
trading securities. The fair value option permits all entities to choose to
measure eligible items at fair value at specified election dates.
 
A business entity shall report unrealized gains and losses on items for which
the fair value option has been elected in earnings (or another performance
indicator if the business entity does not report earnings) at each subsequent
reporting date. The fair value option may be applied instrument by instrument
(with a few exceptions); is irrevocable (unless a new election date occurs); and
is applied only to entire instruments and not to portions of instruments. This
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007, provided the entity also elects to apply the
provisions of FASB Statement No. 157, Fair Value Measurement. The Company does
not expect the adoption of SFAS 159 to materially effect the Company’s financial
position or results of operations.
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business
Combinations (SFAS No. 141(R)). SFAS No. 141(R) retains the fundamental
requirements of the original pronouncement requiring that the purchase method be
used for all business combinations. SFAS No. 141(R) defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination, establishes the acquisition date as the date that the acquirer
achieves control and requires the acquirer to recognize the assets acquired,
liabilities assumed and any noncontrolling interest at their fair values as of
the acquisition date. SFAS No. 141(R) also requires that acquisition-related
costs be recognized separately from the acquisition. SFAS No. 141(R) is
effective for fiscal years beginning on or after December 15, 2008. The Company
is currently assessing the impact of SFAS No. 141(R) on its consolidated
financial statements.

 
10

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

In December, 2007, the FASB issued FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements. Statement 160 requires all
entities to report noncontrolling (minority) interests in subsidiaries in the
same way—as equity in the consolidated financial statements. Moreover, Statement
160 eliminates the diversity that currently exists in accounting for
transactions between an entity and noncontrolling interests by requiring they be
treated as equity transactions. FASB No.160 is effective for fiscal years
beginning after December 15, 2008. The Company does not believe that FAS No. 160
will have any impact on its financial statements.
 
In February 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 157-1, Application of FASB Statement No. 157 to FASB Statement
No. 13 and Its Related Interpretive Accounting Pronouncements That Address
Leasing Transactions, and FSP FAS 157-2, Effective Date of FASB Statement No.
157. FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, “Fair Value
Measurements.” FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008
to 2009 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). See SFAS No. 157 discussion above.

In March 2008, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133, which requires additional
disclosures about the objectives of the derivative instruments and hedging
activities, the method of accounting for such instruments under SFAS No. 133 and
its related interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on our financial position, financial
performance, and cash flows. SFAS No. 161 is effective for the Company beginning
November 30, 2008. Management believes that, for the foreseeable future, this
Statement will have no impact on the financial statements of the Company once
adopted.
 
In May 2008, the FASB issued Statements of Financial Standards No. 162 (SFAS
162), The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 is
intended to improve financial reporting by identifying a consistent framework,
or hierarchy, for selecting accounting principles to be used in preparing
financial statements that are presented in conformity with U.S. generally
accepted accounting principles (GAAP) for nongovernmental entities.  Prior to
the issuance of SFAS 162, GAAP hierarchy was defined in the American Institute
of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69
(SAS 69), The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. SAS 69 has been criticized because it is directed to the
auditor rather than the entity. SFAS 162 addresses these issues by establishing
that the GAAP hierarchy should be directed to entities because it is the entity
(not its auditor) that is responsible for selecting accounting principles for
financial statements that are presented in conformity with GAAP.  SFAS 162 is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board Auditing amendments to AU Section 411, ”The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles.” The Company
does not expect SFAS 162 to have a material effect on its consolidated financial
statements.
 
In May 2008, the FASB issued FASB Staff Position (FSP) Financial Accounting
Standard (FAS) 142-3, Determination of the Useful Life of Intangible Assets,
which is effective for fiscal years beginning after December 15, 2008 and for
interim periods within those years. FSP FAS 142-3 provides guidance on the
renewal or extension.  The Company is currently evaluating the impact that FSP
FAS 142-3 may have on the consolidated financial statements.

 
11

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

(4)
Inventories

 
Inventory consists of the following:
 

   
November 30, 2008
   
May 31, 2008
 
Raw materials
  $ 1,721,957     $ 1,603,676  
Finished Goods
    995,675       1,192,500       $ 2,717,632     $ 2,796,176  

 
(5) 
Long-Lived Assets

 
In accordance with SFAS 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company is to assess its long-lived assets for
impairment at least annually in the absence of an indicator of possible
impairment and immediately upon an indicator of possible impairment. While no
events or circumstances that would indicate a potential impairment were
identified by management, the Company will perform an assessment during the
fourth quarter of 2009.  As of November 30, 2008 and May 31, 2008, the net value
of long-lived assets was as follows:
 

   
November 30, 2008
   
May 31, 2008
 
Intangible, Step Saver Acquisition
  $ 3,831,980     $ 3,831,980  
Customer Lists
    235,000       235,000  
Accumulated Amortization
    (1,388,629 )     (1,306,379 )
Total impairment charges
    (2,348,696 )     (2,348,696 )     $ 329,655     $ 411,905  

 
(6) 
Short-term and Long-term Debt

 
The Company has entered into short-term notes, long-term notes and long-term
debentures with investors.  In addition to interest on the principal amount of
the note or debenture, the notes may include provisions for receipt of warrants
to purchase the Company’s common stock and the right to convert the principal
and, where included, the interest into the common stock of the Company.  The
Company uses a version of the Black-Scholes model to value any warrants
granted.  An amount equal to the warrants share of the total value of the
transaction is treated as Additional Paid-In Capital and the debt is reduced
accordingly.  This loan discount is then amortized over the life of the loan
agreement.  A new loan may be executed to replace an expiring loan.  In those
cases the old loan is treated as paid in full.  The new loan and any additional
grants of warrants are treated as a new transaction.
 
