SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of December
24, 2007, by and among Discovery Technologies, Inc. a Nevada corporation, and
all predecessors thereof (the “Company”), Green Agriculture Holding Corporation,
a New Jersey corporation (“Green”), Shaanxi TechTeam Jinong Humic Acid Product
Co., Ltd., a company organized under the laws of the People’s Republic of China,
and all predecessors thereof (“WOFE”), and the investors identified on the
signature pages hereto (each, an “Investor” and collectively, the “Investors”).
 
RECITALS:
 
WHEREAS, as of the Closing Date the Company is entering into a Share Exchange
Agreement, dated as of the date hereof (the “Exchange Agreement”) with Green and
the owners of 100% of the outstanding capital stock of Green (“Green
Shareholders”), pursuant to which the Company will, subject to the terms and
conditions thereof, acquire all of the outstanding capital stock of Green, in
exchange for Common Stock (as defined below) under the Exchange Agreement and
immediately prior to the Closing under this Agreement (the “Exchange”).
 
WHEREAS, the closing of the Exchange is conditioned, among other things, on the
consummation of the financing contemplated by this Agreement immediately
thereafter.
 
WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to exemptions from registration under the Securities Act (as defined
below), the Company desires to issue and sell to each Investor, and each
Investor, severally and not jointly, desires to purchase from the Company,
shares of the Company’s Common Stock, as more fully described in this Agreement.
 
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and the Investors agree
as follows:
 
ARTICLE 1.
DEFINITIONS
 
1.1. Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms shall have the meanings
indicated in this Section 1.1:
 
 “2009 Guaranteed ATNI” has the meaning set forth in Section 4.11.
 
“2009 Make Good Shares” means the following, as equitably adjusted for any stock
splits, stock combinations, stock dividends or similar transactions: the Shares
times 50%.
 

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“2009 Annual Report” means the Annual Report on Form 10-KSB or appropriate form
pursuant to the then effective rules under the Exchange Act of the Company for
the fiscal year ending June 30, 2009, as filed with the Commission.
 
“2009 Guaranteed EPS” means ninety three percent of the 2009 Guaranteed ATNI
divided by the Closing Outstanding Shares (as may be equitably adjusted for any
stock splits, stock combinations, stock dividends or similar transactions):
 
2009 Guaranteed ATNI × 93%
Closing Outstanding Shares

“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or threatened in writing against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency, regulatory or self regulatory authority (federal,
state, county, local or foreign), stock market, stock exchange or trading
facility.
 
“Affiliate” means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person, as such terms are used in and construed under Rule 405 under the
Securities Act.
 
“After Tax Net Income” shall have the meaning set forth in Section 4.11.
 
“Available Undersubscription Amount” has the meaning set forth in Section
4.15(c).
 
“Basic Amount” has the meaning set forth in Section 4.15(b).
 
“Board Holdback Escrow Amount” has the meaning set forth in section 4.12.
 
“Business Day” means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other governmental action to close.
 
“Buy-In” has the meaning set forth in Section 4.1(c).
 
“CFO Holdback Escrow Amount” has the meaning set forth in section 4.16.
 
“Circular 75” means Notice on Relevant Issues of PRC State Administration of
Foreign Exchange (“SAFE”) concerning Foreign Exchange Administration for
Domestic Residents to Engage in Financing and Round-trip Investment via Overseas
Special Purpose Companies promulgated by SAFE on October 21, 2005 and effective
from November 1, 2005.
 
“Circular 106” means the implementation guidance to Circular 75 promulgated by
SAFE on May 29, 2007 and effective from June 11, 2007.
 
“Closing” means the closing of the purchase and sale of the Shares pursuant to
Article II.
 
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“Closing Date” means the Business Day on which all of the conditions set forth
in Sections 5.1 and 5.2 hereof are satisfied, or such other date as the parties
may agree.
 
"Closing Escrow Agreement" means the Escrow Agreement, dated as of the date
hereof, by and among the Company, the Investors and Escrow Agent in the form of
Exhibit A hereto. 
 
“Closing Outstanding Shares” means the number of shares of Common Stock
outstanding immediately following the Closing.
 
“Commission” means the Securities and Exchange Commission.
 
“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any securities into which such common stock may hereafter be
reclassified or for which it may be exchanged as a class.
 
“Common Stock Equivalents” means any securities of the Company or any Subsidiary
which entitle the holder thereof to acquire Common Stock at any time, including
without limitation, any debt, preferred stock, rights, options, warrants or
other instrument that is at any time convertible into or exchangeable for, or
otherwise entitles the holder thereof to receive, Common Stock or other
securities that entitle the holder to receive, directly or indirectly, Common
Stock.
 
“Company” has the meaning set forth in the preamble to this Agreement.
 
“Company Entities” means the Company, Green and WOFE and all existing
Subsidiaries of any such entities and any other entities which hereafter become
Subsidiaries of any such entities.
 
 “Company U.S. Counsel” means Guzov Ofsink, LLC.
 
“Company Deliverables” has the meaning set forth in Section 2.2(a).
 
“Compliance Notice Date” has the meaning set forth in Section 4.21.
 
“Compliance Period” has the meaning set forth in Section 4.21.
 
“Disclosure Materials” has the meaning set forth in Section 3.1(h).
 
“Earnings Per Share” shall have the meaning set forth in Section 4.11.
 
“Effective Date” means the date that the initial Registration Statement required
by Section 2(a) of the Registration Rights Agreement is first declared effective
by the Commission.
 
“Escrow Agent” shall mean Tri-State Title & Escrow, LLC and any successor
thereto or replacement thereof.
 
“Evaluation Date” has the meaning set forth in Section 3.1(s).
 
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“Exchange” has the meaning set forth in the recitals to this Agreement.
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
“Exchange Agreement” has the meaning set forth in the recitals to this
Agreement.
 
“Existing Company Entities” means the Company, Green and WOFE and their
respective Subsidiaries. 
 
“FCPA” shall have the meaning set forth in Section 3.1(cc).
 
“GAAP” means U.S. generally accepted accounting principles.
 
“Green” has the meaning set forth in the preamble to this Agreement.
 
“Holdback Escrow Agreement” means Holdback Escrow Agreement, dated as of the
date hereof, by and among the Company, the Investors and Escrow Agent in the
form of Exhibit B hereto.
 
“Intellectual Property Rights” has the meaning set forth in Section 3.1(p).
 
“Intellectual Property Right Licensing Agreements” has the meaning set forth in
Section 3.1(p).
 
“Investment Amount” means, with respect to each Investor, the Investment Amount
indicated on such Investor’s signature page to this Agreement.
 
“Investor Deliverables” has the meaning set forth in Section 2.2(b).
 
“Investor Party” has the meaning set forth in Section 4.7.
 
“IR Holdback Escrow Amount” has the meaning set forth in Section 4.13.
 
“Lien” means any lien, charge, encumbrance, security interest, pre-emptive
right, right of first refusal, right of participation or any other restrictions
of any kind.
 
“Lockup Agreement” means the Lockup Agreement, dated as of the date hereof, by
and between the Company and each person listed as a signatory thereto, in the
form attached as Exhibit C hereto.
 
“Losses” means any loss, liability, obligation, claim, contingency, damage, cost
or expense, including all judgments, amounts paid in settlements, court costs
and reasonable attorneys’ fees and costs of investigation related thereto.
 
“Make Good Escrow Agreement” means the Make Good Escrow Agreement, dated as of
the date hereof, among the Company, the Make Good Escrow Agent, the Make Good
Pledgor and the Investors, in the form of Exhibit D hereto.
 
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“Make Good Escrow Agent” shall mean Tri-State Title & Escrow, LLC and any
successor thereto or replacement thereof.
 
“Make Good Pledgor” means Mr. Yinshing David To.
 
“Material Adverse Effect” means any of (i) a material and adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material and adverse effect on the results of operations, assets, properties,
prospects, business or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (iii) an adverse impairment to the Company’s
ability to perform on a timely basis its obligations under any Transaction
Document, or the Exchange Agreement.
 
“Money Laundering Laws” has the meaning set forth in Section 3.1(ff).
 
“New York Courts” means the state and federal courts sitting in the City of New
York, Borough of Manhattan.
 
“Notice of Acceptance” has the meaning set forth in Section 4.15(c).
 
“Notice” has the meaning set forth in Section 4.21.
 
“OFAC” has the meaning set forth in Section 3.1(ee).
 
“Offer” has the meaning set forth in Section 4.15(b).
 
“Offer Notice” has the meaning set forth in Section 4.15(b).
 
“Offer Period” has the meaning set forth in Section 4.15(c).
 
“Offered Securities” has the meaning set forth in Section 4.15(b).
 
“Outside Date” means the fifteenth calendar day (if such calendar day is a
Trading Day and if not, then the first Trading Day following such fifteenth
calendar day) following the date of this Agreement.
 
“Per Share Purchase Price” means $3.25.
 
“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
 
“Pinnacle” means Pinnacle China Fund, L.P.
 
“PRC” means the People’s Republic of China, not including Taiwan, Hong Kong and
Macau.
 
“Proceeding” means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
 
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“Refused Securities” has the meaning set forth in Section 4.15(d).
 
“Registration Rights Agreement” means the Registration Rights Agreement, dated
as of the date hereof, among the Company and the Investors, in the form of
Exhibit E hereto.
 
“Registration Statement” means a registration statement meeting the requirements
set forth in the Registration Rights Agreement and covering the resale by the
Investors of the Shares.
 
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such rule.
 
“SEC Reports” has the meaning set forth in Section 3.1(h).
 
“Securities Act” means the Securities Act of 1933, as amended.
 
“September 8 Merger and Acquisition Rules” means Rules on Acquisition of
Domestic Enterprises by Foreign Investors jointly promulgated by six ministries
in PRC including PRC Ministry of Commerce and SAFE on August 8, 2006 and
effective from September 8, 2006.
 
“Share Delivery Date” has the meaning set forth in Section 4.1(c).
 
“Shares” means the shares of Common Stock being offered and sold to the
Investors by the Company hereunder.
 
“Short Sales” include, without limitation, all “short sales” as defined in Rule
200 promulgated under Regulation SHO under the Exchange Act and all types of
direct and indirect stock pledges, forward sale contracts, options, puts, calls,
swaps and similar arrangements (including on a total return basis), and sales
and other transactions through non-US broker dealers or foreign regulated
brokers.
 
“Subsequent Placement” has the meaning set forth in Section 4.15(a).
 
“Subsequent Placement Agreement” has the meaning set forth in Section 4.15(d).
 
“Subsidiary” of any Person means any “significant subsidiary” as defined in Rule
1-02(w) of the Regulation S-X promulgated by the Commission under the Exchange
Act of such Person. The term “Subsidiaries” shall be deemed to include Green and
WOFE and their respective subsidiaries as if the Exchange shall have been
consummated as of the time of the execution of this Agreement, with the effect
that all references to Subsidiaries of the Company in this Agreement shall also
refer to Green, WOFE and their respective subsidiaries.
 
 “Trading Day” means (i) a day on which the Common Stock is traded on a Trading
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not
listed on a Trading Market (other than the OTC Bulletin Board), a day on which
the Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the Pink Sheets LLC (or any similar organization or agency
succeeding to its functions of reporting prices); provided, that in the event
that the Common Stock is not listed or quoted as set forth in (i), (ii) and
(iii) hereof, then Trading Day shall mean a Business Day.
 
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“Trading Market” means whichever of the New York Stock Exchange, the American
Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.
 
