Unassociated Document


    
      

      

    

    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


     

      
        

      

       

    

    Dated:  March
27, 2009

     

    
      

      

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    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

                  


          

        

      

    

     

    
      
        
        

      

      
        i

        
          

        

      

      
        
        

      

    

     

    
      
        
          	
                  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

                


        

      

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

    


    
      
        
          
            
              
                	
                        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

                    


            

          

        

      

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            	
                    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

                  


          

        

      

    

     

    
      
        
        

      

      
        iv

        
          

        

      

      
        
        

      

    


    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;

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    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;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (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.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    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;

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    (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.

    


    
      
        
        

      

      
        40

        
          

        

      

      
        
        

      

    

     

    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”);

              


      

    

     

    
      
        
        

      

      
        43

        
          

        

      

      
        
        

      

    

     

    
      	
               
      

            	
              (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 (1⁄2) 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.

     

    
      
        
        

      

      
        64

        
          

        

      

      
        
        

      

    

     

    “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.

     

    
      
        
        

      

      
        65

        
          

        

      

      
        
        

      

    

     

    “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)

                  


          

        

      

    

     

    
      
        
        

      

      
        66

        
          

        

      

      
        
        

      

    

    


    
      
        
          	
                  “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)

                


        

      

    

     

    
      
        
        

      

      
        67

        
          

        

      

      
        
        

      

    

     

    
      
        
          	
                  “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)

                


        

      

    


    
      
         


      

      
        68

        
          

        

      

      
         


      

    

    


    
      
        
          	
                  “Terminating
      Company Breach”

                	 	
                  9.1(b)(v)

                
	
                  “Transactions”

                	 	
                  Recitals

                
	
                  “WARN
      Act”

                	 	
                  4.22(d)

                


        

      

    

     

    
      
        
        

      

      
        69

        
          

        

      

      
        
        

      

    

    


    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.

     

    
      
        
        

      

      
        70

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        71

        
          

        

      

      
        
        

      

    

     

    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]


    
      
         


      

      
        72

        
          

        

      

      
         


      

    


    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

                      


              

            

          

        

      

    

     

    
      
         


      

      
        73

        
          

        

      

      
         


      

    

     

    
      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

                        


                

              

            

          

        

      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      EXHIBIT
A

    

    


    ARTICLES
OF INCORPORATION – PARENT

    


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    EXHIBIT
B

    


    BYLAWS –
PARENT

     

    

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    


    
      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.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        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

                    

                  


          

        


        
          
             


          

          
            2

            
              

            

          

          
             


          

        

      

    

     

    
      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.


      
        
           


        

        
          1

          
            

          

        

        
           


        

      

      


      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.

       

      
        
           


        

        
          2

          
            

          

        

        
           


        

      


      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.


      
        
           


        

        
          3

          
            

          

        

        
           


        

      

      


      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.


      
        
           


        

        
          4

          
            

          

        

        
           


        

      

      


      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.



      
        
           


        

        
          6

          
            

          

        

        
           


        

      


      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.


      
        
           


        

        
          7

          
            

          

        

        
           


        

      

       

      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.


      
        
           


        

        
          8

          
            

          

        

        
           


        

      

    

     

    EXHIBIT
E

    


    
      ARTICLES
OF INCORPORATION – COMPANY

      
         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

      

    


    
      EXHIBIT
F

    

    


    BYLAWS –
COMPANY

    

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    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.

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

      
        


      

       (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.

      


      
        
           


        

        
          2

          
            

          

        

        
           


        

      

      


      
        (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.

      


      
        
           


        

        
          3

          
            

          

        

        
           


        

      

      
         

      

      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.

      


      
        
           


        

        
          4

          
            

          

        

        
           


        

      


      
        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.

      


      
        
           


        

        
          5

          
            

          

        

        
           


        

      

      
         

      

      
        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]

      


      
        
           


        

        
          6

          
            

          

        

        
           


        

      


      
        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:

                            	 
      


                    

                  

                

              

            

          

        

      

       

      
        
           


        

        
          7

          
            

          

        

        
           


        

      

    

     

    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.

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

      
         

      

      
        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

                    


            

          

        

      

       

      
        
           


        

        
           


          
            

          

        

        
           


        

      

    


    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.

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      
        


      

      
        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.

