Exhibit 10.1

[FORM OF]

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of
July 7, 2009, by and among Nile Therapeutics, Inc., a Delaware corporation (the
“Company”), and each purchaser identified on the signature pages hereto (each,
including its successors and assigns, a “Purchaser” and collectively the
“Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, securities of the Company 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 each Purchaser agree
as follows:

ARTICLE I.

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement,
for all purposes of this Agreement, the following terms have the meanings set
forth in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“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 144 under the
Securities Act. With respect to a Purchaser, any investment fund or managed
account that is managed on a discretionary basis by the same investment manager
as such Purchaser will be deemed to be an Affiliate of such Purchaser.

“Business Day” means any day except Saturday, Sunday, any day which shall be a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other
governmental action to close.

“Closing” means the closing of the purchase and sale of the Securities pursuant
to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the Purchase
Price and (ii) the Company’s obligations to deliver the Securities have been
satisfied or waived.

“Closing Price” means on any particular date (a) the last reported consolidated
closing bid price per share of Common Stock on such date on the Trading Market
(as reported by

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Bloomberg L.P. at 4:15 p.m. (New York City time)); provided, however, that for
purposes of determining the Per Unit Purchase Price, the Closing Price shall
mean the last reported consolidated closing bid price per share of Common Stock
on the Trading Market at the time this Agreement is entered into; or (b) if
there is no such price on such date, then the consolidated closing bid price on
the Trading Market on the date nearest preceding such date (as reported by
Bloomberg L.P. at 4:15 p.m. (New York City time)), or (c) if the Common Stock is
not then listed or quoted on the Trading Market and if prices for the Common
Stock are then reported in the “pink sheets” published by Pink Sheets LLC (or a
similar organization or agency succeeding to its functions of reporting prices),
the most recent bid price per share of the Common Stock so reported, or (d) if
the shares of Common Stock are not then publicly traded the fair market value of
a share of Common Stock as determined by an independent appraiser mutually
acceptable to the Company and the Purchasers of 67% of the then outstanding
Shares.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.

“Common Stock Equivalents” means any securities of the Company that would
entitle the holder thereof to acquire at any time Common Stock, including,
without limitation, any debt, preferred stock, rights, options, warrants, stock
appreciation rights, restricted stock units or other instrument that is at any
time convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.

“Company Counsel” means Fredrikson & Byron, P.A. with offices located at 200
South Sixth Street, Suite 4000, Minneapolis, MN 55402.

“Confidential Investor Questionnaire” shall mean the questionnaire set forth on
Exhibit B attached hereto and made a part hereof.

“Disclosure Schedules” means the Disclosure Schedules of the Company delivered
concurrently herewith.

“Effective Date” means the date that the Registration Statement is first
declared effective by the Commission.

“Effectiveness Period” shall have the meaning ascribed to such term in
Section 4.1(b).

“Equity Incentive Plan” means (i) any equity incentive, stock option or similar
plan and (ii) any other agreement, arrangement, understanding or other document
pursuant to which the Company is obligated to grant or issue Common Stock or
Common Stock Equivalents to current or former employees in connection with their
services to the Company, in each case adopted or approved by a majority of the
non-employee members of the board of directors of the Company or a majority of
the members of a committee of non-employee directors established.

 

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“Escrow Account” means the account described on Exhibit E attached hereto
maintained by the Escrow Agent into which funds representing the Purchase Price
shall be deposited and held pending the Closing.

“Escrow Agent” means U.S. Bank National Association Trust, St. Paul, Minnesota.

“Evaluation Date” shall have the meaning ascribed to such term in
Section 3.1(r).

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“FINRA” means the Financial Industry Regulatory Authority.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Holder” shall have the meaning ascribed to such term in Section 4.1(d).

“Intellectual Property Rights” shall have the meaning ascribed to such term in
Section 3.1(o).

“Legend Removal Date” shall have the meaning ascribed to such term in
Section 5.1(c).

“Liens” means a lien, charge, security interest, encumbrance, right of first
refusal, preemptive right or other restriction.

“Material Adverse Effect” shall have the meaning assigned to such term in
Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in
Section 3.1(m).

“Per Unit Purchase Price” equals $1.25; provided, however, that the Per Unit
Purchase Price for any Purchaser that is an officer, director of affiliate of
the Company shall be equal to $1.265, which represents the sum of (a) the
Closing Price at the time this Agreement is entered into, plus (b) $0.125 per
Warrant Share, subject to adjustment for reverse and forward stock splits, stock
dividends, stock combinations and other similar transactions of the Common Stock
that occur after the date of this Agreement.

“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.

“Placement Agent” means Riverbank Capital Securities, Inc.

“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.

“Purchaser Party” shall have the meaning ascribed to such term in Section 5.9.

 

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“Purchase Price” means, as to each Purchaser, the aggregate amount to be paid
for the Units purchased hereunder as specified below such Purchaser’s name on
the signature page of this Agreement and next to the heading “Purchase Price,”
in United States dollars and in immediately available funds.

“Registrable Securities” shall have the meaning ascribed to such term in
Section 4.1(c).

“Registration Due Date” shall have the meaning ascribed to such term in
Section 4.1(a).

“Registration Statement” shall have the meaning ascribed to such term in
Section 4.1(a).

“Regulation S” means Rules 901 through 905 (including the preliminary notes)
promulgated by the Commission pursuant to the Securities Act, as such rules 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 rules.

“Required Approvals” shall have the meaning ascribed to such term in
Section 3.1(e).

“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” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities” shall mean the Shares, the Warrants and the Warrant Shares issued
or issuable to each Purchaser pursuant to this Agreement or the Warrants, as
applicable.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Selling Stockholder Questionnaire” shall mean the questionnaire set forth on
Exhibit C attached hereto and made a part hereof.

“Shares” means the shares of Common Stock issued or issuable to each Purchaser
pursuant to this Agreement.

“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO
under the Exchange Act (but shall not be deemed to include the location and/or
reservation of borrowable shares of Common Stock).

“Subsidiary” means any subsidiary of the Company as set forth on
Schedule 3.1(a).

“Trading Day” means a day on which the Common Stock is traded on a Trading
Market.

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the American
Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq
Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

 

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“Transaction Documents” means this Agreement (including the exhibits attached
hereto), the Confidential Term Sheet dated June 25, 2009, the Company’s Annual
Report on Form 10-K and 10-K/A for the year ended December 31, 2008, including
the risk factors set forth therein, the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2009, the Current Reports on Form 8-K filed on each of
January 22, 2009, March 9, 2009, March 19, 2009, March 23, 2009, June 12, 2009
and June 25, 2009 and any other documents or agreements executed in connection
with the transactions contemplated hereunder.

“Transfer Agent” means American Stock Transfer & Trust Company, with a mailing
address of 10150 Mallard Creek Road, Suite 307, Charlotte, NC 28262 and a
facsimile number of (718) 765-8741, and any successor transfer agent of the
Company.

“Units” means the Shares and Warrants issued to each Purchaser pursuant to this
Agreement.

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

“Warrants” means the five-year warrants issued or issuable to each Purchaser
pursuant to this Agreement in substantially the form attached hereto as Exhibit
A. The Warrants will be evidenced by three (3) separate certificates, which
collectively will represent the right to purchase a number of Warrant Shares
equal to the number of Shares purchased by the Purchaser, as follows:

(a) A Warrant representing the right to purchase twenty five percent (25%) of
the Warrant Shares at an exercise price equal to 110% the Closing Price;

(b) A Warrant representing the right to purchase twenty five percent (25%) of
the Warrant Shares at an exercise price equal to 150% of the Closing Price; and

(c) A Warrant representing the right to purchase fifty percent (50%) of the
Warrant Shares at an exercise price equal to 200% of the Closing Price.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the
Warrants to the holder(s) thereof.

ARTICLE II.

PURCHASE AND SALE

2.1 Closing. On the Closing Date, upon the terms and subject to the conditions
set forth herein, the Company agrees to sell, and each Purchaser, severally and
not jointly, agrees to purchase, at the Per Unit Purchase Price, the number of
Units indicated on its signature page hereto. The Company and each Purchaser
shall deliver the other items set forth in Section 2.2 deliverable at the
Closing. Upon satisfaction of the conditions set forth in Sections 2.2 and 2.3,
the Closing shall occur at the offices of the Placement Agent or such other
location as the parties shall mutually agree.

 

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2.2 Deliveries.

(a) On or prior to the Closing Date, the Company shall deliver or cause to be
delivered to each Purchaser the following:

(i) this Agreement duly executed by the Company;

(ii) a legal opinion of Company Counsel, in the form of Exhibit D attached
hereto;

(iii) a copy of the irrevocable instructions to the Transfer Agent instructing
the Transfer Agent to deliver, on an expedited basis, a certificate evidencing
the number of its respective Shares purchased hereby, registered in the name of
such Purchaser and to be delivered to the Purchaser’s mailing address indicated
on the signature page hereto;

(iv) the Warrants being purchased by such Purchaser hereunder, executed on
behalf of the Company and registered in the name of such Purchaser; and

(v) a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, certifying to the fulfillment
of the conditions specified in Sections 2.3(b)(i) and 2.3(b)(ii).

(b) On or prior to the Closing Date, each Purchaser shall deliver or cause to be
delivered to the Company the following:

(i) this Agreement duly executed by such Purchaser;

(ii) the Confidential Investor Questionnaire completed by the Purchaser;

(iii) the Selling Stockholder Questionnaire completed by the Purchaser; and

(iv) such Purchaser’s Purchase Price by wire transfer to the Escrow Account
pursuant to the wire instructions set forth on Exhibit E.

2.3 Closing Conditions.

(a) The obligations of the Company hereunder in connection with the Closing are
subject to the following conditions being met:

(i) the accuracy in all material respects of the representations and warranties
of the Purchasers contained herein, except such representations and warranties
that are qualified by materiality or Material Adverse Effect which must be true
and correct in all respects, when made and on the Closing Date (except for
representations and warranties that speak as of a specific date which shall be
accurate as of such date);

 

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(ii) all obligations, covenants and agreements of the Purchasers required to be
performed at or prior to the Closing Date shall have been performed;

(iii) the delivery by the Purchasers of the items set forth in Section 2.2(b) of
this Agreement; and

(iv) the deposit into the Escrow Account of at least Two Million Dollars
($2,000,000) in connection with the purchase of Units pursuant to this
Agreement.