“Transaction Documents” means this Agreement, the Registration Rights Agreement,
the Closing Escrow Agreement, the Holdback Escrow Agreement, the Lockup
Agreements, the Make Good Escrow Agreement and any other documents or agreements
executed in connection with the transactions contemplated hereunder.
 
“Undersubscription Amount” has the meaning set forth in Section 4.15(b).
 
“WOFE” has the meaning specified in the preamble of this Agreement.
 
“WOFE Financial Statements” has the meaning set forth in Section 5.1(e).

 
ARTICLE 2.
PURCHASE AND SALE
 
2.1. Closing. Subject to the terms and conditions set forth in this Agreement,
at the Closing the Company shall issue and sell to each Investor, and each
Investor shall, severally and not jointly, purchase from the Company, the Shares
representing such Investor’s Investment Amount. The Closing shall take place at
the offices of Guzov Ofsink, LLC, 600 Madison, 14th Floor, New York, NY 10022 on
the Closing Date or at such other location or time as the parties may agree.
 
2.2. Closing Deliveries. (a) At the Closing, the Company shall deliver or cause
to be delivered to each Investor the following (the “Company Deliverables”):
 
(i) a single certificate representing that number of aggregate Shares to be
issued and sold at Closing to such Investor, determined under Section 2.1(a),
registered in the name of such Investor;
 
(ii) the Closing Escrow Agreement, duly executed by the Company and the Escrow
Agent;
 
(iii) the Holdback Escrow Agreement, duly executed by the Company and the Escrow
Agent;
 
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(iv) the Make Good Escrow Agreement, duly executed by the Company and the Escrow
Agent;
 
(v) the legal opinion of Company U.S. Counsel, in agreed form, addressed to the
Investors;
 
(vi) the legal opinion of special PRC counsel to WOFE, in agreed form, addressed
to the Investors;
 
(vii) the Registration Rights Agreement, duly executed by the Company;
 
(viii) the Lockup Agreement, duly executed by each party thereto.
 
(b) At the Closing, each Investor shall deliver or cause to be delivered the
following (collectively, the “Investors Deliverables”):
 
(i) to the Company, the Closing Escrow Agreement, duly executed by such
Investor;
 
(ii) to the Company, the Holdback Escrow Agreement, duly executed by such
Investor;
 
(iii) to the Company, the Registration Rights Agreement, duly executed by such
Investor; and
 
(iv) to the Company, the Make Good Escrow Agreement, duly executed by such
Investor.
 
(c) Within one Business Day following the date of this Agreement, each Investor
shall cause to be delivered to the Escrow Agent, its Investment Amount, in
United States dollars and in immediately available funds, by wire transfer to an
account designated for such purpose in accordance with the terms of the Closing
Escrow Agreement.

 
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
 
3.1. Representations and Warranties of the Existing Company Entities. The
Company, Green and WOFE hereby jointly and severally make the following
representations and warranties to each Investor:
 
(a) Subsidiaries. Except as disclosed on Schedule 3.1 (a) none of the Existing
Company Entities have any direct or indirect Subsidiaries. Except as disclosed
in Schedule 3.1(a), (i) the Company owns, directly or indirectly, all of the
capital stock of each other Existing Company Entity, and each other Existing
Company Entity owns, directly or indirectly, all of the capital stock of its
respective Subsidiaries, in each case free and clear of any and all Liens, and
(ii) all the issued and outstanding shares of capital stock of each Subsidiary
are validly issued and are fully paid, non-assessable and free of any and all
Liens. As of the Closing, the Company shall own 100% of the capital stock of
Green and Green shall own 100% of the capital stock of WOFE, in each case free
and clear of all Liens. Prior to the Closing Green Shareholders own 100% of the
capital stock of Green free and clear of all Liens. Prior to the Closing Green
is the owner of 100% of the capital stock of WOFE, subject to the full payment
of the purchase price of the WOFE.
 
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(b) Organization and Qualification. Each Existing Company Entity is duly
incorporated or otherwise organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization (as
applicable), with the requisite power and authority to own and use its
respective properties and assets and to carry on its respective business as
currently conducted and as to be conducted as specified in the Exchange
Agreement, and Current Report on Form 8-K to be filed in accordance with Section
4.5 herein. No Existing Company Entity is in violation of any of the provisions
of its respective certificate or articles of incorporation, bylaws or other
organizational or charter documents. Each Existing Company Entity is duly
qualified to conduct its respective businesses and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, have or reasonably
be expected to result in a Material Adverse Effect.
 
(c) Authorization; Enforcement. Each Existing Company Entity which is or is to
become party to any Transaction Document and the Exchange Agreement has the
requisite corporate and other power and authority to enter into and to
consummate the transactions contemplated by each such Transaction Document and
the Exchange Agreement to which it is a party and otherwise to carry out its
obligations thereunder. The execution and delivery of the Transaction Documents,
by each Existing Company Entity to be party thereto and the consummation by each
of them of the transactions contemplated thereby have been duly authorized by
all necessary action on the part of such Existing Company Entity, and no further
action is required by any of them in connection with such authorization. Each
Transaction Document and the Exchange Agreement has been (or upon delivery will
have been) duly executed by the Company, each other Existing Company Entity
required to execute the same and each Subsidiary (to the extent any of them is a
party thereto) and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company, such Existing
Company Entity and such Subsidiary, enforceable against each in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors’ rights and
remedies or by other equitable principles of general application. The execution
and delivery of the Exchange Agreement by each party thereto and the
consummation by each of them of the transactions contemplated thereby have been
duly authorized by all necessary action on the part of each such party thereto,
and no further action is required by any of them in connection with such
authorization. The Exchange Agreement has been (or upon delivery will have been)
duly executed by each party thereto and will constitute the valid and binding
obligation of each party thereto enforceable against each party thereto in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors’
rights and remedies or by other equitable principles of general application.
 
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(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, and each other Existing Company Entity and Subsidiary
(to the extent a party thereto) and the consummation by the Company, and such
other Existing Company Entities and Subsidiaries, of the transactions
contemplated thereby do not and will not (i) conflict with or violate any
provision of the Company’s, such Existing Company Entity’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that 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
(with or without notice, lapse of time or both) of, any agreement, credit
facility, debt or other instrument (evidencing an Existing Company Entity or
Subsidiary debt or otherwise) or other understanding to which any Existing
Company Entity or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any United States or PRC court or governmental authority to
which the Company or a Subsidiary is subject (including United States federal
and state and PRC national and provincial securities laws and regulations), or
by which any property or asset of the Company or a Subsidiary is bound or
affected; except in the case of each of clauses (ii) and (iii), such as could
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.
 
(e) Filings, Consents and Approvals. No Existing Company Entity is required to
obtain any consent, waiver, authorization, approval or order of, give any notice
to, or make any filing or registration with, any United States or PRC court or
other federal, provincial, state, local or other governmental authority or any
other Person in connection with the execution, delivery and performance by the
Company and each Subsidiary to the extent a party thereto of the Transaction
Documents, other than (i) the filing with the Commission of one or more
Registration Statements in accordance with the requirements of the Registration
Rights Agreement, (ii) filings required by state securities laws, (iii) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (iv) the filings required in accordance with
Section 4.5, (v) filings, consents and approvals required by the rules and
regulations of the applicable Trading Market and (vi) those that have been made
or obtained prior to the date of this Agreement.
 
(f) Issuance of the Shares. The Shares have been duly authorized and, when
issued and paid for in accordance with the Transaction Documents, will be duly
and validly issued, fully paid and nonassessable, free and clear of any and all
Liens. The Company has reserved from its duly authorized capital stock the
shares of Common Stock issuable pursuant to this Agreement in order to issue the
Shares.
 
(g) Capitalization. The number of shares of all authorized, issued and
outstanding capital stock of the Company, and all shares of Common Stock
reserved for issuance under the Company’s various option and incentive plans is
specified in Schedule 3.1(g). No securities of any Existing Company Entity are
entitled to preemptive or similar rights, and no Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction Documents. There
are no outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Shares hereunder will not, immediately or with the
passage of time, obligate the Company or any Subsidiary to issue shares of
Common Stock or other securities to any Person (other than the Investors) and
will not result in a right of any holder of Company or Subsidiary securities to
adjust the exercise, conversion, exchange or reset price under such securities.
No Existing Company Entity has issued any capital stock in a private placement
transaction, including, without limitation, in a transaction commonly referred
to in the PRC as a “1 ½ transaction.”
 
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(h) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the twelve months
preceding the date hereof (or such shorter period as the Company was required by
law to file such reports), including, for this purpose, the current report on
Form 8-K that is being filed by the Company on or about the date hereof to
disclose the transactions contemplated hereby and by the Exchange Agreement (the
foregoing materials being collectively referred to herein as the “SEC Reports”
and, together with the Schedules to this Agreement (if any), the “Disclosure
Materials”) on a timely basis or has timely filed a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Reports, when filed, contained any untrue statement of a
material fact or omitted to state 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. The financial
statements of the Company and each Subsidiary included in the SEC Reports comply
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated Subsidiaries as of and for the dates thereof and the
results of operations and cash flows for the periods then ended, subject, in the
case of unaudited statements, to normal, immaterial, year-end audit adjustments.
The WOFE Financial Statements comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. The WOFE Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of WOFE and its consolidated Subsidiaries as of
and for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
 
(i) Press Releases. The press releases disseminated by the Company during the
twelve months preceding the date of this Agreement taken as a whole do not
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 light of the circumstances under which they were made and when made,
not misleading.
 
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(j) Material Changes. Since the date of latest audited financial statements
included in the Company’s SEC Reports (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) no Existing Company Entity has incurred any
liabilities (contingent or otherwise) other than (A) trade payables, accrued
expenses and other liabilities incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s or its Subsidiaries’ financial statements pursuant to GAAP or
required to be disclosed in filings made with the Commission, (iii) no Existing
Company Entity has altered its method of accounting or the identity of its
auditors, (iv) no Existing Company Entity has declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock, and (v) no Existing Company Entity has issued any equity securities to
any officer, director or Affiliate. The Company does not have pending before the
Commission any request for confidential treatment of information.
 
(k) Litigation. There is no Action which (i) adversely affects or challenges the
legality, validity or enforceability of any of the Transaction Documents, the
Exchange Agreement or the Shares or (ii) except as specifically disclosed in the
SEC Reports, could, if there were an unfavorable decision, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect. No Existing Company Entity, nor any director or officer thereof (in his
or her capacity as such), is or has been the subject of any Action involving a
claim of violation of or liability under federal or state securities laws or a
claim of breach of fiduciary duty, except as specifically disclosed in the SEC
Reports. There has not been, and to the knowledge of the Existing Company
Entities, there is not any pending investigation by or before the Commission or
any other court, arbitrator, governmental or administrative agency, regulatory
or self regulatory authority (federal, state, county, local or foreign), stock
market, stock exchange or trading facility involving any Existing Company Entity
or any of their respective current or former directors or officers (in his or
her capacity as such). The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities Act.
 
(l) Labor Relations. No material labor dispute exists or, to the knowledge of
the Existing Company Entities, is imminent with respect to any of the employees
of any Existing Company Entity. No Existing Company Entity has any employment or
labor contracts, agreements or other understandings with any Person.
 