      

      
         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

      

      
        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

                    	 
      


            

          

        

      


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    


    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];


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      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

                  


          

        

      

       

      
        
           


        

        
           


          
            

          

        

        
           


        

      

      


      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

          
            

          

        

        
           


        

      


      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

          
            

          

        

        
           


        

      


      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

          
            

          

        

        
           


        

      


      
         EXHIBIT
A

      

      


      BIXBY
CONVERTIBLE DEBT SECURITY INSTRUMENT(S)


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      EXHIBIT
B

      


      AFFILIATE
AGREEMENT


      
        
           


        

        
           


          
            

          

        

        
           


        

      

    


    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;


        
          
             


          

          
             


            
              

            

          

          
             


          

        

         

        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

            
              

            

          

          
             


          

        

        


        (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

            
              

            

          

          
             


          

        

        


        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

            
              

            

          

          
             


          

        


        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

            
              

            

          

          
             


          

        


        
          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 (1⁄2) 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

          
            

          

        

        
           


        

      

      


      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

          
            

          

        

        
           


        

      


      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

          
            

          

        

        
           


        

      


      
        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.

      


      
        
           


        

        
          2

          
            

          

        

        
           


        

      


      
        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

          
            

          

        

        
           


        

      

    

     

    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]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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
      + 1⁄2 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
      + 1⁄2 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

            
              

            

          

          
             


          

        

        


        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

            
              

            

          

          
             


          

        

        


        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<
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                                              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

            
              

            

          

          
             


          

        

        


        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

            
              

            

          

          
             


          

        

      

    

    


    
      (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

          
            

          

        

        
           


        

      

    

    


    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

          
            

          

        

        
           


        

      

    

    


    
      	
              (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

          
            

          

        

        
           


        

      

    

    


    
      	
              (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.

    


    
      
        
           


        

        
          13

          
            

          

        

        
           


        

      

    

    


    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

          
            

          

        

        
           


        

      

    

    


    
      	
               
      

            	
              (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.

            


    

     

    
      
        
           


        

        
          15

          
            

          

        

        
           


        

      

    

    


    
      	
               
      

            	
              (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.

            


    

     

    
      
        
           


        

        
          16

          
            

          

        

        
           


        

      

    

    


    
      	
            	
              (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.

    


    
      
        
           


        

        
          17

          
            

          

        

        
           


        

      

    

     

    
      
        
          
            
              	 
      	 	
                      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.

    


    
      
        
           


        

        
          18

          
            

          

        

        
           


        

      

    

    


    
      	
               
      

            	
              (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

          
            

          

        

        
           


        

      

    

    


    
      
        
          
            
              	 
      	 	
                      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

          
            

          

        

        
           


        

      

    

    


    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

          
            

          

        

        
           


        

      

    

     

    
      
        
          
            
              
                	 
      	 	 	 	 	
                        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

          
            

          

        

        
           


        

      

    

     

    
      
        
          
            
              
                	 
      	 	
                        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

          
            

          

        

        
           


        

      

    

    


    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

          
            

          

        

        
           


        

      

    

    
       

      
        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

            
              

            

          

          
             


          

        

        


        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

            
              

            

          

          
             


          

        

        


        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

            
              

            

          

          
             


          

        

        


        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

            
              

            

          

          
             


          

        

         

        
           

          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          


          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

              
                

              

            

            
               


            

          

        

      

       

      Section
4.8(b)

       

    

    [INTENTIONALLY
BLANK]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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

    
      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

    


    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

              


      

    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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

              	 
      	 
      	 
      	 
      	 
      	 
      


      

    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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.

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

     

    
      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]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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.

            


    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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.

            


    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    Company Disclosure
Schedule:  Section
4.23

    


    Environmental

    


    Section
4.23(a)

    


    [INTENTIONALLY
BLANK]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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%.

            


    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    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

                                                          	 
      


                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

    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.

            


    

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

    


    Company Disclosure
Schedule:  Section
4.33

    


    Change in
Control

    


    [INTENTIONALLY
BLANK]

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Company Disclosure
Schedule:  Section
6.1

    


    Conduct of Business by the
Company Pending the Merger

    


    [INTENTIONALLY
BLANK]

    


    
      
        
           


        

        
           


          
            

          

        

        
           


        

      

    

         

    

      Parent Disclosure
Schedule:  Section
5.4

      


      
        Capitalization

      

      


      [INTENTIONALLY
BLANK]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Parent Disclosure
Schedule:  Section
5.6

      


      
        No Conflict; Required
Filings and Consents

      

      


      [INTENTIONALLY
BLANK]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Parent Disclosure
Schedule:  Section
5.8(e)

      


      
        Taxes

      

      


      1.  Federal
(Internal Revenue Service)

      


      2.  New
York State

      


      3.  New
York City


      
        
           


        

        
           


          
            

          

        

        
           


        

      


      Parent Disclosure
Schedule:  Section
5.12

      


      
        Absence of Certain Changes
or Events

      

      


      [INTENTIONALLY
BLANK]

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      Parent Disclosure
Schedule:  Section
6.2

      


      
        Conduct of Business by the
Parent and Merger Sub

      

      


      [INTENTIONALLY
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