(b) The respective obligations of each Purchaser hereunder in connection with
the Closing are subject to the following conditions being met:

(i) the accuracy in all material respects of the representations and warranties
of the Company contained herein, except such representations and warranties that
are qualified by materiality or Material Adverse Effect which must be true and
correct in all respects, when made and on the Closing Date (except for
representations and warranties that speak as of a specific date which shall be
accurate as of such date);

(ii) all obligations, covenants and agreements of the Company required to be
performed at or prior to the Closing Date shall have been performed;

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of
this Agreement;

(iv) there shall have been no Material Adverse Effect with respect to the
Company since the date hereof;

(v) the deposit into the Escrow Account of at least Two Million Dollars
($2,000,000) in connection with the purchase of Units pursuant to this
Agreement; and

(vi) from the date hereof to the Closing Date, trading in the Common Stock shall
not have been suspended by the Commission or the Company’s principal Trading
Market (except for any suspension of trading of limited duration agreed to by
the Company, which suspension shall be terminated prior to the Closing), and, at
any time prior to the Closing Date, trading in securities generally as reported
by Bloomberg L.P. shall not have been suspended or limited, or minimum prices
shall not have been established on securities whose trades are reported by such
service, or on any Trading Market, nor shall a banking moratorium have been
declared either by the United States or New York State authorities nor shall
there have occurred any material outbreak or escalation of hostilities or other
national or international calamity of such magnitude in its effect on, or any
material adverse change in, any financial market which, in each case, in the
reasonable judgment of each Purchaser, makes it impracticable or inadvisable to
purchase the Securities at the Closing.

 

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ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof
and shall qualify any representation or otherwise made herein to the extent of
the disclosure contained in the corresponding section of the Disclosure
Schedules, the Company hereby makes the following representations and warranties
to each Purchaser:

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of
the capital stock or other equity interests of each Subsidiary free and clear of
any Liens, and all of the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase securities. If the
Company has no subsidiaries, then all other references to the Subsidiaries or
any of them in the Transaction Documents shall be disregarded.

(b) Organization and Qualification. The Company and each of the Subsidiaries is
an entity 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
properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation or default of any of the
provisions of its respective certificate or articles of incorporation, bylaws or
other organizational or charter documents. Each of the Company and the
Subsidiaries is duly qualified to conduct business 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, would not have or reasonably be expected to result in (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.

(c) Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, its board of directors or its stockholders in connection therewith
other than in connection with the Required Approvals. Each Transaction Document
has been (or upon delivery will have been) duly executed by the Company and,
when delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company

 

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enforceable against the Company in accordance with its terms except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

(d) No Conflicts. The execution, delivery and performance of the Transaction
Documents by the Company, the issuance and sale of the Shares and Warrants and
the consummation by the Company of the other transactions contemplated hereby
and thereby do not and will not (i) conflict with or violate any provision of
the Company’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, result in the creation of any Lien upon any of
the properties or assets of the Company or any Subsidiary, 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 a Company or Subsidiary debt or otherwise) or other
understanding to which the Company 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) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state 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 would not have or reasonably be expected to result in a Material Adverse
Effect.

(e) Filings, Consents and Approvals. The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 5.4 of this Agreement, (ii) the filing
with, and the declaration of effectiveness by, the Commission of the
Registration Statement, (iii) application(s) and notification(s) to each
applicable Trading Market for the issuance and sale of the Securities and the
listing of the Shares and Warrant Shares for trading or quotation, as the case
may be, thereon in the time and manner required thereby, and (iv) the filing of
Form D with the Commission and such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).

(f) Issuance of the Securities. The Shares and Warrants are duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Warrant Shares are duly
authorized and, when issued and paid for in accordance with the terms of the
Warrants, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens imposed by the Company other than restrictions on
transfer provided for in the Transaction Documents. The Company has reserved
from its duly authorized capital stock the maximum number of shares of Common
Stock issuable pursuant to this Agreement. Assuming the accuracy, or continued
accuracy (as applicable) of the representations and warranties of the Purchasers
in this Agreement, the Securities will be issued in compliance with all
applicable federal and state securities laws.

 

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(g) Capitalization. The number of shares and type of all authorized, issued and
outstanding capital stock, options and other securities of the Company (whether
or not presently convertible into or exercisable or exchangeable for shares of
capital stock of the Company) has been set forth in the SEC Reports and has
changed since the date of such SEC Reports only to reflect stock option and
warrant exercises that do not, individually or in the aggregate, have a material
affect on the issued and outstanding capital stock, options and other
securities. 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. Except as set forth on the SEC
Reports or as a result of the purchase and sale of the Securities, 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 exercisable 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 Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers and the Placement Agent) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are duly authorized, validly
issued, fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and none of such outstanding shares was
issued in violation of any preemptive rights or similar rights to subscribe for
or purchase securities. Except for the Required Approvals, no further approval
or authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.

(h) SEC Reports; Financial Statements. Since March 31, 2008, the Company has
filed all reports, schedules, forms, statements and other documents required to
be filed by the Company under the Securities Act and the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof (the foregoing materials, including
the exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”). As of their respective
dates, the SEC Reports complied in all material respects with the requirements
of the Securities Act and the Exchange Act, as applicable, 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 the light of the circumstances under
which they were made, not misleading. Except as previously disclosed in the SEC
Reports or on Schedule 3.1(h) hereto, as of the date hereof, the Company is not
aware of any event occurring on or prior to the Closing Date (other than the
transactions contemplated by the Transaction Documents) that requires the filing
of a Form 8-K after the Closing. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with

 

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respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”), except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, 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. All material agreements to which the
Company is a party or to which the property or assets of the Company are subject
are included as part of or specifically identified in the SEC Reports.

(i) Material Changes; Undisclosed Events, Liabilities or Developments. Since the
date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the
date hereof, (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) the Company has not incurred any liabilities (contingent or otherwise)
other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice and (B) liabilities not
required to be reflected in the Company’s financial statements pursuant to GAAP
or disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting, (iv) the Company has not 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) the Company has not issued any equity securities to
any executive officer, director or Affiliate, except pursuant to an Equity
Incentive Plan. The Company does not have pending before the Commission any
request for confidential treatment of information. Except for the issuance of
the Securities contemplated by this Agreement, no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made that has not
been publicly disclosed at least one (1) Trading Day prior to the date that this
representation is made.

(j) Litigation. There is no action, suit, inquiry, notice of violation,
proceeding (including any partial proceeding such as a deposition) or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”) that (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities, or
(ii) could, if there were an unfavorable decision, have or reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
Subsidiary, nor any director or executive officer thereof, 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. There
has not been, and to the knowledge of the Company, there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or executive officer of the Company. 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.

 

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(k) Labor Relations. No material labor dispute exists or, to the knowledge of
the Company, is imminent with respect to any of the employees of the Company
that could reasonably be expected to result in a Material Adverse Effect. None
of the Company’s or its Subsidiaries’ employees is a member of a union that
relates to such employee’s relationship with the Company, and neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good. No executive officer, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any liability
with respect to any of the foregoing matters. The Company and its Subsidiaries
are in compliance with all U.S. federal, state, local and foreign laws and
regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.

(l) Compliance. Neither the Company nor any Subsidiary (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 the Company
or any Subsidiary under), nor has the Company or any Subsidiary 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
order of any court, arbitrator or governmental body, 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
applicable to its business and all such laws that affect the environment, except
in each case as would not have or reasonably be expected to result in a Material
Adverse Effect.

(m) Regulatory Permits. The Company and the Subsidiaries 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 have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company nor any
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.

(n) Title to Assets. The Company and the Subsidiaries have good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens (i) that do not materially affect the value of such property
and (ii) that do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases with which the Company and the Subsidiaries
are in compliance in all material respects. The Company does not own any real
property.

 

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(o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports (collectively, the “Intellectual Property Rights”). To the
Company’s knowledge, the conduct of the Company’s and any Subsidiary’s
businesses will not conflict in any material respects with any intellectual
property rights of others. Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that the Intellectual Property Rights used by the
Company or any Subsidiary violates or infringes upon the rights of any Person.
To the knowledge of the Company, all Intellectual Property Rights are
enforceable and valid and there is no existing infringement by another Person of
any of the Intellectual Property Rights. Except as described in the SEC Reports,
there are no outstanding options, licenses or agreements of any kind relating to
the foregoing Intellectual Property Rights, nor is the Company bound by or a
party to any options, licenses or agreements of any kind with respect to the
Intellectual Property Rights. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their intellectual properties.

(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are customary in the businesses in which the Company and the
Subsidiaries are engaged. The Company carries directors and officers insurance
coverage in the amount set forth on Schedule 3.1(p). Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC
Reports or in the Transaction Documents, none of the executive officers or
directors of the Company and, to the knowledge of the Company, none of the
employees of the Company is presently a party to any transaction with the
Company or any Subsidiary (other than for services as employees, executive
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
executive officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $120,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements and restricted stock unit agreements under any Equity Incentive Plan.

 

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(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date. The Company and the Subsidiaries
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 and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”). The Company presented in its most recently filed periodic
report under the Exchange Act 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 changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

(s) Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage or
finder’s fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents, other than to the Placement Agent with respect to the
offer and sale of the Securities (which placement agent fees are being paid by
the Company). The Purchasers shall have no obligation with respect to any fees
or with respect to any claims 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 the Transaction Documents.

(t) Private Placement. Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2, no registration under the Securities
Act is required for the offer and sale of the Shares by the Company to the
Purchasers as contemplated hereby. The issuance and sale of the Shares hereunder
does not contravene the rules and regulations of the Trading Market.

(u) Investment Company. The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Shares and Warrants, will not be or
be an Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.

(v) Registration Rights. No Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company,
other than with respect to the Company’s continuing obligations to maintain the
effectiveness of registration statements filed prior to the date hereof.

 

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(w) Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) of the Exchange Act. The Company has not, in the
12 months preceding the date hereof, received notice from any Trading Market on
which the Common Stock is or has been listed or quoted to the effect that the
Company is not in compliance with the listing or maintenance requirements of
such Trading Market. Except as set forth on Schedule 3.1(w), the Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance with all such listing and maintenance requirements.

(x) Disclosure. All disclosure furnished by or on behalf of the Company to the
Purchasers regarding the Company, its business and the transactions contemplated
hereby, including the Disclosure Schedules to this Agreement, is true and
correct and does 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. The
press releases disseminated by the Company during the 12 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, in light of the circumstances under
which they were made and when made, not misleading. The Company acknowledges and
agrees that no Purchaser makes or has made any representations or warranties
with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.

(y) No Integrated Offering. Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, neither the Company,
nor any of its Affiliates, nor any Person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would cause this
offering of the Shares to be integrated or aggregated with prior offerings by
the Company for purposes of the Securities Act or any applicable shareholder
approval provisions of any Trading Market on which any of the securities of the
Company are listed or designated.