(m) Indebtedness; Compliance. Except as disclosed on Schedule 3.1(m), no
Existing Company Entity is a party to any indenture, debt, loan or credit
agreement by which it or any of its properties is bound. WOFE has no and as of
the Closing will not have any liabilities of any nature, contingent or
otherwise. No Existing Company Entity (i) is in default under or in violation of
(and no event has occurred that has not been waived that, with notice or lapse
of time or both, would result in a default by such Existing Company Entity
under), nor has any Existing Company Entity received notice of a claim that it
is in default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any court, arbitrator,
governmental or administrative agency, regulatory or self regulatory authority
(federal, state, county, local or foreign), stock market, stock exchange or
trading facility, or (iii) is or has been in violation of any statute, rule or
regulation of any governmental authority, including, without limitation, all
foreign, federal, state and local laws relating to taxes, environmental
protection, occupational health and safety, product quality and safety and
employment and labor matters, except in each case as could not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect. The Exchange Agreement complies with all applicable laws, rules and
regulations of the United States. The Company is in compliance with all
effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the
rules and regulations thereunder, that are applicable to it, except where such
noncompliance could not have or reasonably be expected to result in a Material
Adverse Effect.
 
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(n) Regulatory Permits. The Existing Company Entities possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect, and no Existing Company Entity
has received any notice of proceedings relating to the revocation or
modification of any such permits.
 
(o) Title to Assets. Except as set forth in Schedule 3.1(o), the Existing
Company Entities have valid land use rights for all real property that is
material to their respective businesses and good and marketable title in all
personal property owned by them that is material to their respective businesses,
in each case, free and clear of all Liens, except for Liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by such Existing Company Entity.
Any real property and facilities held under lease by any Existing Company Entity
are held by them under valid, subsisting and enforceable leases of which such
Existing Company Entity is in compliance, except as could not, individually or
in the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
 
(p) Patents and Trademarks. Schedule 3.1(p) sets forth all of the patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, licenses and other similar rights that the Existing Company
Entities own or have the rights to use (collectively, the “Intellectual Property
Rights”). The Intellectual Property Rights constitute all of the patents, patent
applications, trademarks, trademark applications, service marks, trade names,
copyrights, licenses and other similar rights that are necessary for use by the
Existing Company Entities in connection with their respective businesses as
described in the SEC Reports. No Existing Company Entity has received a written
or oral notice that the Intellectual Property Rights used by any of them
violates or infringes upon the rights of any Person. Except as set forth in
Schedule 3.1(p), all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights. To the knowledge of the Existing Company Entities, no former or
current employee, no former or current consultant, and no third-party joint
developer of any Existing Company Entity has any Intellectual Property Rights
made, developed, conceived, created or written by the aforesaid employee,
consultant or third-party joint developer during the period of his or her
retention by, or joint venture with, such Existing Company Entity which can be
asserted against any Existing Company Entity. The Intellectual Property Rights
and the owner thereof or agreement through which they are licensed to any of the
Existing Company are set forth on Schedule 3.1(p). By the Closing, the WOFE
shall have entered into agreements by which it is granted irrevocable,
exclusive, royalty-free licenses on all Intellectual Property Rights that are
registered to or owned by any Person other than the WOFE or its predecessor.
Such agreements together with the agreements referenced in Schedule 3.1(p) are
collectively the “Intellectual Property Right Licensing Agreements.” The
Existing Company Entities will take such action as may be required, including
making and maintaining the filings set forth in Schedule 3.1(p) and shall cause
any such transfers of Intellectual Property Rights to the WOFE to be granted as
is required in order for the WOFE to become the registered owner (in its current
name) of all such Intellectual Property Rights (including, without limitation,
the entering into of any Intellectual Property Right Licensing Agreements as may
be necessary and the filing and maintaining of any information with the relevant
PRC authority which relate to the change of name for those Intellectual Property
Rights currently in the name of the WOFE’s predecessor).  
 
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(q) Insurance. Schedule 3.1(q) sets forth a list of all the insurance policies
held by each Existing Company Entity. The Company has no reason to believe that
it or any Existing Company Entity will not be able to renew its existing
respective insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business on terms consistent with market for the Company’s and such other
Existing Company Entity’s respective lines of business.
 
(r) Transactions With Affiliates and Employees; Customers. Except as set forth
in the Schedule 3.1(r), none of the officers or directors of any Existing
Company Entity, and, to the knowledge of the Existing Company Entities, none of
the employees of any Existing Company Entity, is presently a party to any
transaction with any Existing Company Entity (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Existing Company Entities, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or
partner. None of the Existing Company Entities owes any money or other
compensation to any of their respective officers or directors or shareholders,
except to the extent of ordinary course compensation arrangements specified in
Schedule 3.1(r). No material customer of any Existing Company Entity has
indicated its intention to diminish its relationship with any Existing Company
Entity and no Existing Company Entity has any knowledge from which it could
reasonably conclude that any such customer relationship may be adversely
affected.
 
(s) Internal Accounting Controls. Except as set forth on Schedule 3.1(s), the
Company Entities maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company Entities and designed such disclosure controls and procedures to ensure
that material information relating to the Company Entities is made known to the
certifying officers by others within those entities, particularly during the
period in which the Company’s Form 10-KSB or 10-QSB, as the case may be, is
being prepared. The Company’s certifying officers have evaluated the
effectiveness of the Company’s controls and procedures in accordance with Item
307 of Regulation S-B under the Exchange Act for the Company’s most recently
ended fiscal quarter or fiscal year-end (such date, the “Evaluation Date”). The
Company presented in its most recently filed Form 10-KSB or Form 10-QSB the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation Date.
Since the Evaluation Date, there have been no significant changes in the
Existing Company Entities’ internal controls (as such term is defined in Item
308(c) of Regulation S-B under the Exchange Act) or, to the Company’s knowledge,
in other factors that could significantly affect any Company Entity’s internal
controls.
 
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(t) Solvency. Based on the financial condition of the Company, including the
Existing Company Entities, as of the Closing Date (and assuming that the Closing
shall have occurred), (i) the Existing Company Entity’s fair saleable value of
their respective assets exceeds the amount that will be required to be paid on
or in respect of the Existing Company Entity’s existing debts and other
liabilities (including known contingent liabilities) as they mature, (ii) the
Existing Company Entity’s assets do not constitute unreasonably small capital to
carry on their respective business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Existing
Company Entities, and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of the Existing Company Entities,
together with the proceeds the Existing Company Entities would receive, were
they to liquidate all of their respective assets, after taking into account all
anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its debt when such amounts are required to be paid. The Existing
Company Entities do not intend to incur debts beyond their respective ability to
pay such debts as they mature (taking into account the timing and amounts of
cash to be payable on or in respect of its debt).
 
(u) Certain Fees. Except as described in Schedule 3.1(u), no brokerage or
finder’s fees or commissions are or will be payable by any Existing Company
Entity to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Investors shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by an Investor pursuant to written agreements executed by such
Investor which fees or commissions shall be the sole responsibility of such
Investor) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement.
 
(v) Certain Registration Matters. Assuming the accuracy of the Investors’
representations and warranties set forth in Sections 3.2(b)-(e), no registration
under the Securities Act is required for the offer and sale of the Shares by the
Company to the Investors hereunder. The Company is eligible to register its
Common Stock for resale by the Investors under Form SB-2 (or under any successor
form thereof) promulgated under the Securities Act. Except as specified in
Schedule 3.1(v), no Existing Company Entity has granted or agreed to grant to
any Person any rights (including “piggy-back” registration rights) to have any
securities of the Company registered with the Commission or any other
governmental authority that have not been satisfied.
 
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(w) Listing and Maintenance Requirements. Except as specified in the SEC
Reports, the Company has not, in the two years preceding the date hereof,
received notice from any Trading Market to the effect that the Company is not in
compliance with the listing or maintenance requirements thereof. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with the listing and maintenance requirements for continued
listing of the Common Stock on the Trading Market on which the Common Stock is
currently listed or quoted. The issuance and sale of the Shares under the
Transaction Documents does not contravene the rules and regulations of the
Trading Market on which the Common Stock is currently listed or quoted, and no
approval of the stockholders of the Company thereunder is required for the
Company to issue and deliver to the Investors the Shares as contemplated by the
Transaction Documents.
 
(x) Investment Company. The Company is not, and is not an Affiliate of, and
immediately following the Closing will not have become, an “investment company”
within the meaning of the Investment Company Act of 1940, as amended.
 
(y) Application of Takeover Protections. The Company has taken all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Company’s Articles
of Incorporation (or similar charter documents) or the laws of its state of
incorporation that is or could become applicable to the Investors as a result of
the Investors and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including, without limitation, the
Company’s issuance of the Shares and the Investors’ ownership of the Shares.
 
(z) No Additional Agreements. No Existing Company Entity has any agreement or
understanding with any Investor with respect to the transactions contemplated by
the Transaction Documents other than as specified in the Transaction Documents.
 
(aa) Consultation with Auditors. The Company has consulted its independent
auditors concerning the accounting treatment of the transactions contemplated by
the Transaction Documents, and in connection therewith has furnished such
auditors complete copies of the Transaction Documents.
 
(bb) Make Good Shares. The Make Good Pledgor is the sole record and beneficial
owners of the 2009 Make Good Shares and hold such shares free and clear of all
Liens.
 
(cc) Foreign Corrupt Practices Act. No Existing Company Entity, nor to the
knowledge of the Existing Company Entities, any agent or other person acting on
behalf of any Existing Company Entity, has, directly or indirectly, (i) used any
funds, or will use any proceeds from the sale of the Shares, for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed to
disclose fully any contribution made by the Company or any Subsidiary (or made
by any Person acting on their behalf of which the Company is aware) which is in
violation of law, or (iv) except as set forth in Schedule 3.1(cc), has violated
in any material respect any provision of the Foreign Corrupt Practices Act of
1977, as amended, and the rules and regulations thereunder (the “FCPA”).
 
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(dd) PFIC. No Existing Company Entity is or intends to become a “passive foreign
investment company” within the meaning of Section 1297 of the U.S. Internal
Revenue Code of 1986, as amended.
 
(ee) OFAC. No Existing Company Entity nor, to the knowledge of the Existing
Company Entities, any director, officer, agent, employee, Affiliate or Person
acting on behalf of any Existing Company Entity, is currently subject to any
U.S. sanctions administered by the Office of Foreign Assets Control of the U.S.
Treasury Department (“OFAC”); and the Company will not directly or indirectly
use the proceeds of the sale of the Shares, or lend, contribute or otherwise
make available such proceeds to any Subsidiary, joint venture partner or other
Person or entity, towards any sales or operations in Cuba, Iran, Syria, Sudan,
Myanmar or any other country sanctioned by OFAC or for the purpose of financing
the activities of any Person currently subject to any U.S. sanctions
administered by OFAC.
 
(ff) Money Laundering Laws. The operations of each Existing Company Entity are
and have been conducted at all times in compliance with the money laundering
statutes of applicable jurisdictions, the rules and regulations thereunder and
any related or similar rules, regulations or guidelines, issued, administered or
enforced by any applicable governmental agency (collectively, the “Money
Laundering Laws”) and no action, suit or proceeding by or before any court or
governmental agency, authority or body or any arbitrator involving any Existing
Company Entity with respect to the Money Laundering Laws is pending or, to the
best knowledge of the Company, threatened.
 
(gg) Other Representations and Warranties Relating to WOFE.
 
(i) All material consents, approvals, registrations, authorizations or licenses
requisite under PRC law for the due and proper establishment and operation of
WOFE have been duly obtained from the relevant PRC governmental authorities and
are in full force and effect.
 
(ii) All filings and registrations with the PRC governmental authorities
required in respect of WOFE and its capital structure and operations including,
without limitation, the registration with the Ministry of Commerce, the China
Securities Regulatory Commission, the State Administration of Industry and
Commerce, the State Administration for Foreign Exchange, tax bureau and customs
authorities, if necessary under current PRC laws and regulations as of the date
of this Agreement, have been duly completed in accordance with the relevant PRC
laws, rules and regulations, except where, the failure to complete such filings
and registrations does not, and would not, individually or in the aggregate,
have a Material Adverse Effect.
 