As of November 30, 2008, Short-term debt consists of the following:

 
12

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

         
November 30, 2008
   
May 31, 2008
 
Bridge Notes
        $ -     $ 200,000  
Convertible Notes
   
(7)
      600,000       950,000  
Less remaining discount for BCF and value of warrants
   
(7)
      (73,427 )     (329,393 )
Total short-term debt
          $ 526,573     $ 620,607  

 
Long-term debt consists of the following:
 

         
November 30, 2008
   
May 31, 2008
 
Capital Leases
   
(4)
    $ 123,747     $ 38,054  
Bank Loan
   
(3)
      118,207       132,236  
Note Payable
   
(5)
      232,893       241,239  
State of Minnesota Loan
   
(1)
      114,275       124,275  
Less current installments
            (216,336 )     (123,105 )
Total long term debt, net of current portion
          $ 372,786     $ 412,699                            
Convertible Debt - Gross Amount
 
(6) (8) and (9)
      3,742,000       3,592,000  
Less remaining discount for value of warrants
 
(6) (8) and (9)
      (1,633,045 )     (2,069,270 )
Convertible Debt - net of debt discount
          $ 2,108,955     $ 1,522,730  
Less current installments
            (260,143 )     —  
Total convertible debt, net of current portion
          $ 1,848,812     $ 1,522,730                            
Other long-term liabilities
   
(2)
      290,700       290,700  
Total long-term debt
          $ 2,512,298     $ 2,226,129  

 
 
(1)
Prior to the acquisition of Delivery in October 2004, Delivery had entered into
an agreement with the Minnesota Department of Transportation to provide funds
for improvement of a rail site in Morton, MN.  The State provided a no interest
loan in the amount of $200,000 of which $189,500 was utilized for Morton with
equal quarterly payments of $5,000.  Payments are for 10 years or until the loan
is repaid.  As of November 30, 2008, the remaining amount due was $114,275.

 
 
(2)
As part of the acquisition of Delivery in October 2004, the Company issued
warrants to purchase 190,000 preferred shares in the Company with an exercise
price of $3.20 to Delivery’s debenture holders in exchange for warrants to
purchase Delivery’s common stock. These warrants were valued at approximately
$224,000. In addition, as part of the merger, the Board members of Delivery
exchanged warrants for shares of Delivery common stock for 47,500 warrants for
Bixby Convertible Preferred stock with an exercise price of $2.50.  These
warrants were valued at approximately $ 66,000. The preferred warrants expire in
July 2009 and are subject to redemption.  As part of the total acquisition
price, the Company recorded a long-term liability of $290,700 which represented
the value of these warrants at the time of acquisition using the Black-Scholes
model.

 
 
(3)
In June, 2005, the Company entered into a long-term bank loan in the amount of
$204,100 secured by the assets of its Delivery operation with a fixed interest
rate of 7.5% and fixed payments of $3,135.77 per month for 7 years.  As of
November 30, 2008, payments on the loan were current with a total outstanding
loan balance of $118,207.

 
13

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 
 (4)
Beginning in June 2005, the Company acquired certain equipment under a capital
lease arrangement.  The terms of the arrangements call for monthly payments and
range in length from 36 to 48 months.  In the first 6 months ending November 30,
2008 for Fiscal Year 2009, the Company acquired additional equipment under
capital leases for a total of $135,484.  As of November 30, 2008, capital lease
obligations amounted to $123,747.

 
 
(5)
In January 2006, Delivery agreed to acquire a licensee utilizing its delivery
technology serving the Eastern Minnesota/Western Wisconsin area.  As part of
this purchase, Delivery entered into two notes with the licensee, one in the
amount of $216,000 with equal principal payments plus interest due monthly for a
term of 7 years and a second for $60,000 with interest accruing in the first
year and with equal principal payments plus interest for the remaining 6 years
of the 7 year term.  Each loan has an interest rate of 1% above the prime rate
published by The Wall Street Journal on the last business day of each month.  As
of November 30, 2008, the total amount due on the two notes was $232,893.

 
 
(6)
In October 2005, the Company issued convertible debentures in the amount of
$1,125,000 bearing interest at the rates of 6% to 10% for a term of 5
years.  Interest is accrued and payable at the end of the term.  Principal and
interest are convertible into the shares of the Company’s common stock at $1.60
per share.  In fiscal year 2007, the Company made a payment against this loan
amounting to $100,000.  In accordance with EITF 00-27 and 98-5, the Company
recorded a discount for the Beneficial Conversion Feature (“BCF”) on the
convertible debt amounting to $108,000 and is amortized over the life of the
debentures.  The amount of the BCF discount was calculated using the
Black-Scholes model. Additionally, in connection with these debentures the
Company issued warrants to purchase shares of common stock valued at
approximately $356,000 of which $269,000 were recorded as a discount and were
being amortized over the life of the loan.  The Company recorded a discount
amortization expense of approximately $36,000 in the first six months ending
November 30, 2008, with a remaining unamortized balance of the discount of
approximately, $142,000 as of November 30, 2008.

 
 
(7)
In May, 2008, the Company entered into a short-term convertible note with a
total face amount of $600,000 bearing an interest rate of 12% payable in full in
twelve months or less and which is convertible into shares of Company's common
stock at $1.60 per share and warrants to purchase additional shares of common
stock at an exercise price of $2.00 per share.  The lender also received
contemporaneously with the note a warrant to purchase common shares at an
exercise price of $2.00 per share.  In accordance with EITF 00-27 and 98-5 and
utilizing the Black-Scholes valuation model, the Company discounted the note as
follows: 1) for the Beneficial Conversion Feature (“BCF”) on the convertible
debt a discount amounting to approximately $69,000 and being amortized over the
life of the loan and 2) for the warrants issued with the notes which had a value
of $93,000 and was recorded as a discount and being amortized over the life of
the loans.  The warrants which would be issued upon conversion have an
approximate value of $116,250 which has been allocated should the loans be
converted.  The Company recorded an amortization expense of approximately
$81,000 in for the first six months ending November 30, 2008.  At November 30,
2008, there remained approximately $73,000 of discounted value to be amortized
over the remaining period of the note.

 
14

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 
 (8)
During 2008, the Company entered into multiple long-term convertible notes with
a total face amount of $2,567,000 bearing an interest rate of 12% and which are
convertible into shares of Company's common stock at prices from $1.60 to $2.50
per share and warrants to purchase additional shares of common stock at an
exercise price from $2.00 to $3.00 per share.  Some notes also call for
additional warrants to purchase common shares to be issued should the notes be
converted.  In accordance with EITF 00-27 and 98-5 and utilizing the
Black-Scholes valuation model, the Company discounted the notes as follows: 1)
for the Beneficial Conversion Feature (“BCF”) on the convertible debt a discount
amounting to approximately $640,000 and being amortized over the life of the
loans and 2) for the warrants issued with the notes which had a value of
$3,098,000 of which approximately $1,600,000 were recorded as a discount and
being amortized over the life of the loans.  The warrants which would be issued
upon conversion have an approximate value of $470,000 of which approximately
$244,000 has been allocated should the loans be converted.  The Company recorded
an amortization expense of approximately $498,000 for the six months ending
November 30, 2008.  One note was used to purchase warrants during the six months
ended November 30, 2008. At November 30, 2008, there remained approximately $1.1
million of discounted value for warrants and BCF to be amortized.