(z) Tax Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has accurately and timely filed all
federal, state and foreign income and franchise tax returns, reports and
declarations required by any jurisdiction to which it is subject, and has paid
or accrued all taxes shown as due thereon, and there is no tax deficiency in any
material amount which has been asserted or threatened against the Company or any
Subsidiary.

(aa) No General Solicitation. Neither the Company nor any person acting on
behalf of the Company has offered or sold any of the Securities by any form of
general solicitation or general advertising. The Company has offered the
Securities for sale only to the Purchasers and certain other “accredited
investors” within the meaning of Rule 501 under the Securities Act.

(bb) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any funds 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 made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

 

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(cc) No Disagreements with Accountants. There are no disagreements of any kind
presently existing, or reasonably anticipated by the Company to arise, between
the Company and the independent registered public accounting firm formerly or
presently employed by the Company and the Company is current with respect to any
fees owed to such accounting firm.

(dd) Acknowledgment Regarding Purchasers’ Purchase of Securities. The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company (or in
any similar capacity) with respect to the Transaction Documents and the
transactions contemplated thereby and any advice given by any Purchaser or any
of their respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated thereby is merely incidental to the
Purchasers’ purchase of the Shares and Warrants. The Company further represents
to each Purchaser that the Company’s decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.

(ee) Regulation M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or, paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay
to any Person any compensation for soliciting another to purchase any other
securities of the Company, other than, in the case of clauses (ii) and (iii),
compensation paid to the Placement Agent in connection with the placement of the
Securities.

(ff) FDA. As to each of the Company’s product candidates subject to the
jurisdiction of the U.S. Food and Drug Administration (“FDA”) under the Federal
Food, Drug and Cosmetic Act, as amended, and the regulations thereunder
(“FDCA”), that is manufactured, packaged, labeled, tested, distributed, sold,
and/or marketed by the Company or any of its Subsidiaries (each such product
candidate, a “Pharmaceutical Product”), such Pharmaceutical Product is being
manufactured, packaged, labeled, tested, distributed, sold and/or marketed by
the Company in compliance with all applicable requirements under FDCA and other
federal or state laws, rules and regulations relating to registration,
investigational use, premarket clearance, licensure, or application approval,
good manufacturing practices, good laboratory practices, good clinical
practices, product listing, quotas, labeling, advertising, record keeping and
filing of reports, except where the failure to be in compliance would not
reasonably be expected to have a Material Adverse Effect. There is no pending,
completed or, to the Company’s knowledge, threatened, action (including any
lawsuit, arbitration, or legal or administrative or regulatory proceeding,
charge, complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has received
any notice, warning letter or other communication from the FDA or any other
governmental entity, which (i) contests the

 

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premarket clearance, licensure, registration, or approval of, the uses of, the
distribution of, the manufacturing or packaging of, the testing of, the sale of,
or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its
approval of, requests the recall, suspension, or seizure of, or withdraws or
orders the withdrawal of advertising or sales promotional materials relating to,
any Pharmaceutical Product, (iii) except as disclosed in the SEC Reports,
imposes a clinical hold on any clinical investigation by the Company or any of
its Subsidiaries, (iv) enjoins production at any facility of the Company or any
of its Subsidiaries, (v) enters or proposes to enter into a consent decree of
permanent injunction with the Company or any of its Subsidiaries, or
(vi) otherwise alleges any violation of any laws, rules or regulations by the
Company or any of its Subsidiaries, and which, either individually or in the
aggregate, would have or reasonably be expected to have a Material Adverse
Effect. The properties, business and operations of the Company have been and are
being conducted in all material respects in accordance with all applicable laws,
rules and regulations of the FDA. The Company has not been informed by the FDA
that the FDA will prohibit the marketing, sale, license or use in the United
States of any product proposed to be developed, produced or marketed by the
Company nor has the FDA expressed any concern as to approving or clearing for
marketing any product being developed or proposed to be developed by the
Company.

(gg) Stock Options. With respect to stock options issued pursuant to the
Company’s Equity Incentive Plan(s) (i) except as disclosed in the SEC Reports,
including the financial statements included therein, each grant of a stock
option was duly authorized no later than the date on which the grant of such
stock option was by its terms to be effective (the “Grant Date”) by all
necessary corporate action, including, as applicable, approval by the board of
directors of the Company (or a duly constituted and authorized committee
thereof) and any required stockholder approval by the necessary number of votes
or written consents, (ii) each such grant was made in accordance with the
material terms of an Equity Incentive Plan, the Securities Act and all other
applicable laws and regulatory rules or requirements, and (iii) each such grant
was or has now been properly accounted for in accordance with GAAP in the
financial statements (including the related notes) of the Company and disclosed
in the Company’s filings with the Commission in accordance with the Exchange Act
and all other applicable laws, except, in the cases of clauses (i), (ii) and
(iii), for any such failure, violation or default that would not be material to
the Company and its subsidiaries taken as a whole.

(hh) The Company is subject to the reporting requirements of the Exchange Act,
and has filed all reports required thereby.

(ii) It is understood and acknowledged by the Company that, except as provided
in Sections 3.2(f) and 5.13 and subject to compliance by the Purchasers with
applicable law, (i) none of the Purchasers have been asked by the Company or its
Subsidiaries to agree, nor has any Purchaser agreed with the Company or its
Subsidiaries, to desist from purchasing or selling, long and/or short,
securities of the Company, or “derivative” securities based on securities issued
by the Company or to hold the Shares for any specified term; (ii) any Purchaser,
and counterparties in “derivative” transactions to which any such Purchaser is a
party, directly or indirectly, presently may have a “short” position in the
Common Stock, and (iii) each Purchaser shall not be deemed to have any
affiliation with or control over any arm’s length counterparty in any
“derivative” transaction. The Company further understands and acknowledges that,
(1) subject to compliance by the Purchasers with applicable law, one or more
Purchasers may engage in

 

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hedging and/or trading activities at various times during the period that the
Shares are outstanding and (2) such hedging and/or trading activities, if any,
can reduce the value of the existing stockholders’ equity interest in the
Company both at and after the time the hedging and/or trading activities are
being conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of the Transaction
Documents.

3.2 Representations and Warranties of the Purchasers. Each Purchaser, for itself
and for no other Purchaser, hereby represents and warrants as of the date hereof
and as of the Closing Date to the Company as follows:

(a) Organization; Authority. If not a natural person, such Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and performance by
such Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of such
Purchaser. Each Transaction Document to which it is a party has been duly
executed by such Purchaser, and when delivered by such Purchaser in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, except
(i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law.

(b) Own Account. Such Purchaser understands that the Securities are “restricted
securities” and have not been registered under the Securities Act or any
applicable state or other securities law and is acquiring the Securities as
principal for its own account and not with a view to or for distributing or
reselling such Securities or any part thereof in violation of the Securities Act
or any applicable state or other securities law, has no present intention of
distributing any of such Securities in violation of the Securities Act or any
applicable state or other securities law and has no direct or indirect
arrangement or understandings with any other persons to distribute or regarding
the distribution of such Securities (this representation and warranty not
limiting such Purchaser’s right to sell the Securities pursuant to the
Registration Statement or otherwise in compliance with applicable federal and
state securities laws) in violation of the Securities Act or any applicable
state or other securities law. Such Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.

(c) Purchaser Status. At the time such Purchaser was offered the Securities, it
was, and at the date hereof it is, either: (i) an “accredited investor” as
defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(5), (a)(6), (a)(7) or (a)(8)
under the Securities Act or (ii) a “qualified institutional buyer” as defined in
Rule 144A(a) under the Securities Act. No Purchaser is required to be registered
as a broker-dealer under Section 15 of the Exchange Act.

 

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(d) Experience of Such Purchaser. Such Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Shares, and has so evaluated the
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.

(e) General Solicitation. Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities 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.

(f) Short Sales and Confidentiality Prior to the Date Hereof. Other than the
transaction contemplated hereunder, such Purchaser has not, nor has any Person
acting on behalf of or pursuant to any understanding with such Purchaser,
directly or indirectly executed any transaction, including Short Sales, in the
securities of the Company during the period commencing from the time that such
Purchaser was first contacted by the Company or any third-party acting on behalf
of the Company pertaining to the transactions contemplated hereunder until the
date hereof (“Discussion Time”). Notwithstanding the foregoing, in the case of a
Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio
managers have no direct knowledge of the investment decisions made by the
portfolio managers managing other portions of such Purchaser’s assets, the
representation set forth above shall only apply with respect to the portion of
assets managed by the portfolio manager that made the investment decision to
purchase the Securities covered by this Agreement. Other than to other Persons
party to this Agreement, such Purchaser has maintained the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction).

(g) Non-Controlling Status. Following the consummation of the transactions
contemplated by the Transaction Documents, the total number of shares of Common
Stock beneficially owned (as determined in accordance with Rule 13d-3 under the
Exchange Act) by such Purchaser shall not represent more than 19.9% of the
outstanding Common Stock.

(h) Affiliate Status. If such Purchaser is domiciled or was formed outside of
the U.S., such Purchaser is not an “affiliate” (as defined in Rule 144) of the
Company or acting on behalf of the Company and, at the time the commitment to
purchase the Shares was originated, was outside the U.S. and was not a U.S.
person (and was not acquiring for the account or benefit of a U.S. person)
within the meaning of Regulation S.

(i) Provision of Information. Such Purchaser 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 Securities and the finances, operations and business of the Company; and
(ii) the opportunity to request such additional information which the Company
possesses or can acquire without unreasonable effort or expense.

(j) Certain Fees. No brokerage or finder’s fees or commissions are or will be
payable by such Purchaser to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents.

 

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(k) Residency; Foreign Securities Laws. Unless such Purchaser resides, in the
case of individuals, or is headquartered or formed, in the case of entities, in
the United States, such Purchaser acknowledges that the Company will not issue
any Securities in compliance with the laws of any jurisdiction outside of the
United States and the Company makes no representation or warranty that any
Securities issued outside of the United States have been offered or sold in
compliance with the laws of the jurisdiction into which such Securities were
issued. Any Purchaser not a resident of or formed in the United States warrants
to the Company that no filing is required by the Company with any governmental
authority in such Purchaser’s jurisdiction in connection with the transactions
contemplated hereby. If such Purchaser is domiciled or was formed outside of the
U.S., such Purchaser has satisfied itself as to the full observance of the laws
of its jurisdiction in connection with the acquisition of the Securities or any
use of this Agreement, including (i) the legal requirements within its
jurisdiction for the purchase of the Securities, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale or transfer of the Securities. If such Purchaser is domiciled or was formed
outside the U.S., such Purchaser’s acquisition of and payment for, and its
continued ownership of the Securities, will not violate any applicable
securities or other laws of his, her or its jurisdiction.