(iii) WOFE has complied with all relevant PRC laws and regulations regarding the
contribution and payment of its registered capital, the payment schedule of
which has been approved by the relevant PRC governmental authorities. There are
no outstanding rights of, or commitments made by the Company or any Subsidiary
to sell any equity interest in WOFE.
 
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(iv) WOFE is not in receipt of any letter or notice from any relevant PRC
governmental or quasi-governmental authority notifying it of revocation of any
licenses or qualifications issued to it or any subsidy granted to it by any PRC
governmental or quasi-governmental authority for non-compliance with the terms
thereof or with applicable PRC laws, or the need for compliance or remedial
actions in respect of the activities carried out by WOFE, except such revocation
does not, and would not, individually or in the aggregate, have a Material
Adverse Effect.
 
(v) WOFE has conducted its business activities within the permitted scope of
business or has otherwise operated its business in compliance with all relevant
legal requirements and with all requisite licenses and approvals granted by
competent PRC governmental authorities other than such non-compliance that do
not, and would not, individually or in the aggregate, have a Material Adverse
Effect. As to licenses, approvals and government grants and concessions
requisite or material for the conduct of any part of WOFE’s business which is
subject to periodic renewal, the Company has no knowledge of any grounds on
which such requisite renewals will not be granted by the relevant PRC
governmental authorities.
 
With regard to employment and staff or labor, WOFE has complied with all
applicable PRC laws and regulations in all material respects, including without
limitation, laws and regulations pertaining to welfare funds, social benefits,
medical benefits, insurance, retirement benefits, pensions or the like, other
than such non-compliance that do not, and would not, individually or in the
aggregate, have a Material Adverse Effect.
 
(hh) Disclosure. Neither any Existing Company Entity nor any Person acting on
its behalf has provided any Investor or its respective agents or counsel with
any information that any Existing Company Entity believes constitutes material,
non-public information concerning the Company, the Subsidiaries or their
respective businesses, except insofar as the existence and terms of the proposed
transactions contemplated hereunder may constitute such information. Each of the
Existing Company Entities understands and confirms that the Investors will rely
on the foregoing representations and covenants in effecting transactions in
securities of the Existing Company Entities. All disclosure provided to the
Investors regarding the Existing Company Entities and their respective
businesses and the transactions contemplated hereby, furnished by or on behalf
of the Existing Company Entities (including their respective representations and
warranties set forth in this Agreement) are true and correct and do not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each Investor
acknowledges and agrees that the Existing Company Entities make no
representations or warranties with respect to their respective businesses or the
transactions contemplated hereby other than those specifically set forth in this
Section 3.1 and each of the Investors have relied solely on those
representations and review of the SEC Reports in making its investment decision.
 
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3.2. Representations and Warranties of the Investors. Each Investor hereby, for
itself and for no other Investor, represents and warrants to the Company as
follows:
 
(a) Organization; Authority. Such Investor is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the applicable
Transaction Documents and otherwise to carry out its obligations thereunder. The
execution, delivery and performance by such Investor of the transactions
contemplated by this Agreement has been duly authorized by all necessary
corporate or, if such Investor is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such Investor.
Each of this Agreement and the Registration Rights Agreement has been duly
executed by such Investor, and when delivered by such Investor in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Investor, enforceable against it in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
 
(b) Investment Intent. Such Investor is acquiring the Shares as principal for
its own account for investment purposes only and not with a view to or for
distributing or reselling such Shares or any part thereof, without prejudice,
however, to such Investor’s right at all times to sell or otherwise dispose of
all or any part of such Shares in compliance with applicable federal and state
securities laws. Subject to the immediately preceding sentence, nothing
contained herein shall be deemed a representation or warranty by such Investor
to hold the Shares for any period of time. Such Investor is acquiring the Shares
hereunder in the ordinary course of its business. Such Investor does not have
any agreement or understanding, directly or indirectly, with any Person to
distribute any of the Shares.
 
(c) Investor Status. At the time such Investor was offered the Shares, it was,
and at the date hereof and the time of sale it is, an “accredited investor” as
defined in Rule 501(a) under the Securities Act. Such Investor is not a
registered broker-dealer under Section 15 of the Exchange Act. Each Investor has
such sophistication, knowledge and skill to be able to fully evaluate the risks
of investing in the Company.
 
(d) General Solicitation. Such Investor is not purchasing the Shares as a result
of any advertisement, article, notice or other communication regarding the
Shares published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
solicitation or general advertisement.
 
(e) Access to Information. Such Investor acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Shares and the merits and risks of investing in the Shares; (ii)
access to information about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by or
on behalf of such Investor or its representatives or counsel shall modify, amend
or affect such Investor’s right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company’s representations and warranties
contained in the Transaction Documents.
 
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(f) Certain Trading Activities. Such Investor has not directly or indirectly,
nor has any Person acting on behalf of or pursuant to any understanding with
such Investor, engaged in any transactions in the securities of the Company
(including, without limitation, any Short Sales involving the Company’s
securities) since the earlier to occur of (1) the time that such Investor was
first contacted by the Company or the placement agent regarding an investment in
the Company and (2) the 30th day prior to the date of this Agreement. Such
Investor covenants that neither it nor any Person acting on its behalf or
pursuant to any understanding with it will engage in any transactions in the
securities of the Company (including Short Sales) prior to the time that the
transactions contemplated by this Agreement are publicly disclosed.
 
(g) Independent Investment Decision. Such Investor has independently evaluated
the merits of its decision to purchase the Shares pursuant to the Transaction
Documents, and such Investor confirms that it has not relied on the advice of
any other Investor’s business and/or legal counsel in making such decision. Such
Investor has not relied on the business or legal advice of the Company or any of
its agents, counsel or Affiliates in making its investment decision hereunder,
and confirms that none of such Persons has made any representations or
warranties to such Investor in connection with the transactions contemplated by
the Transaction Documents.
 
The Company Entities acknowledge and agree that no Investor has made or makes
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.

 
ARTICLE 4.
OTHER AGREEMENTS OF THE PARTIES
 
4.1. (a) Shares may only be disposed of in compliance with state and federal
securities laws. In connection with any transfer of the Shares other than
pursuant to an effective registration statement, to the Company, to an Affiliate
of an Investor or in connection with a pledge as contemplated in Section 4.1(b),
the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Shares under the
Securities Act.
 
(b) Certificates evidencing the Shares will contain the following legend, until
such time as they are not required under Section 4.1(c):
 
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
ACCEPTABLE TO THE COMPANY. NOTWITHSTANDING THE FOREGOING, THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH
SECURITIES.
 
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The Company acknowledges and agrees that an Investor may from time to time
pledge, and/or grant a security interest in some or all of the Shares pursuant
to a bona fide margin agreement in connection with a bona fide margin account
and, if required under the terms of such agreement or account, such Investor may
transfer pledged or secured Shares to the pledgees or secured parties. Such a
pledge or transfer would not be subject to approval or consent of the Company
and no legal opinion of legal counsel to the pledgee, secured party or pledgors
shall be required in connection with the pledge, but such legal opinion may be
required in connection with a subsequent transfer following default by the
Investor transferee of the pledge. No notice shall be required of such pledge.
At the appropriate Investor’s expense, the Company will execute and deliver such
reasonable documentation as a pledgee or secured party of Shares may reasonably
request in connection with a pledge or transfer of the Shares, including the
preparation and filing of any required prospectus supplement under Rule 424(b)
under the Securities Act or other applicable provision of the Securities Act to
appropriately amend the list of selling stockholders thereunder. Except as
otherwise provided in Section 4.1(c), any Shares subject to a pledge or security
interest as contemplated by this Section 4.1(b) shall continue to bear the
legend set forth in this Section 4.1(b) and be subject to the restrictions on
transfer set forth in Section 4.1(a).
 
(c) Certificates evidencing Shares and 2009 Make Good Shares, if 2009 Make Good
Shares are due to be delivered to Investors or their transferees pursuant to the
Transaction Documents (collectively, the “Securities”), shall not contain any
legend (including the legend set forth in Section 4.1(b)): (i) while a
registration statement (including the Registration Statement) covering such
Securities is then effective (provided, however, that the Company reserves the
right to issue stop transfer instructions to the transfer agent (with a copy to
the Investors) with respect to the Securities in the event that the Registration
Statement with respect to the Securities is no longer current) or (ii) following
a sale or transfer of such Securities pursuant to Rule 144 (assuming the
transferee is not an Affiliate of the Company), or (iii) while such Securities
are eligible for sale by the selling Investor without volume restrictions under
Rule 144. The Company agrees that following the Effective Date or such other
time as legends are no longer required to be set forth on certificates
representing Securities under this Section 4.1(c), it will, no longer than three
Trading Days following the delivery by an Investor to the Company or the
Transfer Agent of a certificate representing such Securities containing a
restrictive legend, deliver or cause to be delivered to such investor Securities
which are free of all restrictive and other legends. If the Company is then
eligible, certificates for Securities subject to legend removal hereunder shall
be transmitted by the Transfer to an Investor by crediting the prime brokerage
account of such Investor with the Depository Trust Company System as directed by
such Investor. If an Investor shall make a sale or transfer of Securities either
(x) pursuant to Rule 144 or (y) pursuant to a registration statement and in each
case shall have delivered to the Company or the Company’s transfer agent the
certificate representing Securities containing a restrictive legend which are
the subject of such sale or transfer and a representation letter in customary
form (the date of such sale or transfer and Securities delivery being the “Share
Delivery Date”) and (1) the Company shall fail to deliver or cause to be
delivered to such Investor a certificate representing such Securities that is
free from all restrictive or other legends by the third Trading Day following
the Share Delivery Date and (2) following such third Trading Day after the Share
Delivery Date and prior to the time such Securities are received free from
restrictive legends, the Investor, or any third party on behalf of such
Investor, purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Investor of such Shares
(a "Buy-In"), then the Company shall pay in cash to the Investor (for costs
incurred either directly by such Investor or on behalf of a third party) the
amount by which the total purchase price paid for Common Stock as a result of
the Buy-In (including brokerage commissions, if any) exceed the proceeds
received by such Investor as a result of the sale to which such Buy-In relates.
The Investor shall provide the Company written notice indicating the amounts
payable to the Investor in respect of the Buy-In. The Company may not make any
notation on its records or give instructions to any transfer agent of the
Company that enlarge the restrictions on transfer set forth in this Section.
 
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4.2. Furnishing of Information. As long as any Investor owns the Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to the Exchange Act. As long as any
Investor owns Securities, if the Company is not required to file reports
pursuant to such laws, it will prepare and furnish to the Investors and make
publicly available in accordance with Rule 144(c) such information as is
required for the Investors to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell the Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144.
 
4.3. Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Investors, or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market in a manner that would require stockholder
approval of the sale of the Securities to the Investors.
 
4.4. Subsequent Registrations. Except as set forth on Schedule 4.4, the Company
may not file any registration statement (other than on Form S-8 and Form S-4)
with the Commission with respect to any securities of the Company prior to the
time that all Shares are registered pursuant to one or more effective
Registration Statement(s), and the prospectuses forming a portion of such
Registration Statement(s) is available for the resale of all Shares.
 