 
 
(9)
In the first six months of 2009, the Company entered into a long-term
convertible note with a face amount of $200,000 bearing an interest rate of 15%
and which is convertible into shares of the Company’s common stock at a price of
$2.50 per share.  Contemporaneously with the note, a warrant to purchase common
shares at an exercise price of $3.00 per share was issued. In accordance with
EITF 00-27 and 98-5 and utilizing the Black-Scholes valuation model, the Company
discounted the note as follows: 1) for the Beneficial Conversion Feature (“BCF”)
on the convertible debt a discount amounting to approximately $128,000 and being
amortized over the life of the loans and 2) for the warrants issued with the
notes which had an approximate value of $113,000 of which approximately $72,000
was recorded as a discount and is being amortized over the life of the
loan.  The Company recorded an amortization expense of approximately $5,000 for
the six months ending November 30, 2008.  At November 30, 2008, there remained
approximately $195,000 of discounted value for warrants and BCF to be amortized.

 
(7)
Stockholders’ Deficit

 
 
(a)
Preferred Stock

 
The Company has 25,000,000 shares of $0.001 par value preferred stock
authorized, of which 1,100,000 shares have been designated as Series A
convertible preferred stock (Series A).  The Series A stock is convertible into
two shares of the Company’s common stock.  For the six months ended November 30,
2008, preferred stockholders converted 168,511 shares of preferred stock for
337,022 shares of the Company’s common stock.  An aggregate of 829,814 shares of
Series A were outstanding at November 30, 2008.
 
After December 31, 2006, in the event of liquidation, which is defined as the
sale, conveyance or other disposition of all or substantially all of the assets
of the Company, preferred stockholders are entitled to receive $1.00 per share
prior to and in preference to any common stockholder.
 
The Series A holders have voting rights after December 31, 2006 on an as-if
converted basis to common stock.

 
15

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

 
(b)
Common Stock

 
The Company has 100,000,000 shares of $0.001 par value common stock
authorized.  The Company offered additional shares for investment during the
first six months ending November 30, 2008.  As of April 2008, the Company began
offering additional shares at $2.50 per share.  Beginning July 1, 2008, the
Company changed the offering price to $4.00 per share.  During the first six
months ending November 30, 2008, the Company sold 1,226,017 shares of common
stock with gross proceeds of approximately $4,275,000.  After payment of fees of
approximately $345,000, the net proceeds from the sale of common stock were
approximately $3,930,000 for the six months ending November 30, 2008.
 
During the first six months ended November 30 2008, the Company issued 113,000
shares of the Company’s common stock in connection with the conversion of
$150,000 convertible bridge loans.
 
 
(c)
Stock Option Plan

 
In 2001, the Company adopted a stock option plan (the Plan) allowing the
granting of stock options to officers and key employees to purchase up to
5,000,000 shares of authorized but unissued common stock. Stock options are
granted with an exercise price equal to the common stock’s fair market value at
the date of grant. The exercise period of Stock options can vary but in no event
can Stock Options expire later than ten years from the date of grant. At
November 30, 2008, there remained 2,786,000 shares available for grant under the
Plan.
 
A summary of the status of the Company’s outstanding stock options and related
changes is as follows:

         
Weighted Average
     
Shares
   
Exercise Price
 
Outstanding at May 26, 2007
    1,231,500       1.67  
Granted
    1,320,000       2.73  
Exercised
    (110,000 )     0.66  
Canceled
    (367,500 )     1.95  
Outstanding at May 31, 2008
    2,074,000       2.36  
Granted
    100,000       4.40  
Exercised
    (35,000 )     1.00  
Canceled
    (20,000 )     2.00  
Outstanding at November 30, 2008
    2,119,000       2.46  
Exercisable at November 30, 2008
    1,882,000     $ 2.52  

 
In August, 2008, the Company granted its option and warrant holders the
opportunity to exercise their holdings at an exercise price of 50% of the price
stated in their option or warrant provided that they exercised any time between
August 15, 2008, and December 15, 2008.  Options with a total of 35,000 shares
of the Company’s common stock were exercised during this period.  The Company
used the Black-Scholes option-pricing model to calculate the fair value of this
reduction in exercise price.  A fair value of $15,050 was determined and
expensed for the exercise of these options.

 
16

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

At November 30, 2008, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $0.80 to $4.40 and
3.44 years, respectively.
 
The Company has adopted SFAS No. 123 (Revised 2004), “Share-Based Payment.” and
SFAS No. 123R (a revision of SFAS No. 123), “Accounting for Stock-Based
Compensation”.  SFAS No. 123R focuses primarily on accounting for transactions
in which an entity obtains employee services through share-based payment
transactions.  SFAS No. 123R requires an entity to measure the cost of employee
services received in exchange for the award of equity instruments based on the
fair value of the award at the date of grant.  The cost is recognized over the
period during which an employee is required to provide services in exchange for
the award.  The Company utilized an options valuation model to determine the
value of the options granted as follows:

   
November 30, 2008
 
Share Compensation Values:
     
Options granted in current year
  $ 74,500  
Expired options in current year
       
(includes options granted and expired in same year)
    —  
Options granted in prior year
    18,030  
Total Share Value
  $ 92,530  

 
As of November 30, 2008, there remained $66,290 of stock compensation to be
expensed in the future.
 
The Company utilizes the Black-Scholes option-pricing model to calculate the
fair value of each individual issuance of options.  The following assumptions
were used for grants:
 

   
November 30, 2008
 
Expected dividend yield
    0.00 %
Risk-free interest rate
    3.37 %
Expected volatility
    100.00 %

 
In order to determine the value of a warrants and options issued, the Company
ensured that they selected the appropriate volatility factor for the common
stock to apply the Black Scholes calculation.  In order to determine the
appropriate volatility factor the Company reviewed the volatility data along
with stock market and historical financial performance of a large number of
companies involved in the same industry as Bixby.  In selecting the 100%
volatility for Bixby, the Company considered Bixby’s historical financial
performance, financial conditions, and business risk in comparison to comparable
companies.
 