(l) Acknowledgement. Each Purchaser acknowledges that the Company has relied
upon the representations and warranties of the Purchasers set forth in
Section 3.2 in its determination that no registration under the Securities Act
is required for the offer and sale of the Securities by the Company to the
Purchasers as contemplated by this Agreement.

(m) Acknowledgements Regarding Placement Agent.

(i) The Purchaser acknowledges that the Placement Agent is acting as the
exclusive placement agent on a “best efforts” basis for the Securities being
offered hereby and will be compensated by the Company for acting in such
capacity. The Purchaser represents that (1) the Purchaser has a pre-existing
relationship with the Placement Agent or the Company, (2) the Purchaser was
contacted regarding the sale of the Securities by the Placement Agent or the
Company (or an authorized agent or representative thereof) with whom the
Purchaser agreed to maintain the confidentiality of the material terms and
conditions of the transactions contemplated by the Transaction Documents until
such information was publicly disclosed by the Company, and (3) no Securities
were offered or sold to it by means of any form of general solicitation or
general advertising.

(ii) The Purchaser acknowledges that the Placement Agent and its directors,
officers, employees, representatives and controlling persons have no
responsibility for making any independent investigation of the SEC Reports and
make no representation or warranty to the Purchaser, express or implied, with
respect to the Company or the Securities or the accuracy, completeness or
adequacy of the SEC Reports or any other publicly available information, nor
shall any of the foregoing persons be liable for any

 

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loss or damages of any kind resulting from the use of the information contained
therein or otherwise supplied to the Purchaser. In addition, the Purchaser
acknowledges that it has not relied on information provided by any of such
persons but has conducted its own investigation.

(n) Participation by Interested Parties. The Purchaser acknowledges that
(i) Units may be purchased by Affiliates of the Company and other parties that
may be interested in the transactions contemplated by this Agreement, and that
(ii) the Purchase Price for such Units, will be counted in determining whether
the minimum aggregate Purchase Price of Two Million Dollars ($2,000,000) has
been deposited in the Escrow Account, as required by Section 2.3(a)(iv) and
Section 2.3(b)(v). The Purchaser acknowledges that the condition set forth in
Section 2.3(a)(iv) and Section 2.3(b)(v) is not designed as a protection to
investors, and the Purchaser is not relying on the minimum aggregate Purchase
Price of Two Million Dollars ($2,000,000) as an indication of the merits of the
transactions contemplated by this Agreement.

ARTICLE IV.

4.1 Registration; Definitions.

(a) No later than sixty (60) days following the Closing Date (the “Registration
Due Date”), the Company shall prepare and file with the Commission a
registration statement covering the resale of all of the Registrable Securities
(the “Registration Statement”); provided, however, that if the Registration Due
Date falls on a Saturday, Sunday or other day on which the Commission is not
open for business, then the Registration Due Date shall be extended to the next
day on which the Commission is open for business. The Registration Statement
required hereunder shall be on Form S-1 or any another appropriate form in
accordance herewith, in the sole discretion of the Company. Subject to the terms
of this Agreement, the Company shall use its commercially reasonable efforts to
cause the Registration Statement to be declared effective under the Securities
Act as promptly as possible after the filing thereof and shall use its
commercially reasonable efforts to keep the Registration Statement continuously
effective under the Securities Act until the date when all Registrable
Securities covered by the Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144, as determined by the counsel
to the Holder (as defined below) pursuant to a written opinion letter to such
effect, addressed and acceptable to the Company’s counsel, the Company’s
transfer agent and the affected Holders (the “Effectiveness Period”).

(b) In the event the Company fails to file the Registration Statement with the
Commission on or before Registration Due Date, the Company shall pay to each
Purchaser, as liquidated damages and not as a penalty, an amount, for each month
(or portion of a month) in which such delay shall occur, equal to one percent
(1%) of the Purchase Price paid by each such Purchaser, until the point in time
when the Company has filed the Registration Statement with the Commission or the
expiration of the Effectiveness Period, whichever occurs first.

(c) The term “Registrable Securities” shall mean (i) all Shares sold in the
Offering, (ii) the Warrant Shares issuable upon exercise of all Warrants sold in
the Offering, and (iii) any shares of Common Stock issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing; provided, however, that securities

 

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shall only be treated as Registrable Securities if and only for so long as they
(i) have not been sold (A) pursuant to a registration statement; (B) to or
through a broker, dealer or underwriter in a public distribution or a public
securities transaction; and/or (C) in a transaction exempt from the registration
and prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto, if any, are removed upon the consummation of such sale; (ii) are not
held by a Holder (as defined below) or a permitted transferee; and (iii) are not
eligible for sale without volume limitations pursuant to Rule 144 (or any
successor thereto) under the Securities Act.

(d) The term “Holder” shall mean any person owning or having the right to
acquire Registrable Securities or any permitted transferee of a Holder.

4.2 Registration Procedures; Company. In connection with the Company’s
registration obligations set forth in Section 4.1 above, the Company shall:

(a) Not less than five (5) business days prior to the filing of the Registration
Statement or any related prospectus or any amendment or supplement thereto
(i) furnish to the Holders copies of all such documents proposed to be filed
(other than those documents incorporated or deemed incorporated by reference to
the extent requested by such Person) which documents will be subject to the
review of such Holders and (ii) cause its officers, directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities shall reasonably object in good faith, provided that the
Company is notified of such objection in writing no later than three
(3) business days after the Holders have been so furnished copies of such
documents.

(b) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
all of the Registrable Securities.

(c) Use commercially reasonable efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.

(d) Comply with all applicable rules and regulations of the Commission.

(e) Furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (ii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration or pursuant to such
form.

 

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4.3 Registration Procedures; Purchaser. In connection with the Company’s
registration obligations set forth in Section 4.1 above:

(a) The Purchaser shall cooperate with the Company, as requested by the Company,
in connection with the preparation and filing of any Registration Statement
hereunder. The Purchase shall provide the Company with a completed Selling
Stockholder Questionnaire and such other information that the Company may
reasonably require the Purchaser to promptly furnish in writing to the Company
as may be required in connection with such registration including, without
limitation, all such information as may be requested by the Commission or FINRA
or any state securities commission and all such information regarding the
Purchaser, the Registrable Securities held by the Purchaser and the intended
method of disposition of the Registrable Securities. The Purchaser agrees to
provide such information requested in connection with such registration within
five (5) business days after receiving such written request. The Company shall
not be responsible for any delays in filing or obtaining or maintaining the
effectiveness of the Registration Statement caused by any Purchaser’s failure to
timely provide a completed Selling Stockholder Questionnaire or such other
information requested by the Company.

(b) If, in the good faith judgment of the Company, it would be detrimental to
the Company or its stockholders for the Registration Statement to be filed or
for resales of Registrable Securities to be made pursuant to the Registration
Statement due to (i) the existence of a material development or potential
material development involving the Company that the Company would be obligated
to disclose in the Registration Statement, which disclosure would be premature
or otherwise inadvisable at such time or would have a material adverse effect on
the Company or its stockholders or (ii) a proposed filing of or use of an
existing registration statement in connection with a Company-initiated
registration of any class of its equity securities, which, in the good faith
judgment of the Company, would adversely effect or require premature disclosure
of the filing or use of such Company-initiated registration (notice thereof, a
“Blackout Notice”), upon receipt of a Blackout Notice from the Company, the
Purchaser shall immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement (the period during which such disposition
is discontinued, the “Blackout Period”) covering such Registrable Securities
until (i) the Company advises the Purchaser that the Blackout Period has
terminated and (ii) the Purchaser receives copies of a supplemented or amended
prospectus, if necessary. If so directed by the Company, the Purchaser will
deliver to the Company (at the expense of the Company) or destroy (and deliver
to the Company a certificate of destruction) all copies in the Purchaser’s
possession (other than a limited number of file copies) of the prospectus
covering such Registrable Securities that is current at the time of receipt of
such notice.

(c) If the Purchaser determines to engage an underwriter (other than the
Purchaser) in connection with the offering of any Registrable Securities (an
“Underwritten Offering”), the Purchaser will enter into and perform its
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering, and will take such
other actions as

 

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are reasonably required in order to expedite or facilitate the disposition of
the Registrable Securities. The Purchaser shall consult with the Company prior
to any Underwritten Offering and shall defer such Underwritten Offering for a
reasonable period upon the request of the Company.

(d) The Purchaser shall not take any action with respect to any distribution
deemed to be made pursuant to the Registration Statement, which would constitute
a violation of Regulation M under the Exchange Act or any other applicable rule,
regulation or law.

4.4 Registration Expenses. All fees and expenses of the Company incident to the
performance of or compliance with Section 4.1 and Section 4.2 hereof by the
Company shall be borne by the Company. In addition, the Company shall reimburse
the Holders, on a one-time basis, for the reasonable fees and expenses of
counsel to the Holders of up to $10,000 in the aggregate with respect to the
review of any registration statement filed pursuant to Section 4.1 hereof, as
directed by the then Holders of a majority of the Registrable Securities.

4.5 Indemnification. In the event that any Registrable Securities are included
in a Registration Statement under this ARTICLE IV:

(a) To the extent permitted by law, the Company will indemnify and hold harmless
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, or the Exchange Act, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a “Violation”): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, or any rule or
regulation promulgated under the Securities Act, or the Exchange Act, and the
Company will pay to each such Holder, underwriter or controlling person, as
incurred, any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 4.5(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.

(b) To the extent permitted by law, each Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or

 

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other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, or the Exchange Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished or omitted by such Holder for use in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses incurred by any person intended to be indemnified pursuant to this
Section 4.5(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 4.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, further, that, in no event shall any
indemnity under this Section 4.5(b) exceed the greater of the cash value of the
(i) gross proceeds from the offering received by such Holder or (ii) such
Holder’s investment pursuant to this Agreement as set forth on the signature
page attached hereto.

(c) Promptly after receipt by an indemnified party under this Section 4.5 of
notice of the commencement of any action (including any governmental action),
such indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section 4.5, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel selected by the
indemnifying party and approved by the indemnified party (whose approval shall
not be unreasonably withheld); provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 4.5, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 4.5.

(d) If the indemnification provided for in this Section 4.5 is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

 

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(e) The obligations of the Company and Holders under this Section 4.5 shall
survive the completion of any offering of Registrable Securities in a
Registration Statement under this ARTICLE IV, and otherwise.