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4.5. Securities Laws Disclosure; Publicity. By 9:00 a.m. (New York time) on the
Trading Day following the Closing Date, the Company shall issue a press release
disclosing the transactions contemplated hereby and the Closing (including,
without limitation, details with respect to the make good provision and
thresholds contained in Section 4.11 herein). Within four Trading Days following
the Closing Date the Company will file a Current Report on Form 8-K disclosing
the material terms of the Transaction Documents, including details with respect
to the make good provision and thresholds contained in Section 4.11 herein (and
attach as exhibits thereto the Transaction Documents) and the Closing. The
Company shall make the foregoing disclosure such that following such disclosure,
the Investors shall no longer be in possession of any material, non-public
information with respect to the Company. In addition, the Company will make such
other filings and notices in the manner and time required by the Commission and
the Trading Market on which the Common Stock is listed. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of any Investor, or
include the name of any Investor in any filing with the Commission (other than
the Registration Statement and any exhibits to filings made in respect of this
transaction in accordance with periodic filing requirements under the Exchange
Act) or any regulatory agency or Trading Market, without the prior written
consent of such Investor, except to the extent such disclosure is required by
law or Trading Market regulations.
 
4.6. Limitation on Issuance of Future Priced Securities. During the six months
following the Closing Date, the Company shall not issue any “Future Priced
Securities” as such term is described by NASD IM-4350-1.
 
4.7. Indemnification of Investors. In addition to the indemnity provided in the
Registration Rights Agreement, the Company Entities will jointly and severally,
indemnify and hold the Investors and their directors, officers, shareholders,
members, partners, employees and agents (each, an “Investor Party”) harmless
from any and all losses, liabilities, obligations, claims, contingencies,
damages, costs, disbursements and expenses, including all judgments, arbitral
awards, amounts paid in settlements, court costs and reasonable attorneys’ fees
and costs of investigation (collectively, “Losses”) that any such Investor Party
may suffer or incur as a result of or relating to any misrepresentation, breach
or inaccuracy of any representation, warranty, covenant or agreement made by any
Company Entities in any Transaction Document. In addition to the indemnity
contained herein, the Company Entities will jointly and severally, reimburse
each Investor Party for its reasonable legal and other expenses (including the
cost of any investigation, preparation and travel in connection therewith)
incurred in connection therewith, as such expenses are incurred. Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 4.7 shall be the same as those set
forth in Section 5 of the Registration Rights Agreement.
 
4.8. Non-Public Information. The Company covenants and agrees that neither it,
any Company Entity nor any other Person acting on its or their behalf will
provide any Investor or its agents or counsel with any information that the
Company believes constitutes material non-public information, unless prior
thereto such Investor shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Investor shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
 
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4.9. Listing of Securities. The Company agrees (i) if the Company applies to
have the Common Stock traded on any other Trading Market, it will include in
such application the Securities, and will take such other action as is necessary
or desirable to cause the Securities to be listed on such other Trading Market
as promptly as possible, and (ii) the Company will take all action reasonably
necessary to continue the listing and trading of its Common Stock on a Trading
Market and will comply in all material respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading Market.
 
4.10. Use of Proceeds. The Company will use the net proceeds from the sale of
the Shares hereunder for working capital purposes and not for the satisfaction
of any portion of the Company’s debt (other than payment of trade payables and
accrued expenses in the ordinary course of the Company’s business and consistent
with prior practices and the WOFE Purchase Price as referred to in Article 4.20
below), or to redeem any Common Stock or Common Stock Equivalents (other than a
redemption of 246,148 shares of Common Stock for $550,000 in connection with the
closing under the Exchange Agreement).
 
4.11. Make Good Shares.
 
(a) The Make Good Pledgor agrees that in the event that either (i) the Earnings
Per Share (as defined below) reported in the 2009 Annual Report is less than
2009 Guaranteed EPS or (ii) the After Tax Net Income (as defined below) reported
in the 2009 Annual Report is less than $12,000,000 (the “2009 Guaranteed ATNI”),
the Make Good Pledgor will transfer (in accordance with the Make Good Escrow
Agreement) to the Investors on a pro-rata basis (determined by dividing each
Investor’s Investment Amount by the aggregate of all Investment Amounts
delivered to the Company by the Investors hereunder) for no consideration other
than payment of their respective Investment Amount paid at Closing, the 2009
Make Good Shares. “After Tax Net Income” shall mean the Company’s income after
taxes for the fiscal year ending June 30, 2009 determined in accordance with
GAAP as reported in the 2009 Annual Report. “Earnings Per Share” shall mean the
Company’s After Tax Net Income divided by the number of shares of common stock
of the Company outstanding on a fully diluted basis. In the event that the After
Tax Net Income reported in the 2009 Annual Report is equal to or greater than
the 2009 Guaranteed ATNI and the Earnings Per Share is greater than the 2009
Guaranteed EPS, no transfer of the 2009 Make Good Shares shall be required by
the Make Good Pledgor to the Investors and such 2009 Make Good Shares shall be
returned in accordance with the Make Good Escrow Agreement. Any such transfer of
the 2009 Make Good Shares shall be made within ten (10) Business Days after the
date which the 2009 Annual Report is filed. Notwithstanding anything to the
contrary contained herein, in determining whether the Company has achieved the
2009 Guaranteed ATNI or 2009 Guaranteed EPS, the Company may disregard any
compensation charge or expense required to be recognized by the Company under
GAAP resulting from the release of the 2009 Make Good Shares to Make Good
Pledgor if and to the extent such charge or expense is specified in the
Company’s independent auditor’s report for the relevant year, as filed with the
Commission. No other exclusions shall be made for any non-recurring expenses of
the Company, including liquidated damages under the Transaction Documents, in
determining whether 2009 Guaranteed ATNI or 2009 Guaranteed EPS have been
achieved. If prior to the second anniversary of the filing of the 2009 Annual
Report, the Company or their auditors report or recognize that the financial
statements contained in such report are subject to amendment or restatement such
that the Company would recognize or report adjusted after tax net income of less
than the 2009 Guaranteed ATNI or Earnings Per Share of less than the 2009
Guaranteed EPS, as applicable, then notwithstanding any prior return of 2009
Make Good Shares to the Make Good Pledgor, the Make Good Pledgor will, within 10
Business Days following the earlier of the filing of such amendment or
restatement or recognition, deliver the 2009 Make Good Shares to the Investors.
 
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(b) In connection with the foregoing, the Make Good Pledgor agrees that within
three Trading Days following the Closing, the Make Good Pledgor will deposit all
potential 2009 Make Good Shares into escrow in accordance with the Make Good
Escrow Agreement along with bank signature stamped stock powers executed in
blank (or such other signed instrument of transfer acceptable to the Company’s
transfer agent), and the handling and disposition of the 2009 Make Good Shares
shall be governed by this Section 4.11 and the Make Good Escrow Agreement. The
Company shall notify the Investors as soon as the 2009 Make Good Shares have
been deposited with the Make Good Escrow Agent. The Make Good Pledgor hereby
agrees that his obligation to transfer shares of Common Stock to Investors
pursuant to this Section 4.11 and the Make Good Escrow Agreement shall continue
to run to the benefit of each Investor even if such Investor shall have
transferred or sold all or any portion of its Shares, and that each Investor
shall have the right to assign its rights to receive all or any such shares of
Common Stock to other Persons in conjunction with negotiated sales or transfers
of any of its Shares.
 
(c) The Company covenants and agrees that upon any transfer of 2009 Make Good
Shares to the Investors in accordance with the Make Good Escrow Agreement, the
Company shall promptly instruct its transfer agent to reissue such 2009 Make
Good Shares in the applicable Investor’s name and deliver the same as directed
by such Investor.
 
(d) If any term or provision of this Section 4.11 is in contradiction of or
conflicts with any term or provision of the Make Good Escrow Agreement, the
terms of the Make Good Escrow Agreement shall control.
 
4.12. Independent Board of Directors. The Company covenants and agrees that no
later than 120 days following the Closing Date, the Board of Directors of the
Company shall be comprised of a minimum of five members, a majority of which
shall be “independent directors” as such term is defined in NASDAQ Marketplace
Rule 4200(a)(15). The Company agrees that $2,000,000 (the “Board Holdback Escrow
Amount”) shall be held in escrow pursuant to the Holdback Escrow Agreement until
such time as the Company complies with its obligations under this Section 4.12.
If for any reason or for no reason whatsoever, the Escrow Agent does not receive
the written notice contemplated by the Holdback Escrow Agreement from the
Company and the Investors then holding a majority of the Shares relating to
either the release of (i) the Board Holdback Escrow Amount prior to 125 calendar
days following the Closing Date or (ii) CFO Holdback Escrow Amount prior to 95
calendar days following the Closing Date (each such failure or breach being
referred to as an “Event,” and for purposes of this section the date such Event
occurs being referred to as “Event Date”), then in addition to any other rights
the Investors may have hereunder or under applicable law, on each such Event
Date and on each monthly anniversary of such Event Date (if the applicable Event
shall not have been cured by such date) until the applicable Event is cured, the
Company shall pay to each Investor by wire transfer an amount in immediately
available funds, as partial liquidated damages and not as a penalty, equal to 1%
of the aggregate Investment Amount paid by such Investor for Shares pursuant to
this Agreement. The partial liquidated damages payable under this Section 4.12
shall be independent of any other damages payable under this Agreement or any
other Transaction Document and shall apply on a daily pro-rata basis for any
portion of a month prior to the cure of an Event. In no event will the Company
be liable for partial liquidated damages in excess of 1% of the aggregate
Investment Amount of the Investors in any 30-day period in respect of any single
Event (it being understood that if the Company suffers an Event relating to its
failure to comply with this Section 4.12 and an Event relating to its failure to
comply with Section 4.15 in a 30-day period it will be responsible for 2% of
liquidated damages in a 30-day period). It is further understood that the
partial liquidated damages contemplated hereby are limited to the Board Holdback
Escrow Amount as to that Event and the CFO Holdback Escrow Amount as to that
Event; provided that the Investors are entitled to all other remedies available
under applicable law. On any Event Date, the Company will deliver to each
Investor a written notice which shall set forth the relevant Event. If any term
or provision of this Section 4.12 as to the Board Holdback Escrow Amount and/or
partial liquidated damages is in contradiction of or conflicts with any term or
provision of the Holdback Escrow Agreement relating thereto, the terms of the
Holdback Escrow Agreement shall control.
 
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4.13. Third Party Hiring. By the thirtieth day following the Closing Date, the
Company shall hire either of CCG Elite, Hayden Communications, or Integrated
Corporate Relations as the Company’s investor relations firm. The Company agrees
that $250,000 (the “IR Holdback Escrow Amount”) shall be held in escrow pursuant
to the Holdback Escrow Agreement until such time as the Company complies with
its obligations under this Section 4.13. If any term or provision of this
Section 4.13 as to the IR Holdback Escrow Amount is in contradiction of or
conflicts with any term or provision of the Holdback Escrow Agreement relating
thereto, the terms of the Holdback Escrow Agreement shall control.
 
4.14. Right of First Refusal.
 
(a) From the date hereof until the first anniversary of the effective date of
the Registration Statement (plus one additional day for each Trading Day
following the Effective Date of any Registration Statement during which either
(1) the Registration Statement is not effective or (2) the prospectus forming a
portion of the Registration Statement is not available for the resale of all
Registrable Securities (as defined in the Registration Rights Agreement)), the
Company will not, directly or indirectly, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition of) any of its or its Subsidiaries'
equity or equity equivalent securities, including, without limitation, any debt,
preferred stock or other instrument or security that is, at any time during its
life and under any circumstances, convertible into or exchangeable or
exercisable for shares of Common Stock or Common Stock Equivalents (any such
offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement") unless the Company shall have first complied with this
Section 4.14. If the Company desires to sell any securities it shall deliver to
each of the Investors a written notice to such effect specifying the general
terms of the offering the Company desires to make and for a period of at least
twenty Business Days after the giving of such notice the Company agrees to
negotiate in good faith with any Investors responding to such notice the terms
of a sale of the Company’s securities to such responding Investors.
 