 
(d)
Other Stock-based Compensation

 
In June, 2008, the Company issued warrants to purchase 45,000 shares of the
Company’s common stock to certain employees as a result of them completing an
employment period.  The warrants are at an exercise price of $3.00 per share and
with an exercise period of 5 years.  The Company utilizes the Black-Scholes
option-pricing model to calculate the fair value of the warrants issued.  A fair
value of approximately $67,000 was determined and expensed.

 
17

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

 

Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

In June, 2008, the Company issued a warrant to purchase 1,000,000 shares of the
Company’s common stock as part of an employment agreement.  The warrants are at
an exercise price of $2.00 per share and with an exercise period of 5
years.  The Company utilizes the Black-Scholes option-pricing model to calculate
the fair value of the warrants issued.  A fair value of $1,600,000 was
determined and expensed.
 
In June, 2008, the Company issued a warrant to purchase 200,000 shares of the
Company’s common stock to its legal counsel.  The warrants are at an exercise
price of $2.00 per share and with an exercise period of 5 years.  The Company
utilizes the Black-Scholes option-pricing model to calculate the fair value of
the warrants issued.  A fair value of $308,000 was determined and expensed.
 
In November, 2008, the Company signed an agreement with Energy Power Group under
which Energy Power Group will pursue gas and carbon sales contracts for the
products from the Company’s carbon conversion technology.  As part of the
agreement, Energy Power Group received a warrant to purchase 500,000 common
shares of its common stock exercisable at $2.00 per share for 5 years.  The
Company utilizes the Black-Scholes option-pricing model to calculate the fair
value of the warrants issued.  A fair value of $1,470,000 was determined and
expensed.
 
In November, 2008, the Company issued a warrant to purchase 100,000 shares of
the Company’s common stock as part of a settlement of amounts owed.  The
warrants are at an exercise price of $2.00 per share and with an exercise period
of 5 years.  The Company utilizes the Black-Scholes option-pricing model to
calculate the fair value of the warrants issued.  A fair value of approximately
$294,000 was determined and expensed.
 
 
(e)
Stock Warrants

 
As of November 30, 2008, the Company has outstanding warrants to purchase
37,874,499 shares of its common stock at prices ranging between $0.40 and
$5.00.  These warrants have been issued as part of a unit investment in the
Company, as part of loan agreements with the Company, for assistance in raising
money for the Company and for other contractual purposes.
 
As of November 30, 2008, the Company had outstanding warrants to purchase
237,500 shares of its Series A convertible preferred stock at share prices
ranging from $2.50 to $3.20.
 
In August, 2008, the Company extended to the holders of its warrants the
opportunity to exercise warrants at a 50% discount of their warrant’s stated
exercise price.  Warrant holders of record as of August 15, 2008, had until
December 15, 2008, to exercise their warrants at the reduced exercise price.  As
of August 15, 2008, the Company had outstanding warrants for approximately
39,379,000 shares of common stock with exercise prices ranging from $0.40 to
$5.00 and had warrants for 237,500 shares of preferred stock with exercise
prices ranging from $2.50 to $3.20.  The Company utilized the Black-Scholes
option-pricing model to calculate the fair value of this reduction in exercise
price for the 4 month period.  A fair value of approximately $30.6 million was
determined and expensed.  The Company issued 2,271,366 common shares as a result
of the exercise of warrants during this discounted exercise price period.
 
A summary of the Company’s stock warrant activity and related information for
the periods ended November 30, 2008 and May 31, 2008 is as follows:

 
18

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

         
Weighted
         
Weighted
           
Average
         
Average
     
Common
   
Exercise
   
Preferred
   
Exercise
     
Shares
   
Price
   
Shares
   
Price
 
Outstanding at May 26, 2007
    19,652,471       1.49       237,500       3.06                              
     
Issued
    18,189,451       2.03                  
Exercised
    (48,638 )     2.00                  
Expired
    (916,049 )     1.99                  
Outstanding at May 31, 2008
    36,877,235     $ 1.74       237,500     $ 3.06  
Issued
    3,009,295       2.84                  
Exercised
    (1,704,669 )     0.85                  
Expired
    (16,125 )     1.64                  
Outstanding at November 30, 2008
    38,165,736     $ 1.82       237,500     $ 3.06  

 
(8)
Commitments and Contingencies

 
In December, 2006, the Company ceased production of its heating stoves due to
market conditions and over production.  As a result, the Company had to extend
payments on outstanding balances owed to suppliers and other vendors.  As of May
31, 2008, approximately $400,000 remained to be paid which was fully paid during
the 6 months ending November 30, 2008.
 
In October, 2007, the Company signed an agreement in which it agreed to pay a
total of $360,000 in settlement for services rendered prior to May 26,
2007.  This amount was accrued as of May 26, 2007.  The Company paid $3,000 upon
signing of the agreement and agreed to make additional payments as follows: 1)
$3,000 per month through July, 2008, 2) $6,000 per month from August, 2008
through July, 2011, 3) $7,500 per month after July, 2011 and until the total
amount is paid in full.
 
In January, 2008, the Company signed an agreement in which it agreed to pay a
total of $570,000 in settlement for services rendered by a legal firm prior to
May 26, 2007.  This amount was accrued as of May 26, 2007.  The Company paid
$110,000 at time of signing the agreement and agreed to make additional payments
as follows:  1) $8,000 per month for 11 consecutive months commencing March 1,
2008, 2) $12,000 per month for 13 months commencing February 1, 2009 and 3)
$18,000 per month for 12 consecutive months commencing on March 1, 2010.
 
On April 21, 2008, the Company signed a series of agreements with Industrial
Process Solutions (IPS) in which IPS will design and construct for the Company a
fluidized-bed gasification system.  As part of these agreements, IPS is entitled
to a warrant to purchase 500,000 common shares of the Company upon completion of
a quarter scale and a full scale gasification units.  IPS is also entitled to a
royalty fee on revenues from the sale of the gas and carbon produced by each
unit subsequent to these units.
 
On May 7, 2008, the Company entered into a definitive agreement to complete a
“reverse merger” into a public reporting shell company, GCA I Acquisition Corp.,
a Delaware corporation affiliated with Greyline Capital Advisors, LLC, a New
York based corporate finance advisory firm.  The Company’s common stockholders
would receive one share in the public company for every one share currently held
in the Company.  Ten percent of the shares received in the transaction by the
Company’s common stockholders would be eligible for resale immediately upon
closing of the transaction, while the remaining ninety percent would become
eligible for resale gradually in incremental blocks over time pursuant to a
contractual lock-up provision intended to facilitate an orderly market in the
Company’s stock.  Subject to the satisfaction of all the closing conditions and
the approval of the Company’s stockholders, it is expected that the transaction
would close in the second calendar quarter of 2009, subject to the approval of
the Securities and Exchange Commission, and that, within a couple of months of
that occurrence, the Company would obtain a trading symbol and be eligible for
public listing/quotation.