4.6 Cutback. In connection with filing the Registration Statement pursuant to
Section 4.1 hereof, the obligations of the Company set forth in this ARTICLE VI
are subject to any limitations on the Company’s ability to register the full
complement of such shares in accordance with Rule 415 under the Securities Act
or other regulatory limitations. To the extent the number of such shares that
can be registered is limited, the Company shall file a subsequent registration
agreement that will provide, among other things, that the Company will use its
commercially reasonable efforts to register additional tranches of Registrable
Securities as soon as permissible thereafter under applicable laws, rules and
regulations so that all of such Registrable Securities are registered as soon as
reasonably practicable.

4.7 Sales by Purchasers. The Purchaser shall sell any and all Registrable
Securities (as defined below) purchased hereby in compliance with applicable
prospectus delivery requirements, if any, or otherwise in compliance with the
requirements for an exemption from registration under the Securities Act and the
rules and regulations promulgated thereunder. The Purchaser will not make any
sale, transfer or other disposition of the Securities in violation of federal or
state securities or “blue sky” laws and regulations.

4.8 Piggy-Back Registrations. If at any time during the Effectiveness Period
there is not an effective Registration Statement covering all of the Registrable
Securities and the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the stock option or other employee
benefit plans, then the Company shall send to each Holder a written notice of
such determination and, if within 15 days after the date of such notice, any
such Holder shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered, subject to customary underwriter cutbacks
applicable to all holders of registration rights and any limitations imposed by
applicable law.

4.9 Waivers. With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding, any
provision of this ARTICLE IV may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended, which waiver shall be applicable to
all Holders, and shall be deemed to have been consented to by all Holders. Upon
the effectuation of each such waiver or amendment, the Company shall promptly
give written notice thereof to the Holders, if any, who have not previously
received notice thereof or consented thereto in writing.

 

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ARTICLE V.

OTHER AGREEMENTS OF THE PARTIES

5.1 Transfer Restrictions.

(a) The Securities may only be disposed of in compliance with state and federal
securities laws (including, in the case of Purchasers domiciled or formed
outside the U.S., Regulation S). In connection with any transfer of Shares,
other than pursuant to an effective registration statement, Rule 144, or
Regulation S, to the Company or to an Affiliate of a Purchaser or in connection
with a pledge as contemplated in Section 5.1(d), the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor and reasonably acceptable to the Company, 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 Securities
under the Securities Act. As a condition of transfer, any such transferee shall
agree in writing to be bound by the terms of this Agreement and shall have the
rights of a Purchaser under this Agreement and the Registration Rights
Agreement.

(b) The Purchasers that reside, are domiciled or are formed, within the U.S.
agree to the imprinting, so long as is required by this Section 5.1, of a legend
on any of the Shares, Warrants or Warrant Shares in the following form:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE 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. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

(c) The Purchasers that are domiciled or are formed outside of the U.S. agree to
the imprinting, so long as is required by this Section 5.1, of a legend on any
of the Shares and Warrant Shares in the following form:

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE OR OTHER SECURITIES
LAWS, AND MAY NOT BE OFFERED, REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,

 

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ENCUMBERED OR OTHERWISE DISPOSED OF OR DISTRIBUTED, DIRECTLY OR INDIRECTLY,
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OF U.S. PERSONS UNLESS THE
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES THAT
IT WILL NOT OFFER, REOFFER, SELL, ASSIGN, TRANSFER, PLEDGE, ENCUMBER OR
OTHERWISE DISPOSE OF OR DISTRIBUTE DIRECTLY OR INDIRECTLY THESE SECURITIES IN
THE UNITED STATES, ITS TERRITORIES, POSSESSIONS, OR AREAS SUBJECT TO ITS
JURISDICTION, OR TO OR FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON EXCEPT (A) TO
THE COMPANY OR A SUBSIDIARY OF THE COMPANY, (B) IN CONJUNCTION WITH AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT, (C) IN
COMPLIANCE WITH AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
(D) IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S, INCLUDING RULES 904 AND
905 THEREOF. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF FURTHER AGREES
THAT ANY HEDGING TRANSACTIONS INVOLVING THE SECURITIES WILL BE CONDUCTED IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT AND AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY
TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRANSFER AGENT, AND
THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER, IN
EACH OF THE FOREGOING CASES, TO REQUIRE DELIVERY OF A CERTIFICATION OF TRANSFER
AND OPINION OF COUNSEL IN FORM SATISFACTORY TO THEM. AS USED HEREIN, THE TERMS
“UNITED STATES” AND “U.S. PERSON” HAVE THE MEANINGS GIVEN TO THEM BY REGULATION
S UNDER THE SECURITIES ACT.

(d) The Company acknowledges and agrees that a Purchaser may from time to time
pledge pursuant to a bona fide margin agreement with a registered broker-dealer
or grant a security interest in some or all of the Shares to a financial
institution that is an “accredited investor” as defined in Rule 501(a) under the
Securities Act and who agrees to be bound by the provisions of this Agreement
and the provisions of ARTICLE IV hereof and, if required under the terms of such
arrangement, such Purchaser may transfer pledged or secured Shares to the
pledgees or secured parties. Such a pledge or transfer would not be subject to
approval of the Company and no legal opinion of legal counsel of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser’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, if the Shares are subject to registration
pursuant to ARTICLE IV hereof, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) under the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.

 

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(e) Certificates evidencing the Securities shall not contain any legend
(including the legend set forth in Section 5.1(b)), (i) while a registration
statement (including the Registration Statement) covering the resale of such
security is effective under the Securities Act, or (ii) following any sale of
such Securities pursuant to Rule 144, or (iii) if, in the case of a person not
an Affiliate of the Company, such Securities have been held for at least one
year, or (iv) if such legend is not required under applicable requirements of
the Securities Act (including judicial interpretations and pronouncements issued
by the staff of the Commission). The Company shall cause its counsel to issue a
legal opinion to the Transfer Agent promptly after the Effective Date if
required by the Transfer Agent to effect the removal of the legend hereunder.
The Company agrees that following the Effective Date or at such time as such
legend is no longer required under this Section 5.1(e), it will, no later than
three (3) Trading Days following the delivery by a Purchaser to the Company or
the Transfer Agent of a certificate representing Shares issued with a
restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver
or cause to be delivered to such Purchaser a certificate representing such
Shares that is free from all restrictive and other legends. Notwithstanding the
foregoing, the Company shall not be required to remove any legends until all
Securities represented by a single certificate are no longer subject to
restrictions. If only a portion of the Securities represented by any single
certificate are subject to restrictions, the holder of the certificate may
request, or the Company may require, that such certificate be cancelled and two
new certificates be issued. One certificate shall represent, and be in the
amount of, Securities not subject to restrictions and shall bear no legend and
the second certificate shall represent, and be in the amount of, Securities
subject to restrictions and shall bear an appropriate legend. The Company may
not make any notation on its records or give instructions to the Transfer Agent
that enlarge the restrictions on transfer set forth in this Section.
Certificates for Shares subject to legend removal hereunder shall be transmitted
by the Transfer Agent to the Purchasers by crediting the account of the
Purchaser’s prime broker or custodian bank with the Depository Trust Company
System.

(f) Each Purchaser, severally and not jointly with the other Purchasers, agrees
that the removal of the restrictive legend from certificates representing Shares
as set forth in this Section 5.1 is predicated upon the Company’s reliance that
the Purchaser will sell any Securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus delivery
requirements, or an exemption therefrom, and that if Securities are sold
pursuant to a Registration Statement, they will be sold in compliance with the
plan of distribution set forth therein.

(g) Each Purchaser that is domiciled or was formed outside of the U.S. agrees on
its own behalf and on behalf of any investor account for which it is acquiring
the Securities, and each subsequent permitted transferee of the Securities by
its acceptance thereof will be deemed to have agreed, that all subsequent offers
and sales of Securities prior to the date which is two years after the Closing
Date shall be made only (1) to the Company or a subsidiary thereof, (2) pursuant
to a registration statement which has been declared effective under the
Securities Act, (3) pursuant to offers and sales to non-U.S. persons that occur
outside the United States within the meaning of Regulation S and in compliance
with Rules 904 and 905 thereunder, or (4) pursuant to any other available
exemption from the registration requirements of the Securities Act.

 

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(h) Each Purchaser that is domiciled or was formed outside of the U.S.
represents and agrees on his, her or its behalf and on behalf of any investor
account for which it is acquiring the Shares, and each subsequent permitted
transferee of the Securities, by its acceptance thereof, will be deemed to have
agreed, that (i) no subscription, resale or other transfer of the Securities has
been arranged, or at Closing will have been arranged, to return the Securities
to the U.S. securities markets or to a U.S. citizen or resident, and (ii) any
hedging transaction involving the Securities will be conducted only in
compliance with the requirements of the Securities Act.

5.2 Furnishing of Information. As long as any Purchaser owns Securities and the
Company remains subject to the requirements of the Exchange Act, 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
Purchaser owns Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchasers 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, to the extent required from time to time to
enable such Person to sell such Shares without registration under the Securities
Act within the requirements of the exemption provided by Rule 144.

5.3 Integration. The Company shall not 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 Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

5.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m. (New
York City time) on the Trading Day immediately following the date hereof, issue
a press release or file a Form 8-K announcing the signing of this Agreement and
describing the material terms of the transactions contemplated by the
Transaction Documents, including the contemplated use of proceeds. The Company
and each Purchaser shall consult with each other in issuing any other press
releases with respect to the transactions contemplated hereby, and neither the
Company nor any Purchaser shall issue any such press release or otherwise make
any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser, or without the prior consent of each
Purchaser, with respect to any press release of the Company, which consent shall
not unreasonably be withheld or delayed, except if such disclosure is required
by law, in which case the disclosing party shall promptly provide the other
party with prior notice of such public statement or communication. On or before
the fourth (4th) Business Day following execution of Transaction Documents, the
Company shall file a Current Report on Form 8-K with the Commission describing
the terms of the transactions contemplated hereby and including as an exhibit to
such Current Report on Form 8-K the Transaction Documents (including schedules),
in the form required by the Exchange Act. Notwithstanding the foregoing, the
Company shall not publicly disclose the name of any Purchaser, or include the
name of any Purchaser in any filing with the Commission or any regulatory agency
or Trading Market,

 

30

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without the prior written consent of such Purchaser, except (i) as required by
federal securities law in connection with (A) the Registration Statement,
(B) the Current Report on Form 8-K required by this Section 5.4, (C) any filing
required by the Commission and (D) the filing of final Transaction Documents
(including signature pages thereto) with the Commission and (ii) to the extent
such disclosure is required by law or Trading Market regulations, in which case
the Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (ii).