(b) In the event that the Company shall receive an unsolicited offer regarding
the purchase of the Company’s securities, the Company shall deliver to each
Investor hereunder a written notice (the "Offer Notice") of any proposed or
intended issuance or sale or exchange (the "Offer") of the securities being
offered (the "Offered Securities") in a Subsequent Placement, which Offer Notice
shall (v) identify and describe the Offered Securities, (w) specify the price
and other terms upon which the Offered Securities are to be issued, sold or
exchanged, and the number or amount of the Offered Securities to be issued, sold
or exchanged, (x) identify the persons or entities (to the extent known) to
which or with which the Offered Securities are to be offered, issued, sold or
exchanged and (y) offer to issue and sell to or exchange with such Investors all
of the Offered Securities, allocated among such Investors (i) based on such
Investor's pro rata portion of the total Investment Amount hereunder (the "Basic
Amount"), and (ii) with respect to each Investor that elects to purchase its
Basic Amount, any additional portion of the Offered Securities attributable to
the Basic Amounts of other Investors as such Investor shall indicate it will
purchase or acquire should the other Investors subscribe for less than their
Basic Amounts (the "Undersubscription Amount"), which process shall be repeated
until the Investors shall have an opportunity to subscribe for any remaining
Undersubscription Amount.
 
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(c) To accept an Offer, in whole or in part, such Investor must deliver a
written notice to the Company prior to the end of the fifth Business Day after
such Investor's receipt of the Offer Notice (the "Offer Period"), setting forth
the portion of such Investor's Basic Amount that such Investor elects to
purchase and, if such Investor shall elect to purchase all of its Basic Amount,
the Undersubscription Amount, if any, that such Investor elects to purchase (in
either case, the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all Investors are less than the total of all of the Basic Amounts, then each
Investor who has set forth an Undersubscription Amount in its Notice of
Acceptance shall be entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Basic Amounts and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Investor who has
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Basic Amount of
such Investor bears to the total Basic Amounts of all Investors that have
subscribed for Undersubscription Amounts, subject to rounding by the Company to
the extent its deems reasonably necessary.
 
(d) The Company shall have twenty Business Days from the expiration of the Offer
Period above to (i) offer, issue, sell or exchange the Offered Securities as to
which a Notice of Acceptance has not been given by the Investors (the “Refused
Securities”) but only to the offerees described in the Offer Notice (if so
described therein) and only upon terms and conditions (including, without
limitation, unit prices and interest rates) that are not more favorable to the
acquiring person or persons or less favorable to the Company than those set
forth in the Offer Notice and (ii) to publicly announce (a) the execution of
such Subsequent Placement Agreement (as defined below), and (b) either (x) the
consummation of the transactions contemplated by such Subsequent Placement
Agreement or (y) the termination of such Subsequent Placement Agreement, which
shall be filed with the Commission on a Current Report on Form 8-K with such
Subsequent Placement Agreement and any documents contemplated therein filed as
exhibits thereto. If no disclosure has been made by the Company by the end of
the twenty Business Day period referred to in this subsection (d), the
Subsequent Placement shall be deemed to have been abandoned and the Investors
shall no longer be deemed to be in possession of any non-public information with
respect to the Company. The purchase by the Investors of any Offeree Securities
is subject in all cases to the preparation, execution and delivery by the
Company and the Investors of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Investors and
their respective counsel (such agreement, the “Subsequent Placement Agreement.”)
 
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(e) In the event the Company shall propose to sell less than all the Refused
Securities (any such sale to be in the manner and on the terms specified in this
Section 4.15), then each Investor may, at its sole option and in its sole
discretion, reduce the number or amount of the Offered Securities specified in
its Notice of Acceptance to an amount that shall be not less than the number or
amount of the Offered Securities that such Investor elected to purchase pursuant
to Section 4.15(c) above multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Investors pursuant to Section 4.15(c) above prior to such reduction)
and (ii) the denominator of which shall be the original amount of the Offered
Securities. In the event that any Investor so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the Company
may not issue, sell or exchange more than the reduced number or amount of the
Offered Securities unless and until such securities have again been offered to
the Investors in accordance with Section 4.15(b) above.
 
(f) Upon the closing of the issuance, sale or exchange of all or less than all
of the Refused Securities, the Investors shall acquire from the Company, and the
Company shall issue to the Investors, the number or amount of Offered Securities
specified in the Notices of Acceptance, as reduced pursuant to Section 4.15(e)
above if the Investors have so elected, upon the terms and conditions specified
in the Offer.
 
(g) Any Offered Securities not acquired by the Investors or other persons in
accordance with Section 4.15(d) above may not be issued, sold or exchanged until
they are again offered to the Investors under the procedures specified in this
Agreement.
 
(h) In exchange for the Company’s willingness to agree to these procedures, each
Investor hereby irrevocably agrees that it will hold in strict confidence any
and all Offer Notices, the information contained therein, and the fact that the
Company is contemplating a Subsequent Placement, until such time as the Company
is obligated to make the disclosures required by Section 4.15(d), or unless it
notifies the Company in writing that it no longer desires to receive Offer
Notices.
 
4.15. Chief Financial Officer. No later than three months following the Closing
Date, the Company will hire a chief financial officer (“CFO”) who is a certified
public accountant or possesses experience such that he or she can reasonably
serve as a chief financial officer, fluent in English, and who has a working
familiarity with (i) US GAAP and (ii) auditing procedures and compliance for
United States public companies. In the event that the proposed CFO is not a
certified public accountant, who is fluent in English and an expert in GAAP and
auditing procedures and compliance for United States public companies, then such
proposed CFO shall be subject to Pinnacle’s reasonable approval. The Company
shall enter into an employment agreement with the CFO for a term of no less than
two years. Should the CFO be dismissed at any time prior to two years from the
Closing Date, the Company shall replace the CFO with a Chief Financial Officer
who fits the criteria set forth herein as soon as practicable. By 9:00 a.m. (New
York time) on the fourth Trading Day following the hiring of such chief
financial officer, the Company will file a Current Report on Form 8-K disclosing
the information required by Item 5.02 of Form 8-K. The Company shall deposit
$2,000,000 to be held in escrow (the “CFO Holdback Escrow Amount”) in accordance
with the terms of the Holdback Escrow Agreement pending compliance with this
provision. If any term or provision of this Section 4.15 as to the CFO Holdback
Escrow Amount is in contradiction of or conflicts with any term or provision of
the Holdback Escrow Agreement relating thereto, the terms of the Holdback Escrow
Agreement shall control.
 
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4.16. Liquidated Damages for Governmental Rescission of the Transaction. If any
governmental agency in the PRC challenges or otherwise takes any action that
adversely affects the transactions contemplated by the Exchange Agreement, and
the Company cannot undo such governmental action or otherwise address the
material adverse effect to the reasonable satisfaction of the Investors within
sixty (60) days of the occurrence of such governmental action, then, upon
written demand from an Investor, the Company shall promptly, and in any event
within thirty (30) days from the date of such written demand, pay to that
Investor, as liquidated damages, an amount equal to that Investor’s entire
Investment Amount with interest thereon from the Closing date until the date
paid at the rate of 10% per annum. As a condition to the receipt of such
payment, the Investor shall return to the Company for cancellation the
certificates evidencing the Shares acquired by the Investor under the Agreement.
 
4.17. Further Assurances. The Company will, and will cause all of the Company
Entities and their management to, use their best efforts to satisfy all of the
closing conditions under Section 5.1, and will not take any action which could
frustrate or delay the satisfaction of such conditions. In addition, either
prior to or following the Closing, each Existing Company Entity signatory hereto
will, and will cause each other Company Entity and its management to, perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
 
4.19 Insurance. Within sixty (60) days following the Closing Date, each Existing
Company Entity shall become insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged and as may be necessary
to continue its business on terms consistent with market for the Company’s and
such other Existing Company Entity’s respective lines of business.
 
4.20 Completion of WOFE Purchase and Increase of WOFE’s Registered Capital.
 
(a) Completion of WOFE Purchase. By the 20th day following the Closing Date, the
Company shall complete the WOFE Purchase. In order to complete the WOFE
Purchase, the Company and Green agree to transmit approximately $4,000,000
(“WOFE Purchase Price”) to the accounts of the former WOFE shareholders and
complete additional filings and registrations, including obtaining a new
business license and certificate from the PRC State Administration of Foreign
Exchange reflecting the completion of the payment of the Purchase Price. The
Company Entities represent and warrant that the former WOFE shareholders have
agreed that they will not retain the WOFE Purchase Price and have issued an
instruction that the PRC State Administration of Foreign Exchange, Xi’An branch,
transmit the WOFE Purchase Price, when received, to the WOFE. In furtherance of
the Company’s obligations under this Section, by the 20th day following the
Closing Date, the Company shall provide the Investors with evidence reasonably
acceptable to them that the aggregate registered capital deficit (the WOFE
Purchase Price) has been paid by providing a copy of the new business license
evidencing that the aggregate capital deficit (the WOFE Purchase Price) has been
paid as described above. 
 
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(b) Completion of the Increase of WOFE’s Registered Capital. By the 65th day
following the Closing Date, the Company shall complete the increase of WOFE’s
registered capital from approximately $4,000,000 to such amount as necessary to
accommodate the net proceeds of the sale of Shares under this Agreement. The
WOFE is to receive all necessary documentation evidencing the completion of the
registered capital increase including the approval from provincial commercial
bureau, a new business license from the local State Administration of Industrial
and Commerce and an updated certificate from PRC State Administration of Foreign
Exchange, Xi’An branch.
 
4.21 The Trademarks of the WOFE. For any Intellectual Property Rights that are
owned in the name of any predecessor of the WOFE, the WOFE shall complete the
change of the registered owner from that of the WOFE’s predecessor to the WOFE’s
current name, address and other related updates which is required by PRC
Trademark Offices within 18 months of the Closing Date (the“Compliance Period”)
as evidenced by a written notice certifying the completion of the change of
registered owner information (the “Notice”) from the PRC Trademark Offices (the
date which is 18 months following the Closing Date, the “Compliance Notice
Date”). A copy of the Notice shall be promptly provided to the Investors. If for
any reason or for no reason whatsoever, the WOFE does not receive the Notice
from the PRC Trademark Offices and provide such evidence to the Investors within
the Compliance Period, then on the Compliance Notice Date and on each monthly
anniversary thereof (until the WOFE provides a copy of the Notice to the
Investors) the Company shall pay to each Investor by wire transfer an amount in
immediately available funds, as partial liquidated damages and not as a
penaltyequal to 0.5% of the aggregate Investment Amount paid by such Investor
for Shares pursuant to this Agreement. The partial liquidated damages pursuant
to the terms of this Section 4.21 shall be independent of any other damages
payable under this Agreement or any other Transaction Document and shall apply
on a daily pro-rata basis for any portion of a month prior to the time the
Investors are provided a copy of the Notice.  