 
19

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008

On May 23, 2008, the Company signed an agreement with Kisstech, Inc. and its
owners (Kisstech) in which Kisstech will design and construct for the Company a
gas vaporization technology.  Upon completion of a viable working prototype, the
Company will grant the owners of Kisstech warrants to purchase 750,000 common
shares of the Company.  Kisstech shall also be entitled to receive royalty
payments from the Company on the sale of products which utilize the gas
vaporization technology.
 
In September, 2008, the Company settled a dispute with a former dealer of its
stove operations.  The Company agreed to repurchase 96 stoves from the dealer in
exchange for the settlement of any and all claims which the dealer had
alleged.  Payment for the stoves is to be made in equal payments.  Payments
started in September, 2008 and will end in January, 2009.  As of November 30,
2008, the Company had made payments in the amount of $223,125.  Upon receipt of
the final payment, the stoves will be released to the Company.  The Company had
recorded a settlement expense of $182,500 at May 31, 2008, to reflect the
difference between the settlement amount and the inventory value of the stoves
actually received.
 
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect the
Company’s consolidated financial statements or results of operations.
 
(9) 
Business Segment Information

 
The Company is organized and manages its business in two distinct segments: the
Alternative Energy Heating Stove segment and the Delivery Services segment.  The
Alternative Energy Heating Stove segment designs, assembles, markets, services,
and sells alternative energy heating systems.  The principal products produced
and/or marketed by this segment are the Bixby Maxfire heating stove, the Bixby
Ugly Black Box (UBB) and accessories and parts related to the Maxfire and UBB.
The operations are located in Ramsey, MN.  The Delivery Services segment
delivers water softener salt and sales/leases water softener equipment to
residential and commercial customers in Southern Minnesota, Northwestern
Wisconsin and Southeastern South Dakota.  Delivery also licenses its delivery
technology to similar operations in the states of Minnesota, Iowa, Indiana,
Idaho and Utah.  Delivery Services is based in Redwood Falls, MN and maintains
salt storage facilities in Morton, MN and Vermillion, MN.
 
An analysis and reconciliation of the Company’s business segment information to
the respective information in the consolidated financial statements are as
follows:

 
20

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Bixby Energy Systems, Inc. and Subsidiary
Notes to Unaudited Consolidated Financial Statements
November 30, 2008 and May 31, 2008
 

   
For 6 Months Ended
     
November 30, 2008
   
November 24, 2007
 
Revenues:
           
Alternative Energy Heating Stove
  $ 374,799     $ 537,243  
Delivery Services
    1,162,324       1,132,413                    
Total
    1,537,123       1,669,656                    
Operating Income/(Loss):
               
Alternative Energy Heating Stove
    (53,069 )     (305,606 )
Delivery Services
    10,354       17,242  
Corporate including research & development
    (8,738,010< /font> )     (2,757,172 )                  
Total
  $ (8,780,725 )   $ (3,045,536 )                  
Depreciation and Amortization:
               
Alternative Energy Heating Stove
  $ 88,628     $ 109,647  
Delivery Services
    153,496       149,221                    
Total
  $ 242,124     $ 258,868                        
For the period ending
     
November 30, 2008
   
May 31, 2008
 
Capital Additions:
               
Alternative Energy Heating Stove
  $ —     $ 50,000  
Delivery Services
    12,848       3,633  
Corporate including research & development
    193,484       —                    
Total
  $ 206,332     $ 53,633                    
Total Assets:
               
Alternative Energy Heating Stove
  $ 4,122,538     $ 4,976,146  
Delivery Services
    940,310       1,053,476                    
Total
  $ 5,062,848     $ 6,029,622  

 
(11) 
Subsequent Events

 
As of November 30, 2008, the Company’s offer to the holders of its warrants and
options of the opportunity to exercise warrants/options at a 50% discount of a
warrant’s or option’s actual exercise price had not expired.  The offer did
expire as of December 15, 2008    The Company issued an additional 246,947
common shares as a result of the exercise of warrants during the period of
December 1 through December 15, 2008.

 
21

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Section 4.8(b)
 
[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.9

Notes and Accounts Receivable

CUSTOMER
 
TOTAL
 
Bunker’s Feed & Supply
  $ 11,116.36  
Klimek Brothers Well Drilling Inc.
  $ 11,461.90  
White Crystal Salt
  $ 12,792.78  

 
 

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

 

Company Disclosure Schedule:  Section 4.11

Taxes

Section 4.11(a)

[INTENTIONALLY BLANK]

Section 4.11(b)

[INTENTIONALLY BLANK]

Section 4.11(c)

[INTENTIONALLY BLANK]

Section 4.11(d)

[INTENTIONALLY BLANK]

Section 4.11(e)

 
§
Federal

 
§
State of Minnesota

 
§
State of South Dakota (sales tax only)

Section 4.11(l)

[INTENTIONALLY BLANK]

Section 4.11(n)

[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.14

Inventory

The inventory for the stove operation consists in part of slow moving items due
to current market conditions.  As of November 30, 2008 (the end of Q2, 2009),
the stove operation had an inventory value of $119,000, some of which would be
considered slow moving.

 
 

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

 

Company Disclosure Schedule:  Section 4.15

Product Warranty
[besstove_warrantypg01.jpg]
 

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[besstove_warrantypg02.jpg]
 

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Company Disclosure Schedule:  Section 4.17

Real Property

[INTENTIONALLY BLANK]

 
 

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

 

Company Disclosure Schedule:  Section 4.18

Intellectual Property

Section 4.18(a)

Patent, Trademark, and Copyright registrations (issued)

Reg. No.
 
Title/Name
 
Owner
 
Jurisdiction
 
Own. type
                 
2,826,046
 
(b-design)
 
Bixby
 
USA
 
Exclusive
                 
7,284,550
 
BURN POT FOR FURNACE
 
Bixby
 
USA
 
Exclusive
                 
7,318,431
 
BIOMASS FUEL BURNING
 
Bixby
 
USA
 
Exclusive
   
STOVE AND METHOD
                             
D521,133
 
BIOMASS STOVE
 
Bixby
 
USA
 
Exclusive
                 
5,115,983
 
PROCESS FOR RECYCLING
 
SS Acquisition
 
USA
 
Exclusive
   
VEHICLE TIRES
 
Corp.
                         