5.5 Shareholder Rights Plan. No claim will be made or enforced by the Company
or, with the consent of the Company, any other Person, that any Purchaser is an
“Acquiring Person” under any control share acquisition, business combination,
poison pill (including any distribution under a rights agreement) or similar
anti-takeover plan or arrangement in effect or hereafter adopted by the Company,
or that any Purchaser could be deemed to trigger the provisions of any such plan
or arrangement, by virtue of receiving Securities under the Transaction
Documents or under any other agreement between the Company and the Purchasers.

5.6 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide any Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Purchaser shall have executed a written agreement regarding
the confidentiality and use of such information. The Company understands and
confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company.

5.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes and shall not use such
proceeds for the satisfaction of any portion of the Company’s debt (other than
payment of trade payables in the ordinary course of the Company’s business and
prior practices), or to redeem any Common Stock or Common Stock Equivalents or
to settle any outstanding litigation.

5.8 Reimbursement. If any Purchaser becomes involved in any capacity in any
Proceeding by or against any Person who is a stockholder of the Company (except
as a result of sales, pledges, margin sales and similar transactions by such
Purchaser to or with any other stockholder), solely as a result of such
Purchaser’s acquisition of the Securities under this Agreement, the Company will
reimburse such Purchaser 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. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company

 

31

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solely as a result of acquiring the Securities under this Agreement, except if
such claim arises primarily from a breach of such Purchaser’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings such Purchaser may have with any such stockholder or any
violations by the Purchaser of state or federal securities laws or any conduct
by such Purchaser which constitutes fraud, gross negligence, willful misconduct
or malfeasance.

5.9 Indemnification of Purchasers. Subject to the provisions of this
Section 5.9, the Company will indemnify and hold each Purchaser and its
directors, officers, shareholders, members, partners, employees and agents (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person who
controls such Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
“Purchaser Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against a
Purchaser, or any of them or their respective Affiliates, by any stockholder of
the Company who is not an Affiliate of such Purchaser, with respect to any of
the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser’s representations, warranties or
covenants under the Transaction Documents or any agreements or understandings
such Purchaser may have with any such stockholder or any violations by the
Purchaser of state or federal securities laws or any conduct by such Purchaser
which constitutes fraud, gross negligence, willful misconduct or malfeasance).
If any action shall be brought against any Purchaser Party in respect of which
indemnity may be sought pursuant to this Agreement, such Purchaser Party shall
promptly notify the Company in writing, and the Company shall have the right to
assume the defense thereof with counsel of its own choosing reasonably
acceptable to the Purchaser Party. Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Purchaser Party except to the extent that (i) the employment thereof has
been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of such Purchaser Party, in which case the
Company shall be responsible for the reasonable fees and expenses of no more
than one such separate counsel. The Company will not be liable to any Purchaser
Party under this Agreement (i) for any settlement by a Purchaser Party effected
without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed; or (ii) to the extent, but only to the extent that a loss,
claim, damage or liability is attributable to (A) any Purchaser Party’s breach
of any of the representations, warranties, covenants or agreements made by such
Purchaser Party in this Agreement or in the other Transaction Documents, (B) any
violations by the Purchaser of state or federal securities laws or (C) any
conduct by such Purchaser which constitutes fraud, gross negligence, willful
misconduct or malfeasance.

 

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5.10 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue the Shares and the Warrant
Shares pursuant to this Agreement or the Warrants, as applicable.

5.11 Listing of Common Stock. The Company hereby agrees to use best efforts to
maintain the listing of the Common Stock on a Trading Market (other than the OTC
Bulletin Board), and as soon as reasonably practicable following the Closing
(but not later than the earlier of the Effective Date and the first anniversary
of the Closing Date) to take all action necessary to list all of the Shares and
Warrant Shares on such Trading Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Trading Market, it
will include in such application all of the Shares and Warrant Shares, and will
take such other action as is necessary to cause all of the Shares and Warrant
Shares to be listed on such other Trading Market as promptly as possible. 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 respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of the Trading Market.

5.12 Equal Treatment of Purchasers. No consideration shall be offered or paid to
any Person to amend or consent to a waiver or modification of any provision of
any of the Transaction Documents unless the same consideration is also offered
to all of the parties to the Transaction Documents. For clarification purposes,
this provision constitutes a separate right granted to each Purchaser by the
Company and negotiated separately by each Purchaser, and is intended for the
Company to treat the Purchasers as a class and shall not in any way be construed
as the Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Shares or otherwise.

5.13 Short Sales and Confidentiality After The Date Hereof. Each Purchaser
severally and not jointly with the other Purchasers covenants that neither it
nor any Affiliate or other Person acting on its behalf or pursuant to any
understanding with it has nor will execute any Short Sales during the period
commencing at the beginning of the Discussion Time and ending at the time that
the transactions contemplated by this Agreement are first publicly announced as
described in Section 5.4. Each Purchaser, severally and not jointly with the
other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company as
described in Section 5.4, such Purchaser will maintain the confidentiality of
all disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the position that coverage of short sales of shares
of the Common Stock “against the box” prior to the Effective Date of the
Registration Statement with the Shares or Warrant Shares is a violation of
Section 5 of the Securities Act, as set forth in Item 65, Section A, of the
Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
Notwithstanding the foregoing, no Purchaser makes any representation, warranty
or covenant hereby that it will not engage in Short Sales in the securities of
the Company after the time that the transactions contemplated by this Agreement
are first publicly announced as described in Section 5.4. Notwithstanding the
foregoing, in the case of a Purchaser that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such

 

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Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Shares covered by this Agreement.

5.14 Delivery of Shares After Closing. The Company shall deliver, or cause to be
delivered, the respective Shares purchased by each Purchaser to such Purchaser
within 10 Trading Days of the Closing Date.

5.15 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof, promptly upon request of any Purchaser. The Company shall take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to qualify the Securities for, sale to the Purchasers at
the Closing under applicable securities or “Blue Sky” laws of the states of the
United States, and shall provide evidence of such actions promptly upon request
of any Purchaser. Each Purchaser shall take all commercially reasonable actions
that are reasonably requested by the Company related to, or to effectuate, the
filing of a Form D or any filing required pursuant to the “Blue Sky” laws of the
states of the United States which, for purposes of clarity, shall not include
the payment of any fees by such Purchaser.

5.16 Investment Company. The Company shall conduct its business in a manner so
that it will not become subject to the Investment Company Act of 1940, as
amended.

ARTICLE VI.

MISCELLANEOUS

6.1 Termination. This Agreement may be terminated by any Purchaser, as to such
Purchaser’s obligations hereunder only and without any effect whatsoever on the
obligations between the Company and the other Purchasers, by written notice to
the other parties, if the Closing has not been consummated on or before the date
14th calendar day after the date of this Agreement; provided, however, that the
right to terminate this Agreement under this Section 6.1 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. Nothing in this Section 6.1 shall affect the right of any
party to sue for any breach by the other party (or parties).

6.2 Fees and Expenses. Except as expressly set forth in the Transaction
Documents to the contrary, 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 this Agreement. The Company shall pay all Transfer
Agent fees, stamp taxes and other taxes and duties levied in connection with the
delivery of any Securities to the Purchasers.

6.3 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 thereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

 

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6.4 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 at the facsimile number set
forth on the signature pages attached hereto prior to 5:30 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 set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day,
(c) the second Trading Day following the date of mailing, if sent by U.S.
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.

6.5 Amendments; Waivers. No provision of this Agreement may be waived or amended
except in a written instrument signed, in the case of an amendment, by the
Company and Purchasers holding at least 67% of the Shares then held by the
Purchasers or, in the case of a waiver, by the party against whom enforcement of
any such waived provision is sought. 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 any party to exercise any right hereunder in any manner
impair the exercise of any such right.

6.6 Headings. 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.

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 Purchasers holding at least 67% of the
Shares then held by the Purchasers (other than by merger). Any Purchaser may
assign any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Purchasers.”

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 (i) as otherwise set forth in Section 5.9 and (ii) the Placement
Agent is an intended third party beneficiary of ARTICLE III hereof.

6.9 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents 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 legal proceedings concerning the

 

35

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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, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to
the exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan 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 any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or 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 other manner permitted by law. The
parties hereby waive all rights to a trial by jury. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or 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 action or proceeding.

6.10 Survival. The representations and warranties contained herein shall survive
the Closing and the delivery of the Shares until the second anniversary of the
Closing Date.

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 or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.

6.12 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

6.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary
contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction

 

36

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Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Purchaser 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 (in the case of mutilation), 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. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.

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 Purchasers
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
contained in the Transaction Documents and hereby agrees to waive and not to
assert 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 Purchaser pursuant to any Transaction Document or a Purchaser
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 Purchasers’ Obligations and Rights. The obligations
of each Purchaser under any Transaction Document are several and not joint with
the obligations of any other Purchaser, and no Purchaser shall be responsible in
any way for the performance or non-performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Purchaser pursuant
thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers 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 Purchaser 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 Purchaser to be joined as an additional party in any
proceeding for such purpose. Each Purchaser has been, or has had the opportunity
to be, represented by its own separate legal counsel in their review and
negotiation of the Transaction Documents. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers.

 

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6.18 Liquidated Damages. The Company’s obligations to pay any partial liquidated
damages or other amounts owing under the Transaction Documents is a continuing
obligation of the Company and shall not terminate until all unpaid partial
liquidated damages and other amounts have been paid notwithstanding the fact
that the instrument or security pursuant to which such partial liquidated
damages or other amounts are due and payable shall have been canceled.

6.19 Construction. The parties agree that each of them and/or their respective
counsel has reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto.

(Signature Pages Follow)

 

38

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SIGNATURE PAGE   Date Signed:                     , 2009   Number of Units:    
          Multiplied by Per Unit Purchase Price:   x   $           Equals
Purchase Price:   =   $          

 

 

   

 

Signature     Second Signature (if purchasing jointly)

 

   

 

Printed Name     Printed Second Name

 

   

 

Entity Name     Entity Name

 

   

 

Address     Address

 

   

 

City, State and Zip Code     City, State and Zip Code

 

   

 

Telephone-Business     Telephone—Business

 

   

 

Facsimile-Business     Facsimile—Business

 

   

 

Tax ID # or Social Security #     Tax ID # or Social Security #

 

Name in which Securities should be issued:

 

 

 

 

39

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This Securities Purchase Agreement is agreed to and accepted as of July 7, 2009.

 

NILE THERAPEUTICS, INC. By:  

 

  Daron Evans   Chief Financial Officer

 

40

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CERTIFICATE OF SIGNATORY

(To be completed if Shares are being subscribed for by an entity)

I,                             , am the                              of
                             (the “Entity”).