 
ARTICLE 5.
CONDITIONS PRECEDENT TO CLOSING
 
5.1. Conditions Precedent to the Obligations of the Investors to Purchase
Shares. The obligation of each Investor to acquire Shares at the Closing is
subject to the satisfaction or waiver by such Investor, at or before the
Closing, of each of the following conditions:
 
(a) Representations and Warranties. The representations and warranties of the
Existing Company Entities contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing as though made
on and as of such date;
 
30

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(b) Performance. The Existing Company Entities shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents and the Exchange Agreement to
be performed, satisfied or complied with by it at or prior to the Closing;
 
(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents and the Exchange Agreement;
 
(d) Adverse Changes. Since the date of execution of this Agreement, no event or
series of events shall have occurred that reasonably could have or result in a
Material Adverse Effect or a material adverse change with respect to the
Subsidiaries;
 
(e) WOFE Financial Statements. WOFE shall have completed and delivered audited
consolidated financial statements for the fiscal years ended June 30, 2006 and
2007 to the Company and the Investors and shall have received an audit report
from an independent audit firm that is registered with the Public Company
Accounting Oversight Board relating to the fiscal years ended June 30, 2006 and
2007, a copy of which shall be promptly provided to the Investors (collectively,
the “WOFE Financial Statements”);
 
(f) WOFE Intellectual Property Rights. The WOFE shall provide to the Investors
evidence acceptable to the Investors that all Intellectual Property Rights are
either (i) validly owned by the WOFE, or (ii) (a) if owned by any Person other
than the WOFE or its predecessor, subject to valid and binding Intellectual
Property Right Licensing Agreements which may not be terminated for any reason
until any such Intellectual Property Right covered thereby is validly owned by
the WOFE, or (b) if owned by the predecessor of the WOFE, the application for
the change of the registered owner information from that of the WOFE’s
predecessor to the WOFE’s current name, address and other related updates which
is or may be required by relevant PRC authorities in charge of such Intellectual
Property is submitted by the WOFE to the relevant PRC authority on or before the
Closing.
 
(g) PRC Opinion. The Company shall have delivered to the Investors, and the
Investors shall be able to rely upon, the legal opinions that the Company shall
have received from its legal counsel in the PRC (which, among other things,
shall confirm the legality under applicable PRC law of the WOFE and the
applicability of SAFE Circular 75, Circular 106 and the September 8 Merger and
Acquisition Rules) with such legal opinions being in a form acceptable to the
Investors in their sole discretion.
 
(h) Exchange Agreement and Form 8-K. Concurrently with or immediately prior to
the Closing, (i) the Company shall have completed the acquisition of all of the
outstanding capital stock of Green pursuant to the Exchange Agreement, and (ii)
the Company shall have provided the Investors with the Current Report on Form
8-K to be filed in accordance with the Exchange Agreement, containing the
audited financial statements of Green and other required disclosure with respect
to Green and WOFE, provided that, prior to the filing of such Current Report,
the Company shall give the Investors a meaningful opportunity to review and
comment on the draft thereof and incorporate in good faith any comments from the
Investors reasonably acceptable to the Company;
 
31

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(i) Derivative Securities. Any issued and outstanding options, convertible notes
or other securities of the Company that are exercisable or exchangeable for or
convertible into Common Stock shall have been exercised, converted or exchanged
for Common Stock in a manner satisfactory to the Investors;
 
(j) Closing Officer’s Certificate. At the Closing, the Company shall have
delivered to each Investor an officer’s certificate to the effect that each of
the conditions specified in Sections 5.1(a) - 5.1(i) is satisfied in all
respects.
 
(k) Company Deliverables. The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a); and
 
(l) Termination. This Agreement shall not have been terminated as to such
Investor in accordance with Section 6.5.
 
(m) Minimum/Maximum. The Company shall have delivered to each Investor signature
pages to this Agreement indicating that the aggregate Investment Amount payable
to the Company hereunder on the Closing Date is not less than $20,000,000 and no
more than $26,000,000.
 
5.2. Conditions Precedent to the Obligations of the Company to Sell Shares. The
obligation of the Company to sell Shares at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:
 
(a) Representations and Warranties. The representations and warranties of each
Investor contained herein shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made on and as of
such date;
 
(b) Performance. Each Investor shall have performed, satisfied and complied in
all material respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by such
Investor at or prior to the Closing;
 
(c) No Injunction. No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents;
 
(d) Exchange Agreement. Concurrently with or immediately prior to the Closing,
the Company shall have acquired all of the outstanding capital stock of Green
pursuant to the Exchange Agreement.
 
(e) Investors Deliverables. Each Investor shall have delivered its Investors
Deliverables in accordance with Section 2.2(b); and
 
32

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(f) Termination. This Agreement shall not have been terminated as to such
Investor in accordance with Section 6.5.

 
ARTICLE 6.
MISCELLANEOUS
 
6.1. Fees and Expenses. At the Closing, the Company shall reimburse Pinnacle
upon presentation to the Company of a summary invoice therefor which is
addressed to Pinnacle by its counsel, up to $60,000 for Pinnacle’s legal fees in
connection with the transactions contemplated by the Transaction Documents
(Pinnacle may deduct such amount from the Investment Amount deliverable to the
Company at Closing), it being understood that Bryan Cave LLP has only rendered
legal advice to Pinnacle, and not to the Company or any other Investor in
connection with the transactions contemplated hereby, and that each of the
Company and the other Investors has relied for such matters on the advice of its
own respective counsel. In addition, the Company shall at the Closing pay to
Pinnacle, upon presentation to the Company of reasonable documentation therefor,
not more than $7,500 to reimburse Pinnacle for its out-of-pocket due diligence
expenses in connection with the transactions contemplated by the Transaction
Documents. Except as specified in the immediately preceding two sentences and as
described in Section 6.4, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other expenses
incurred by such party incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents. The Company shall pay all
stamp and other taxes and duties levied in connection with the sale of the
Shares. In the event that any waivers or amendments are required with respect to
any Transaction Document or the transactions contemplated thereby, the Company
covenants to reimburse Pinnacle for reasonable legal expenses incurred in
connection therewith.
 
6.2. Entire Agreement. The Transaction Documents, together with the Exhibits and
Schedules thereto, contain the entire understanding of the parties with respect
to the subject matter hereof and supersede all prior agreements, understandings,
discussions and representations, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits and
schedules.
 
6.3. Notices. Any and all notices or other communications or deliveries required
or permitted to be provided hereunder shall be in writing and shall be deemed
given and effective on the earliest of (a) the date of transmission, if such
notice or communication is delivered via facsimile (provided the sender receives
a machine-generated confirmation of successful transmission) at the facsimile
number specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than 6:30
p.m. (New York City time) on any Trading Day, or (c) upon actual receipt by the
party to whom such notice is required to be given, if sent by any means other
than facsimile transmission. The address for such notices and communications
shall be as follows:

If to the Company:
 
Discovery Technologies, Inc
   
45 Old Millstone Drive, Unit 6,
   
East Windsor, NJ 08520
   
Attn: Mr. Yinshing David To

 
33

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

 
With a copy to:
 
Guzov Ofsink, LLC
   
600 Madison Avenue, 14th Floor
   
New York, New York 10022
   
Facsimile: (212) 688-7273
   
Attn.: Darren L. Ofsink, Esq.
     
If to an Investor:
 
To the address set forth under such Investor’s name on the signature pages
hereof;
     
With a copy to:
 
Bryan Cave LLP
(only for notices to
 
1290 Avenue of the Americas
investors)
 
New York, New York 10104
   
Facsimile: (212) 541-4630
   
Email: elcohen@bryancave.com
   
Attn.: Eric L. Cohen, Esq.

 
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
 
6.4. Amendments; Waivers; No Additional Consideration. No provision of this
Agreement may be waived or amended except in a written instrument signed by the
Company and the Investors holding a majority of the Shares. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right. No
consideration shall be offered or paid to any Investor to amend or consent to a
waiver or modification of any provision of any Transaction Document unless the
same consideration is also offered to all Investors who then hold Shares. The
Company shall pay for any fees, including reasonable attorney’s fees for one
counsel representing the Investors, incurred by the Investors in connection with
any amendment to a Transaction Document.
 
6.5. Termination. This Agreement may be terminated prior to Closing:
 
(a) by written agreement of the Investors holding a majority of the Shares to be
issued at Closing pursuant to the terms hereof and the Company; and
 
(b) by an Investor (as to itself but no other Investor) upon written notice to
the Company, if the Closing shall not have taken place by 6:30 p.m. Eastern time
on the Closing Date; provided, that the right to terminate this Agreement under
this Section 6.5(b) shall not be available to any Person whose failure to comply
with its obligations under this Agreement has been the cause of or resulted in
the failure of the Closing to occur on or before such time.
 
34

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In the event of a termination pursuant to Section 6.5(a) upon delivery of a
joint written notice from the Company and the Investors to the Escrow Agent or
in the event of a termination pursuant to Section 6.5(b) upon delivery of
written notice by an Investor to the Escrow Agent, such Investor shall have the
right to a return of up to its entire Investment Amount deposited with the
Escrow Agent pursuant to Section 2.2(b)(i), without interest or deduction. The
Company covenants and agrees to cooperate with such Investor in obtaining the
return of its Investment Amount, and shall not communicate any instructions to
the contrary to the Escrow Agent.
 
In the event of a termination pursuant to this Section, the Company shall
promptly notify all non-terminating Investors. Upon a termination in accordance
with this Section 6.5, the Company and the terminating Investor(s) shall not
have any further obligation or liability (including as arising from such
termination) to the other and no Investor will have any liability to any other
Investor under the Transaction Documents as a result therefrom.
 
6.6. Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party. This Agreement
shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement or any of the Transaction
Documents.
 
6.7. Successors and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Investors. Any Investor may assign any
or all of its rights under this Agreement to any Person to whom such Investor
assigns or transfers any Shares, provided such transferee agrees in writing to
be bound, with respect to the transferred Shares, by the provisions hereof that
apply to the “Investors.” Notwithstanding anything to the contrary herein, for
the avoidance of doubt, each Investor may freely transfer any Shares to any
Person (including its Affiliates or any investment fund sponsored or advised by
such Investor) without the consent of any of the Existing Company Entities or
any other Investor.
 
6.8. No Third-Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other
Person, except as otherwise set forth in Section 4.7 (as to each Investor
Party).
 
6.9. Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
agrees that all Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) shall be commenced exclusively in the New York
Courts. Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any Proceeding, any claim that it is not personally subject to the
jurisdiction of any such New York Court, or that such Proceeding has been
commenced in an improper or inconvenient forum. Each party hereto hereby
irrevocably waives personal service of process and consents to process being
served in any such Proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. Each party hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any and
all right to trial by jury in any legal proceeding arising out of or relating to
this Agreement or the transactions contemplated hereby. If either party shall
commence a Proceeding to enforce any provisions of a Transaction Document, then
the prevailing party in such Proceeding shall be reimbursed by the other party
for its reasonable attorneys’ fees and other costs and expenses incurred with
the investigation, preparation and prosecution of such Proceeding.
 
35

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

 
6.10. Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery of the Shares.
 
6.11. Execution. This Agreement may be executed in two or more counterparts, all
of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
 
6.12. Severability. If any provision of this Agreement is held to be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
6.13. Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) the Transaction
Documents, whenever any Investor exercises a right, election, demand or option
under a Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Investor may rescind
or withdraw, in its sole discretion from time to time upon written notice to the
Company, any relevant notice, demand or election in whole or in part without
prejudice to its future actions and rights.
 