5,341,996
 
APPARATUS FOR
 
SS Acquisition
 
USA
 
Exclusive
   
SEPARATING
 
Corp.
           
COMPONENTS OF RUBBER
               
VEHICLE TIRES
                             
5,794,861
 
PROCESS AND APPARATUS
 
SS Acquisition
 
USA
 
Exclusive
   
FOR SEPARATING
 
Corp.
 
USA
 
Exclusive
   
COMPONENTS OF
               
FRAGMENTED VEHICLE
               
TIRES
                             
7,305,924
 
APPARATUS AND METHOD
 
Step Saver
 
USA
 
Exclusive
   
FOR DELIVERY OF BIOMASS
           

Note:   Not all files contained the assignments.  Where assignments were
missing, United States Patent and Trademark Office records were consulted and
our records and their records evidence the above ownership.

Patent, Trademark and Copyright applications (pending)

Serial No.
 
Title/Name
 
Owner
 
Jurisdiction
 
Own. type
                                   
12/011,474
 
BIOMASS FUEL BURNING
 
Bixby
 
USA
 
Exclusive
   
STOVE AND METHOD
                             
11/899,398
 
BIOMASS FUEL BURNING
 
Bixby
 
USA
 
Exclusive
   
STOVE AND METHOD
                             
200580015891.7
 
BURN POT FOR FURNACE
 
Bixby
 
China
 
Exclusive
                 
05725881.6
 
BURN POT FOR FURNACE
 
Bixby
 
EU
 
Exclusive

 
 

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Company Disclosure Schedule:  Section 4.18(a) (cont’d)

11/522,845
 
HEARTH PAD HEAT
 
Bixby
 
USA
 
Exclusive
   
BARRIER
                             
78/967,902
 
BIXBY ENERGY
 
Bixby
 
USA
 
Exclusive
                 
11/948,455
 
IGNITOR FOR FURNACE
 
Bixby
 
USA
 
Exclusive
                 
78/880,002
 
REDEFINING THE FUTURE
 
Bixby
 
USA
 
Exclusive
                 
08/13148
 
IGNITOR FOR FURNACE
 
Bixby
 
PCT
 
Exclusive
                 
12/291,188
 
FLOW RATE OF  GAS IN
 
Bixby
 
USA
 
Exclusive
   
FLUIDIZED BED DURING
               
CONVERSION OF CARBON
               
BASED MATERIAL TO
               
NATURAL GAS AND
               
ACTIVATED CARBON
                             
61/137,213
 
LIQUIFACTION PROCESS
 
Bixby
 
USA
 
Exclusive/Joint
   
FOR CHANGING ACTIVATED
               
CARBON AND SYNGAS
               
INTO DIESEL FUEL
                             
76/694,171
 
BIXBY cl.4
 
Bixby
 
USA
 
Exclusive
                 
76/694,169
 
BIXBY cl. 7
 
Bixby
 
USA
 
Exclusive
                 
76/694,170
 
REDEFINING THE FUTURE
 
Bixby
 
USA
 
Exclusive
   
cl. 4
                             
76/694,173
 
REDEFINING THE FUTURE
 
Bixby
 
USA
 
Exclusive
   
cl. 7
                             
76/694,174
 
BIXBY (and flame design)
 
Bixby
 
USA
 
Exclusive
   
cl. 4
                             
76/694,172
 
BIXBY (and flame design)
 
Bixby
 
USA
 
Exclusive
   
cl. 7
                             
12/291,187
 
HIGH TEMPERATURE
 
Bixby
 
USA
 
Exclusive
   
BLOWER WITH
               
ENVIRONMENTAL SEAL
                             
12/291,189
 
LIQUIFACTION PROCESS
 
Bixby
 
USA
 
Exclusive/Joint
   
FOR CHANGING CARBON
               
COMPOUNDS INTO DIESEL
               
FUEL
           

 
 

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Company Disclosure Schedule:  Section 4.18(a) (cont’d)

12/291,186
 
APPARATUS AND METHOD
 
Bixby
 
USA
 
Exclusive/Joint
   
FOR CONVERTING
               
CARBONACIOUS MATERIAL
               
CONTAINING HYDROGEN
               
DEFICIENT CARBON INTO
               
DIESEL FUEL
                             
08/13044
 
APPARATUS AND METHOD
 
Bixby
 
PCT
 
Exclusive/Joint
   
FOR CONVERTING
               
CARBONACIOUS MATERIAL
               
CONTAINING HYDROGEN
               
DEFICIENT CARBON INTO
               
DIESEL FUEL
                             
2,476,142
 
APPARATUS AND METHOD
 
Step Saver
 
Canada
 
Exclusive
   
FOR DELIVERY AND
               
RECLAMATION OF BIOMASS
               
FUEL
                             
2,583,804
 
APPARATUS AND METHOD
 
Step Saver
 
Canada
 
Exclusive
   
FOR DELIVERY AND
               
RECLAMATION OF BIOMASS
               
FUEL
                             
11/939,277
 
APPARATUS AND METHOD
 
Step Saver
 
USA
 
Exclusive
   
FOR DELIVERY AND
               
RECLAMATION OF BIOMASS
               
FUEL
           

Notes:

“Ignitor for Furnace” ,Ser. No. 11/948,455, (US) file does not have the
assignment.  PCT file has Bixby exclusive for all countries other than US.

Serial Nos. 12/291,187 and 12/291,188 need Sherman to sign an assignment for the
USPTO.  These are understood to have been assigned by detailed agreement between
Bixby and Sherman.

Serial Nos. 61/137,213, 12/291,189, 12/291,186, and 08/13044 need resolution of
TekGar issue and balance of inventors to sign assignment or amendment and
balance of inventors to sign assignment to gain exclusivity.

Exclusive license for Patent Number 5,445,192 – Method for Delivery of Salt.

 
 

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Company Disclosure Schedule:  Section 4.18(a) (cont’d)

Phase One: Bixby’s Confined Gasification Liquefaction Technology (Confined
Thermal DePolymerization Process)

The Company engaged Industrial Process Solutions, Inc. under a research and
development contract to design our closed loop fluidized bed gasification
system.  The inventor has applied for a provisional patent which will be
converted into a full patent application once the unit is in production. Under
the terms of the Company’s agreement with Industrial Process Solutions, Inc. and
the inventor, all patent and other intellectual property rights related to Phase
I of the Bixby CGL Process belong to Bixby both contractually an under the
“work-for-hire” doctrine.  The inventor retained the right to repurchase the
intellectual property rights in the event of our insolvency or bankruptcy.