I certify that I am empowered and duly authorized by the Entity to execute and
carry out the terms of the Securities Purchase Agreement and to purchase and
hold the Securities, and certify further that the Securities Purchase Agreement
has been duly and validly executed on behalf of the Entity and constitutes a
legal and binding obligation of the Entity.

IN WITNESS WHEREOF, I have set my hand this      day of         , 2009.

 

 

(Signature)

 

41

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COMPANY DISCLOSURE SCHEDULES

These are the Disclosure Schedules of Nile Therapeutics, Inc. to the Securities
Purchase Agreement dated of July 7, 2009 (the “Purchase Agreement”) by and among
the Company and each purchaser identified on the signature pages to the Purchase
Agreement. Capitalized terms used and not otherwise defined in these Disclosure
Schedules shall have the meanings given to such terms in the Purchase Agreement.

The information included in these Disclosure Schedules is not intended to
constitute, and shall not be construed as constituting, representations or
warranties of the Company except as and to the extent provided in the Purchase
Agreement. Inclusion of any information in these Disclosure Schedules is not and
shall not be deemed an admission that such information is material to the
operations, business, assets, liabilities, prospects or financial condition of
the Company. Inclusion of information herein in connection with the disclosure
of matters that are not in the ordinary course of business shall not be deemed
to be an admission that such included items or actions are not in the ordinary
course of business.

Matters disclosed in these Disclosure Schedules are not necessarily limited to
matters required by the Purchase Agreement to be disclosed in these Disclosure
Schedules. Any matter disclosed in one section of these Disclosure Schedules
shall be deemed disclosed for all purposes of any other sections hereof, to the
extent that its relevance to such other sections is reasonably apparent. Such
additional matters are set forth for information purposes and these Disclosure
Schedules do not necessarily include matters of a similar nature. Headings used
herein have been provided for convenience of reference.

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Schedule 3.1(a)

Subsidiaries

None

 

2

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Schedule 3.1(h)

SEC Reports

On July 7, 2009, the Compensation Committee of the Company’s Board of Directors
awarded to Hsiao Lieu, the Company’s Vice President, Clinical Research, a
10-year option to purchase 150,000 shares of the Company’s common stock at an
exercise price equal to $1.14 per share. The stock options were made pursuant to
the Company’s Amended and Restated 2005 Stock Option Plan and will vest in
accordance with the same criteria applicable to the option issued to Two River
Consulting, as described in the Company’s Current Report on Form 8-K filed with
the Commission on June 25, 2009. In addition, the Company and Dr. Lieu agreed to
amend the terms of Dr. Lieu’s employment with the Company. As agreed, Dr. Lieu
will now be employed on a part-time (50%) basis and his annualized base salary
will be reduced by 50% to $125,000.

 

3

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Schedule 3.1(p)

Insurance

The Company currently carries directors and officers liability insurance in the
amount of $10,000,000.

 

4

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Schedule 3.1(q)

Transactions With Affiliates and Employees

 

1. Mr. Joshua A. Kazam, the Company’s President & Chief Executive Officer and a
director, Mr. Peter M. Kash, the Chairman of the Company’s Board of Directors,
and Mr. David M. Tanen, a director and the Secretary of the Company, are also
each officers and directors of the Placement Agent. Mr. Scott L. Navins, the
Company’s Treasurer is the Financial Operations Principal for the Placement
Agent. Each of the foregoing individuals may receive a portion of the Placement
Warrants described on Schedule 3.1(s).

 

2. The Company has entered into a Services Agreement with Two River Consulting,
LLC (“Two River”), an affiliate of the Placement Agent, as more fully described
in the Company’s Form 8-K filed on June 25, 2009, pursuant to which certain
employees of Two River will perform activities for the Company, including
without limitation business development, financial, clinical and regulatory
activities.

 

5

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Schedule 3.1(s)

Certain Fees

At Closing, the Company shall issue to the Placement Agent, or its authorized
designees, five-year warrants (the “Placement Warrants”) to purchase a number of
shares of Common Stock equal to ten percent (10%) of the Shares sold pursuant to
the Purchase Agreement at an exercise price equal to 110% of the Closing Price;
provided, however, that no Placement Warrants will be issuable with respect to
Shares sold to Purchasers that are officers or directors of the Company,
employees of the Placement Agent or not introduced to the Company by or through
the Placement Agent. The Company shall also pay the Placement Agent a
non-accountable expense allowance equal to $50,000 for the Placement Agent’s
expenses in providing the services related to the purchase and sale of the
Securities.

Pursuant to the terms of an engagement letter agreement dated October 19, 2008,
between the Company and Piper Jaffray & Co. (“PJC”), the Company may also become
obligated to pay a fee to PJC in an amount not to exceed 3.7% of the gross
proceeds received in the Offering from certain investors that were introduced to
the Company by PJC during the period of engagement covered by such letter
agreement.

 

6

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Schedule 3.1(w)

Listing Maintenance

The trading price of the Company’s Common Stock has recently been below $1.00
per share. The continued listing requirements of the Nasdaq Stock Market provide
that the Company’s Common Stock may be subject to delisting if the closing bid
price of the Common Stock is less than $1.00 per share for a period of 30
consecutive trading days. Nasdaq has suspended its minimum bid price requirement
until the period ending July 19, 2009, however. Although the Company has not
received any notice from Nasdaq concerning its non-compliance with the minimum
bid price requirement, unless such suspension period is further extended by
Nasdaq, the Company’s Common Stock may become subject to delisting if the
closing bid price continues to remain below $1.00 per share for 30 consecutive
trading days following July 19, 2009. Once the suspension for the minimum price
requirement expires, if the closing bid price of Common Stock remains below
$1.00 for 30 consecutive trading days, the Company will likely receive a notice
from Nasdaq of such non-compliance, and be afforded a period of 180 days in
which to re-establish compliance of the minimum bid price requirement. If
compliance with the minimum bid price requirement is not established within such
180-day period, the Common Stock may be delisted from the Nasdaq Capital Market.

In addition, Nasdaq’s continued listing requirements provide that the Company
maintain either (i) a minimum total market value of its Common Stock of at least
$35 million, or (ii) a total stockholders’ equity of at least $2.5 million. As
of the date of the Purchase Agreement, the total market value of the Common
Stock is approximately $20 million. As of March 31, 2009, the Company’s last
reported balance sheet date, the Company had a total stockholders’ equity of
approximately $3.48 million. The net proceeds from the sale of the Securities
contemplated by the Purchase Agreement, after deducting offering related
expenses, will increase the Company’s total stockholders’ equity. However,
unless the aggregate market value of the Company’s Common Stock increases to
more than $35 million, the Company may not comply with the minimum stockholders’
equity requirement in future periods.

 

7

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EXHIBIT A

Form of Warrant

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
“SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE. NEITHER SUCH WARRANTS NOR
SUCH SECURITIES MAY BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT SUCH REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE
AS MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT ANY SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.

Nile Therapeutics, Inc.

Class [A/B/C] Warrant for the Purchase

of Shares of Common Stock

 

Warrant No. [    ]

 

Number of Shares: [        ]

(subject to adjustment)

Original Issue Date: [            ], 2009

 

FOR VALUE RECEIVED, NILE THERAPEUTICS, INC., a Delaware corporation (the
“Company”), hereby certifies that [            ], its designee or its permitted
assigns (the “Holder”), is entitled to purchase from the Company, at any time or
from time to time commencing on             , 2009 and prior to 5:00 P.M., New
York City time, on             , 2014 (the “Exercise Period”) up to
[            ] ([    ]) fully paid and non-assessable shares of common stock
(subject to adjustment), $.001 par value per share, of the Company for $[    ]
per share (subject to adjustment as provided herein) and an aggregate purchase
price of $[    ]. Hereinafter, (i) said common stock, $.001 par value per share,
of the Company, is referred to as the “Common Stock,” (ii) the shares of the
Common Stock purchasable hereunder or under any other Warrant (as hereinafter
defined) are referred to as the “Warrant Shares,” (iii) the aggregate purchase
price payable for the Warrant Shares purchasable hereunder is referred to as the
“Aggregate Warrant Price,” and (iv) the price payable for each of the Warrant
Shares is referred to as the “Per Share Warrant Price.” The Aggregate Warrant
Price is not subject to adjustment.

This Warrant is one of a series of similar warrants issued pursuant to a
Securities Purchase Agreement, dated July 7, 2009, by and among the Company and
the Purchasers identified therein (the “Securities Purchase Agreement”). All
such warrants, including this Warrant and all warrants hereafter issued in
exchange or substitution for this Warrant and such other similar warrants, are
collectively referred to herein as the “Warrants.” The Holder, together with the
holders of all other Warrants, are collectively referred to herein as the
“Holders,” and Holders of more than 50% of the outstanding Warrants are referred
to as the “Majority of the Holders.”

 

A-1

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1. Exercise of Warrant.

(a) At the Holder’s option, this Warrant may be exercised, in whole or in part,
at any time or from time to time during the Exercise Period, by the Holder upon
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Section 9(a) hereof, together with proper
payment of the Aggregate Warrant Price, or the proportionate part thereof if
this Warrant is exercised in part, with payment for the Warrant Shares made by
certified or official bank check payable to the order of the Company.

(b) If this Warrant is exercised in part, this Warrant must be exercised for a
number of whole shares of Common Stock and the Holder is entitled to receive a
new Warrant covering the Warrant Shares that have not been exercised and setting
forth the proportionate part of the Aggregate Warrant Price applicable to such
Warrant Shares.

(c) Upon surrender of this Warrant, the Company will (i) issue a certificate or
certificates in the name of the Holder for the largest number of whole shares of
the Common Stock to which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the Common Stock to which
the Holder shall be entitled, pay to the Holder cash in an amount equal to the
fair value of such fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercised in part, pursuant to the
provisions of this Warrant.

2. Reservation of Warrant Shares. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Warrant Shares and other securities, cash and/or property, as
from time to time shall be issuable upon the exercise of this Warrant.

3. Protection Against Dilution.

(a) In case the Company shall hereafter (i) pay a dividend or make a
distribution to any holder of its capital stock in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Company, the Per Share Warrant Price shall be
adjusted to be equal to a fraction, the numerator of which shall be the
Aggregate Warrant Price and the denominator of which shall be the number of
shares of Common Stock or other capital stock of the Company that the Holder
would have owned immediately following such action had such Warrant been
exercised immediately prior thereto. An adjustment made pursuant to this
Subsection 3(a) shall become effective immediately after the record date in the
case of a dividend or distribution, and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification.