6.14. Replacement of Securities. If any certificate or instrument evidencing any
Securities is mutilated, lost, stolen or destroyed, the Company shall issue or
cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities. If a replacement
certificate or instrument evidencing any Securities is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
 
36

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

 
6.15. Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
 
6.16. Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
 
6.17. Independent Nature of Investors’ Obligations and Rights. The obligations
of each Investor under any Transaction Document are several and not joint with
the obligations of any other Investor, and no Investor shall be responsible in
any way for the performance of the obligations of any other Investor under any
Transaction Document. The decision of each Investor to purchase Shares pursuant
to the Transaction Documents has been made by such Investor independently of any
other Investor. Nothing contained herein or in any Transaction Document, and no
action taken by any Investor pursuant thereto, shall be deemed to constitute the
Investors as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Investors are in any way acting in
concert or as a group with respect to such obligations or the transactions
contemplated by the Transaction Documents. Each Investor acknowledges that no
other Investor has acted as agent for such Investor in connection with making
its investment hereunder and that no Investor will be acting as agent of such
Investor in connection with monitoring its investment in the Shares or enforcing
its rights under the Transaction Documents. Each Investor shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges
that each of the Investors has been provided with the same Transaction Documents
for the purpose of closing a transaction with multiple Investors and not because
it was required or requested to do so by any Investor.
 
37

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6.18. Limitation of Liability. Notwithstanding anything herein to the contrary,
the Company acknowledges and agrees that the liability of an Investor arising
directly or indirectly, under any Transaction Document of any and every nature
whatsoever shall be satisfied solely out of the assets of such Investor, and
that no trustee, officer, other investment vehicle or any other Affiliate of
such Investor or any investor, shareholder or holder of shares of beneficial
interest of such a Investor shall be personally liable for any liabilities of
such Investor.
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
 
38

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
December 24, 2007.
 

        DISCOVERY TECHNOLOGIES, INC.  
   
   
  By:   /s/ Tao Li  

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

Name: Tao Li  
Title: Chairman of the Board,
  President and Chief Executive Officer

 

        GREEN AGRICULTURE HOLDING CORPORATION  
   
   
  By:   /s/ Yinshing David To  

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

Name: Yinshing David To   Title: Director

 

       
SHAANXI TECHTEAM JINONG HUMIC ACID PRODUCT CO., LTD.
 
   
   
  By:   /s/ Tao Li  

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

Name: Tao Li  
Title: Chairman of the Board,
  President and Chief Executive Officer

 

        Only as to Sections 3.1(bb), 4.11, 4.16 and 4.17 and Article 6 herein:  
   
   
             /s/ Yinshing David To  

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

Yinshing David To           /s/ Tao Li  

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

Tao Li

 
 
39

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

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as the
date set forth above.
 

        NAME OF INVESTOR  
   
   
  By:    

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

Name:    Title: 

 

        Investment Amount: $        Tax ID No.:           ADDRESS FOR NOTICE    
  Attention:  
   
   
  Tel:           Fax:      

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

    Email:      

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

 

       
DELIVERY INSTRUCTIONS
(if different from above)
 
   
   
  c/o:           Street:            City/State/Zip:         Attention:        
Tel:  

 
 
40

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Schedules to
Securities Purchase Agreement

dated as of December 24, 2007, by and among Discovery Technologies, Inc. a
Nevada corporation, and all predecessors thereof (the “Company”), Green
Agriculture Holding Corporation, a New Jersey corporation (“Green”), Shaanxi
TechTeam Jinong Humic Acid Product Co., Ltd., a company organized under the laws
of the People’s Republic of China (“WOFE”), and the investors identified on the
signature pages hereto (each, an “Investor” and collectively, the “Investors”).

Schedule 3.1 (a) Subsidiary

Xi’an Jintai Agriculture Technology Development Company, a company incorporated
in January 19, 2007 in the PRC is the wholly owned subsidiary of the WOFE, it
serves as the WOFE’s research and development and experimental base. Its
registered capital is RMB 1 million (approximately US$135,000)

Schedule 3.1 (g) Capitalization

Please refer to the Cap table in excel format.

Schedule 3.1(k) Litigation

Xi’an Techteam Science and Technology Industry (Group) Co., Ltd. (the “Group
Company”), the former parent company of WOFE was a former 20% shareholder of
Shanghai Li Ao Hi-Tech Investment Co., Ltd. (“Shanghai Li Ao”) as a nominee. The
Group Company is substantially owned and controlled by Tao Li, the Chairman and
CEO of WOFE.

Shanghai Li Ao invested monies in Xinjiang Delong Group. Some of the top
management of Xinjiang Delong Group was convicted in the PRC in 2006 of
illegally taking deposit accounts from investors and stock manipulation. At no
time has the Group Company, Shanghai Li Ao, Tao Li, WOFE or any employee,
officer or director thereof been charged with any wrongdoing in connection with
this matter.

Schedule 3.1 (m) Indebtedness

Loan No.
 
Borrower
 
Amount
(million in RMB)
 
Dated
 
Term
 
Gurantee
 
Secured Property
Xi Shang Yin Xincheng Jie
Zi [2007] No. 010
 
Xi’an City Commercial Bank, Xincheng Branch
 
15
 
4/29/2007
 
4/29/2007~4/1/2008
 
Xishangyin Xincheng Bao Zi [2007] No. 010
 
Property Certificate No. Yang Guo Yong (2006) No.06
Building Certificate No. Yang Fang Quan Zheng Zi No. 20060030
                         
Yang Nong Yin Jie Zi [2007] No. 001
 
Agricultural Bank of China, Yangling Branch
 
13.5
 
3/28/2007
 
3/28/2007~3/27/2007
 
Yang Nong Yin Bao Zi [2007] No. 001
 
None
                         
Shannong Xin Jie Zi Beiwen No. [2007] No. 620
 
Xi’an Beilin District Country Credit Union North Wenyi Road Branch
 
3.8
 
9/18/2007
 
9/18/2007~9/16/2007
 
None
 
Mortgage of Building of another company Xi’an Xiansheng Info. Technology Co.,
Ltd., which is majority owned by Mr. Tao Li

 

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

 
Schedule 3.1 (o) Title to Assets

There is a mortgage over the following land use right and building owned by the
WFOE for a loan of RMB15million with Xincheng Branch of Commercial Bank of Xi’an
City as referred to under Schedule 3.1 (m).

 
 
License No.
 
Area
 
Term
Property at Yangling
 
Yangguan Guo Yong [2006] No. 06
 
30,946.65 m2
 
Land use right valid through 01/2001-01/2051
             
Building at Yangling
 
No. 20060030
 
6494.91 m2
 
—

 
Schedule 3.1 (p) Patents and Trademarks

The following patents are in the process of application by the WFOE:

SN
 
Application Number
 
Date of Application
 
Applicant
 
Contents
1
 
200720031884.2
 
5/29/2007
 
Shaanxi Techteam Jinong Humici Acid Product Co.,Ltd
 
Production facility of Humic Acid Products
                 
2
 
200710017334.x
 
2/1/2007
 
Shaanxi Techteam Jinong Humici Acid Product Co.,Ltd
 
Method and recipe of the water solube humic acid fertilizers

 
A. Xi’an Techteam Science and Technology Industry (Group) Co., Ltd. (the “Group
Company”), a company Mr. Tao Li has controlling shares is the registered owner
of the following trademark:
 

Jinong (“Farmers’ Helper”)    Registration number: No. 1357523

 
The Group Company is in the process of transferring the trademark to the WOFE.
The application of the transfer with the PRC State Trademark Offices is dated
October 15, 2007. There is a licensing agreement between the Group Company and
the WOFE dated December 19, 2007 pursuant to which the Group Company granted an
irrevocable, royalty free, exclusive license to the WOFE on the trademark of
Jinong for the period from the date of the licensing agreement to the date on
which the WOFE is transferred the trademark.
 

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

B. Yanglin Techteam Jinong Humic Acid Product Co., Ltd. (“Yanglin”), the
predecessor of the WOFE, is the registered owner of the following trademark:
 

Libangnong (“Farmer’s Mighty Helper”)   Registration number: No.1503

 
Yanglin is in the process of updating the owner information records with the PRC
State Trademark Offices. The application is dated August 23, 2007.

C. Yanglin is the registered owner of the following trademarks:
 

Zhimeizi (“Make Plants Grow with Luster”)   Registration number: No. 1504    
Lepushi (“Make Farming Pleasant”)   Registration number: No. 1428

 
Yanglin is in preparing the application for the owner information records
updating and expect to file the application by the Closing.

Schedule 3.1 (q) Insurance

SN
 
Insurance Category
 
Policy Number
 
Premium (RMB)
 
Insured Property Value (RMB)
 
Insurance Carrier
 
Term of the Policy
1
 
Social Insurance
 
Endowment Insurance
 
N/A
 
54.5.4/m/19 Persons
 
N/A
 

It is different with
 
N/A
       
Medical Insurance
 
N/A
 
1640.52/m/19 Persons
 
N/A
 
each employee
when they
         
Unemployment Insurance
 
N/A
 
696.83/m/19 Persons
 
N/A
 
contracted with
the Insurance
           
Maternity Insurance
 
N/A
 
106.25/m/19 Persons
 
N/A
 
company
at the beginning.
           
Industrial Injury Insurance
 
N/A
 
193.05/m/19 Persons
 
N/A
     
2
 
Assets Comprehensive
 
Fixed Assets
 
6005745
 
6,800.00
 
1,360,000.00
 
PICC Property and Causalty Company Limited,Shaanxi
 
Expires on 12/29/2008
 
 
Insurance
 
Finished Products
     
2,000.00
 
400,000.00
  Branch            
Packing Materials
     
1,000.00
 
200,000.00
     

 

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Schedule 3.1 (r)

As of the date of this Agreement, the WOFE owes $135,947 to its officers and
shareholders. Such advance from the officers and shareholders to the WOFE was
unsecured, non-interest bearing and due on demand. The WOFE plans to pay the
amount off by December 31, 2007.

Schedule 3.1 (s)

The Company intends to hire a chief financial officer who has experience with
public accounting, the requirements of GAAP and the United States securities
laws. The Company has not yet evaluated its internal controls over financial
reporting in order to allow management to report on, and the independent
auditors to attest to, its internal controls over financial reporting, as will
be required by Section 404 of the Sarbanes-Oxley Act of 2002 and the rules and
regulations of the SEC. The Company has never performed the system and process
evaluation and testing required in an effort to comply with the management
assessment and auditor certification requirements of Section 404, which will
initially apply to us as of December 31, 2007.

Schedule 3.1 (u) Certain Fees

In connection with the financing contemplated under the Securities Purchase
Agreement, Hickey Freihofner Capital, a Division of Brill Securities, Inc.,
member of FINRA, MSRB, SIPC, as placement agent, is to receive a cash fee of 6%
of the monies raised comprised of a 5% placement agent fee and 1% for
non-accountable expenses and foreign finders received 2%.

Schedule 3.1 (v) Certain Registration Matters

Michael Friess and Sanford Schwartz (the “Shell Sellers”), the directors and
controlling owners of the Company before the Closing, has piggy-back
registration rights on 111,386 shares of common stock for the period that they
hold those shares, pursuant to Redemption Agreement by and among the Shell
Sellers and the Company dated the Closing Date. The piggy-back registration
rights are conditioned on Rule 415 cutback.

Schedule 3.1 (cc) Foreign Corrupt Practices Act  
 
Under the FCPA, companies that have a class of securities registered under
Section 12 of the Exchange Act, or that are required to file reports under
Section 15(d) of the Exchange Act, are required to devise and maintain a system
of internal accounting controls sufficient to provide reasonable assurances
that:
 

 
·
transactions are executed in accordance with management's general or specific
authorization;

 

 
·
transactions are recorded as necessary (1) to permit preparation of financial
statements in conformity with generally accepted accounting principles or any
other criteria applicable to such statements, and (2) to maintain accountability
for assets;

 

 
·
access to assets is permitted only in accordance with management's general or
specific authorization; and

 

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·
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

 
Reference is made to Schedule 3.1(s).
 
Schedule 4.4
 
Reference is made to Schedule 3.1 (v).
 

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