Phase Two: Bixby’s Confined Liquefaction Technology (Carbon Thermal Refining
Process)

As a complement to Phase I of the Bixby CGL Process the Company entered into an
exclusive license agreement with TekGar, LLC for the conversion of coal based
carbon into liquid fuels within the United States and its territories. Under the
terms of the Company’s agreement with TekGar, LLC the Company will have a right
to pursue a patent or patents on the process, method and/or design of the Phase
II Bixby CGL Process and own all right title and interest in that patent or
patents in the United States. To date, the Company has not applied for any
patents and no assurances can be made that any will be applied for, or that if
applied for, that they would be granted.

Whenever we deem it important for purposes of maintaining competitive
advantages, we require parties with whom we share, or who otherwise are likely
to become privy to, our trade secrets or other confidential information to
execute and deliver to us confidentiality and/or non-disclosure
agreements.  Among others, this includes employees, consultants and other
advisors, each of whom we require to execute such an agreement upon commencement
of their employment, consulting or advisory relations.  These agreements
generally provide that all confidential information developed or made known to
the individual by us during the course of the individual’s relationship with us
is to be kept confidential and not to be disclosed to third parties except under
specific circumstances,

Section 4.18(b)

[INTENTIONALLY BLANK]

Section 4.18(c)

[INTENTIONALLY BLANK]

Section 4.18(d)

[INTENTIONALLY BLANK]

Section 4.18(e)

[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.18 (cont’d)
 
Section 4.18(f)

[INTENTIONALLY BLANK]

Section 4.18(g)

There is nothing other than normal expiration by operation of time on
provisional patent applications.

Section 4.18(h)

There are no known infringements, actual or threatened.

Section 4.18(j)

[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.19

Material Contracts

 
§
Tek-Gar, LLC (“TekGar”). The Company has entered into agreements with TekGar to
provide the Company with technology that will allow it to use coal based
activated carbon as a feedstock for the production of diesel and jet fuel. The
contracts provide for the issuance of 2 million warrants to purchase the
Company’s common stock at a purchase price of $2.50 per share exercisable for a
period of 5 years, revenue sharing of 2% of sales of products derived from
TekGar Products not to exceed $5 million per year and fees of $1.5 million
payable in thee equal annual installments. In addition the Company agreed to pay
an additional $1 million out of revenue from the sale of products derived from
the TekGar technology.

 
§
Industrial Process Solutions, Inc. (“IPS”) and Alfred Sherman Aaron (“Aaron”).
The Company entered into research and development agreement with IPS and Aaron
to develop the Company’s fluidized bed confined thermal depolymerization
process, and a supply agreement and compensation agreement with IPS.  These
contracts were entered into as of April 21, 2008. The research and development
agreement was scheduled to be completed by December 15, 2008 and the other
agreements have terms that extend for the life of any patents granted on the
fluidized bed confined thermal depolymerization process. This technology is
being designed to allow the Company to convert coal and other feed stocks into
activated carbon and gas. Under the research and development contract, IPS will
receive a warrant to purchase up to 500,000 shares of the Company’s common stock
at a purchase price of $2.00 per share exercisable for a period of 5 years.
Under the compensation agreement, IPS will receive revenue sharing of 2% of
sales of products derived from the technology up to a maximum annual payment of
$5 million.  Under the supply agreement, IPS will build units on a basis of 125%
of the cost of materials and labor.

 
§
Deloitte Financial Advisory Services, LLP (“Deloitte”) and Green Espel, PLLP
(“Green”).  The Company was engaged in a dispute with Deloitte and Green over
fees that were approximately $1,000,000. This matter was settled for $570,000 on
January 31, 2008 and involves a series of payments $110,000 of which have been
paid, the balance of which are due in monthly payments over a three-year period.

 
§
Salo, LLC (“Salo”).  The Company entered into a settlement agreement with Salo,
on October 8, 2007, a vendor who had provided consulting services to the Company
in the amount of approximately $360,000. Pursuant to the settlement agreement,
the Company has agreed to make monthly payments over approximately 5 years.

 
§
Barnard Dalsin Manufacturing Company (“BDM”). The Company entered into a
settlement agreement in March, 2008, to pay $109,650.50 to BDM in the form of
weekly payments until paid in full.

 
 

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Company Disclosure Schedule:  Section 4.20

Litigation

 
§
Bixby Energy Systems, Inc., Robert Walker and Dennis DeSender v. Alexander
Boylan. The plaintiffs commenced an action in Hennepin County District Court in
the state of Minnesota against Mr. Boylan by service of process in June of 2007.
This is a claim against a former employee for tort claims based upon statements
and emails the former employee sent to the Company’s shareholders. Although the
parties have had settlement discussions, to date they have not been able to
reach an agreement. The Company is planning to amend its complaint to add
another related individual.

 
§
Phoenix America, Inc. v Bixby Energy Systems, Inc., a former vendor brought suit
against the Company, in the Superior Court in Allen County in the State of
Indiana Cause No. 02D01-0704-CC-489 in April of 2007 and proceeded with out
notice after an extension to answer had been granted. The judgment, for which
vacation has been sought, was in the amount of approximately $173,000.

 
§
Country Side Stove & Chimney, Inc. d/b/a Empire Distributing v Bixby Energy
Systems, Inc., Plaintiff, a former distributor of the Company’s products,
brought suit against the Company in the Supreme Court in Erie County in the
State of New York Index No. 2007 006597 in July of 2007. Company distributor
claims that the Company’s freestanding stoves are defective and sued to rescind
its purchase of approximately 100 stoves. Empire continues to sell stoves.

 
§
Dadson’s Machining Inc., v. Bixby Energy Systems, Inc., a former vendor,
commenced an action in Hennepin County District Court in the state of Minnesota
against the company by service of process in June of 2007. This action was
settled by the parties in April of 2008. Under the terms of that agreement.  The
Company will pay $60,000 to Dadson’s.  The Company will make weekly payments to
Dadson’s in the amount of $10,000 post-marked by each consecutive Friday
beginning May 2, 2008 until the last payment is made by June 6, 2008. Dadson’s
retains a right of first sale for the Company’s product in Dadson’s inventory
until payment is made in full. The settlement provides for a confession of
judgment in the amount of $80,000 in favor of Dadson’s less any amounts paid.

 
§
NRI Electronics, Inc. is a vendor of the Company who the Company owed payment
for past deliveries. NRI brought suit against the Company for payment on product
the Company had received and for what it claims are open purchase orders for
approximately $100,000. The Company has been paying approximately $6,000 per
month.

 
§
Bixby Energy Systems, Inc. v William Paatalo. Bixby brought a motion for a
temporary restraining order jeeking injunctive relief from certain blogging
activity the company alleges that Mr. Paatalo has been engaged in on two web
sites.  The company also brought suit against Mr. Paatalo alleging intentional
interference with contract, intentional interference with prospective business
advantage and defamation/slander/liable.

 
 

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Company Disclosure Schedule:  Section 4.21

Employee Benefit Plans

Section 4.21(a)

Through a co-employment arrangement with EMPO (Bixby employees and Administaff
(Step Saver employees), both of which are Professional Employment Organizations
(PEOs), the Company offers its employees the following benefits:

 
-
Health Insurance (United Health Care/Medica)

 
-
Dental Insurance (United Health Care/Medica)

 
-
Vision Care (VSP)

 
-
Health Care Flexible Spending Account

EMPO and Administaff is responsible for the maintenance of the benefit plans and
all necessary reporting.

Section 4.21(r)

[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.23

Environmental

Section 4.23(a)

[INTENTIONALLY BLANK]

 
 

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Company Disclosure Schedule:  Section 4.24

Related Party Transactions

 
§
Robert Walker, the Company’s President and Chief Executive Officer, loaned the
Company approximately $65,000 in early 2007 in exchange for which he was granted
a warrant to purchase 65,000 shares of the company’s common stock at a purchase
price of $2.00 per share, exercisable for a period of 5 years from April 11,
2007.

 
§
Ronald Kinner, the Company’s Treasurer and Chief Financial Officer, loaned the
Company approximately $50,000 in the fall of 2007 in exchange for which he was
granted a warrant to purchase 100,000 shares of the company’s common stock at a
purchase price of $2.00 per share, exercisable for a period of 5 years from the
date of the loan along with simple interest of 12%.

 
 

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Company Disclosure Schedule:  Section 4.25

Insurance

Bixby Energy Systems
Business Insurance Summary
 

   
Agent Information: 
 
Hayes Companies, 80 South 8th Street, Suite 700, Minneapolis, MN 55402
                             
Property
 
General Liability
 
Auto Liability
 
Umbrella
 
Directors & Officers / Employment
Practice Liability
 
Carrier
 
United Fire & Casualty Co.
 
Chubb Custom Insurance Company
 
United Fire & Casualty Company
 
RSUI Indemnity Company
 
American International Specialty Lines (AIG)
 
Policy Number
 
60341231
 
79544134
 
60341231
 
NHA041965
 
053-06-91
 
Effective Dates
 
11/1/07-11/1/08
 
11/1/07-11/1/08
 
11/1/07-11/1/08
 
11/1/07-11/1/08
 
10/12/07 - 10/12/08
 
Named Insured
 
Bixby Energy Systems, Inc.
SS Acquisitions 
dba Bixby Delivery Services
 
Bixby Energy Systems, Inc.
SS Acquisitions 
dba Bixby Delivery Services
 
Bixby Energy Systems, Inc.
SS Acquisitions 
dba Bixby Delivery Services
 
Bixby Energy Systems, Inc.
SS Acquisitions 
dba Bixby Delivery Services
 
Bixby Energy Systems, Inc.
 
Scope
 
Special Form
 
Occurrence Form
     
Occurrence Form
 
Claims Made Coverage
 
Amount
 
Total Insured Value -3,360,500
 
General Aggregate - 2,000,000
Products or Completed Ops Agg.-2,000,000
Personal/Advertising Injury Per Occ.-1,000,000
Per Occurrence - 1,000,000
Fire Damage Legal Liability - 100,000
Employee Benefits E&O Liability - 1,000,000
Employee Benefits E&O Liab. Agg.-1,000,000
 
Liability - 1,000,000
Uninsured/Underinsured-1,000,000
Hired & Non-Owned - 1,000,000
Personal Injury Protection - Basic
 
General Aggregate - 1,000,000
Each Occurence.-1,000,000
Underlying Limits
Each Occurrence - 1,000,000
General Aggregate - 2,000,000
Products/Completed Ops Agg-2,000,000
Personal/Advertising Injury - 1,000,000
Automobile Per Occurrence - 1,000,000
Employers Liab. Each Accident -1,000,000
Employers Liab. Each Employee-1,000,000
Employers Liability Policy Limit -1,000,000
Employee Benefits Liab. Occ.-1,000,000
Employee Benefits Liability Agg-1,000,000
 
Shared Directors & Officers and
Employment Practices Liability:
2,000,000 Shared Limit
 
Ded.
 
$1,000
24 Hours BI/EE
 
$5,000
Employee Benefits Retro Date - 11/1/07
 
Comprehensive & Collision $500
     
$-0- Non-Indemnifiable D&O Claims
$-0- Non-Indemnifiable D&O Claims
$35,000 Company D&O Claims
$5,000 Employment Practices Claims
 

 

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Company Disclosure Schedule:  Section 4.26

Absence of Certain Changes or Events

 
§
Since November 30, 2008, the company has granted general salary increases in the
Ordinary Course of Business.

 
 

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Company Disclosure Schedule:  Section 4.33

Change in Control

[INTENTIONALLY BLANK]
 

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Company Disclosure Schedule:  Section 6.1

Conduct of Business by the Company Pending the Merger

[INTENTIONALLY BLANK]

 
 

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Parent Disclosure Schedule:  Section 5.4

Capitalization

[INTENTIONALLY BLANK]
 

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Parent Disclosure Schedule:  Section 5.6

No Conflict; Required Filings and Consents

[INTENTIONALLY BLANK]
 

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Parent Disclosure Schedule:  Section 5.8(e)

Taxes

1.  Federal (Internal Revenue Service)

2.  New York State

3.  New York City

 
 

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Parent Disclosure Schedule:  Section 5.12

Absence of Certain Changes or Events

[INTENTIONALLY BLANK]
 

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Parent Disclosure Schedule:  Section 6.2

Conduct of Business by the Parent and Merger Sub

[INTENTIONALLY BLANK]

 
 

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