 

A-2

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(b) In case of (i) any merger or consolidation to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or (ii) any sale or conveyance to another entity of the property of
the Company as an entirety or substantially as a entirety, or (iii) any
statutory exchange of securities with, or tender offer by, another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), or (iv) reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property (other than
as a result of a subdivision or combination of shares of Common Stock covered by
Section 3(a) above), the Holder of this Warrant shall have the right thereafter
to receive on the exercise of this Warrant the kind and amount of securities,
cash or other property which the Holder would have owned or have been entitled
to receive immediately after such reclassification, consolidation, merger,
statutory exchange, tender offer, sale or conveyance had this Warrant been
exercised immediately prior to the effective date of such reclassification,
consolidation, merger, statutory exchange, tender offer, sale or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 3 with respect to the
rights and interests thereafter of the Holder of this Warrant to the end that
the provisions set forth in this Section 3 shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant. The above provisions of this Section 3(b) shall similarly apply to
successive reclassifications, consolidations, mergers, statutory exchanges,
sales or conveyances. The Company shall require the issuer of any shares of
stock or other securities or property thereafter deliverable on the exercise of
this Warrant to be responsible for all of the agreements and obligations of the
Company hereunder. Notice of any such reclassification, consolidation, merger,
statutory exchange, tender offer, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.

(c) All calculations under this Section 3 shall be made to the nearest cent or
to the nearest 1/100th of a share, as the case may be. Anything in this
Section 3 to the contrary notwithstanding, the Company shall be entitled to make
such reductions in the Per Share Warrant Price, in addition to those required by
this Section 3, as it in its discretion shall deem to be advisable in order that
any stock dividend, subdivision of shares or distribution of rights to purchase
stock or securities convertible or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.

(d) Whenever the Per Share Warrant Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Warrants in
accordance with this Section 3, the Company shall promptly prepare a brief
statement of the facts requiring such adjustment or modification and the manner
of computing the same and cause copies of such certificate to be mailed to the
Holders of the Warrants. The Company may, but shall not be obligated to unless
requested by a Majority of the Holders, obtain, at its expense, a certificate of
a firm of independent public accountants of recognized standing selected by the
Board of Directors (who may be the regular auditors of the Company) setting
forth the Per Share Warrant Price and the number of Warrant Shares in effect
after such adjustment or the effect of such modification, a brief statement of
the facts requiring such adjustment or modification and the manner of computing
the same and cause copies of such certificate to be mailed to the Holders of the
Warrants.

 

A-3

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(e) If the Board of Directors of the Company shall declare any dividend or other
distribution with respect to the Common Stock other than a cash distribution out
of earned surplus, the Company shall mail notice thereof to the Holders of the
Warrants not less than 10 days prior to the record date fixed for determining
stockholders entitled to participate in such dividend or other distribution.

(f) If, as a result of an adjustment made pursuant to this Section 3, the Holder
of any Warrant thereafter surrendered for exercise shall become entitled to
receive shares of two or more classes of capital stock or shares of Common Stock
and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a written notice to
the Holder of any Warrant promptly after such adjustment) shall determine the
allocation of the adjusted Per Share Warrant Price between or among shares or
such classes of capital stock or shares of Common Stock and other capital stock.

(g) In case any event shall occur as to which the other provisions of this
Section 3 are not strictly applicable but as to which the failure to make any
adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof then, in
each such case, the Board of Directors of the Company shall in good faith
determine the adjustment, if any, on a basis consistent with the essential
intent and principles established herein, necessary to preserve the purchase
rights represented by the Warrants. Upon such determination, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein.

4. Fully Paid Stock; Taxes. The shares of the Common Stock represented by each
and every certificate for Warrant Shares delivered upon the exercise of this
Warrant shall at the time of such delivery, be duly authorized, validly issued
and outstanding, fully paid and nonassessable, and not subject to preemptive
rights or rights of first refusal, and the Company will take all such actions as
may be necessary to assure that the par value, if any, per share of the Common
Stock is at all times equal to or less than the then Per Share Warrant Price.
The Company shall pay all documentary, stamp or similar taxes and other similar
governmental charges that may be imposed with respect to the issuance or
delivery of any Warrant Shares upon exercise of the Warrants (other than income
taxes); provided, however, that if the Warrant Shares are to be delivered in a
name other than the name of the Holder, no such delivery shall be made unless
the person requesting the same has paid to the Company the amount of transfer
taxes or charges incident thereto, if any.

 

A-4

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5. Investment Intent; Limited Transferability.

(a) The Holder represents that, by accepting this Warrant, it understands that
this Warrant and any securities obtainable upon exercise of this Warrant have
not been registered for sale under Federal or state securities laws and are
being offered and sold to the Holder pursuant to one or more exemptions from the
registration requirements of such securities laws. In the absence of an
effective registration of such securities or an exemption therefrom, any
certificates for such securities shall bear the legend set forth on the first
page hereof. The Holder understands that it must bear the economic risk of its
investment in this Warrant and any securities obtainable upon exercise of this
Warrant for an indefinite period of time, as this Warrant and such securities
have not been registered under Federal or state securities laws and therefore
cannot be sold unless subsequently registered under such laws, unless an
exemption from such registration is available.

(b) The Holder, by its acceptance of this Warrant, represents to the Company
that it is acquiring this Warrant and will acquire any securities obtainable
upon exercise of this Warrant for its own account for investment and not with a
view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act. The Holder agrees that this Warrant and any such
securities will not be sold or otherwise transferred unless (i) a registration
statement with respect to such transfer is effective under the Securities Act
and any applicable state securities laws or (ii) such sale or transfer is made
pursuant to one or more exemptions from the Securities Act.

(c) In addition to the limitations set forth in Section 1, this Warrant may not
be sold, transferred, assigned or hypothecated by the Holder except in
compliance with the provisions of the Securities Act and the applicable state
securities “blue sky” laws, and is so transferable only upon the books of the
Company which it shall cause to be maintained for such purpose. The Company may
treat the registered Holder of this Warrant as he or it appears on the Company’s
books at any time as the Holder for all purposes. The Company shall permit any
Holder of a Warrant or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants. All Warrants issued upon the
transfer or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the holder thereof shall be identical to those of the
Holder.

(d) The Holder 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 Warrants or the exercise of
the Warrants; and (ii) the opportunity to request such additional information
which the Company possesses or can acquire without unreasonable effort or
expense.

(e) The Holder did not (i) receive or review any advertisement, article, notice
or other communication published in a newspaper or magazine or similar media or
broadcast over television or radio, whether closed circuit, or generally
available; or (ii) attend any seminar, meeting or investor or other conference
whose attendees were, to such Holder’s knowledge, invited by any general
solicitation or general advertising.

 

A-5

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(f) The Holder is an “accredited investor” within the meaning of Regulation D
under the Securities Act. Such Holder is acquiring the Warrants for its own
account and not with a present view to, or for sale in connection with, any
distribution thereof in violation of the registration requirements of the
Securities Act, without prejudice, however, to such Holder’s right, subject to
the provisions of the Securities Purchase Agreement, at all times to sell or
otherwise dispose of all or any part of such Warrants and Warrant Shares.

(g) Either by reason of such Holder’s business or financial experience or the
business or financial experience of its professional advisors (who are
unaffiliated with and who are not compensated by the Company or any affiliate,
finder or selling agent of the Company, directly or indirectly), such Holder has
the capacity to protect such Holder’s interests in connection with the
transactions contemplated by this Warrant.

6. Optional Redemption.

(a) This Warrant may be redeemed at the option of the Company, at any time after
the date hereof following a period of twenty (20) consecutive business days in
which the per share volume weighted average price of the Common Stock equals or
exceeds an amount that is two hundred percent (200%) of the then applicable Per
Share Warrant Price, on notice as set forth in Section 6(b) hereof, and at a
redemption price equal to one-tenth of one cent ($0.001) (the “Redemption
Price”) for each Warrant Share purchasable under this Warrant.

(b) Notice of Redemption. In the case of any redemption of this Warrant, the
Company shall give notice of such redemption to the Holder hereof as provided in
this Section 6(b). Notice of redemption to the Holder of this Warrant shall be
given by mailing by first-class mail, postage prepaid, to the Holder’s last
address of record with the Company a notice of such redemption not less than
thirty (30) days prior to the date fixed for redemption. Any notice which is
given in the manner herein provided shall be conclusively presumed to have been
duly given, whether or not the Holder receives the notice. Each such notice
shall specify the date fixed for redemption, the place of redemption and the
aggregate Redemption Price, and shall state that payment of the Redemption Price
will be made up on surrender of this Warrant at such place of redemption, and
that if not exercised by the close of business on the date fixed for redemption,
the exercise rights of the Warrant shall expire unless extended by the Company.
Such notice shall also state the current Per Share Warrant Price and the date on
which the right to exercise the Warrant will expire unless extended by the
Company.

(c) Payment of Redemption Price. If notice of redemption shall have been given
as provided in Section 6(b), the Redemption Price shall, unless the Warrant is
theretofore exercised pursuant to the terms hereof, become due and payable on
the date and at the place stated in such notice. On and after such date of
redemption, the exercise rights of this Warrant shall expire and this Warrant
shall be null and void. On presentation and surrender of this Warrant at such
place of payment in such notice specified, this Warrant shall be paid and
redeemed at the Redemption Price per Warrant Share within ten (10) days
thereafter.

7. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant, and of indemnity
reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon
surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.

 

A-6

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8. Warrant Holder Not Stockholder. This Warrant does not confer upon the Holder
any right to vote on or consent to or receive notice as a stockholder of the
Company, as such, in respect of any matters whatsoever, nor any other rights or
liabilities as a stockholder, prior to the exercise hereof; this Warrant does,
however, require certain notices to Holders as set forth herein.

9. Communication. No notice or other communication under this Warrant shall be
effective unless, but any notice or other communication shall be effective and
shall be deemed to have been given if, the same is in writing and is mailed by
first-class mail, postage prepaid, addressed to:

(a) the Company at Nile Therapeutics, Inc., 115 Sansome St., #310, San
Francisco, CA, 94104, Attn: Daron Evans, Chief Financial Officer or such other
address as the Company has designated in writing to the Holder, or

(b) the Holder at [            ], Attn: [                    ] or other such
address as the Holder has designated in writing to the Company.

10. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.

11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof.

12. Amendment, Waiver, etc. Except as expressly provided herein, neither this
Warrant nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that any provisions hereof may be amended, waived, discharged or
terminated upon the written consent of the Company and the Majority of the
Holders. Notwithstanding the foregoing, (i) this Warrant may be amended and the
observance of any term hereunder may be waived without the written consent of
the Holder only in a manner which applies to all Warrants in the same fashion
and (ii) the number of Warrant Shares subject to this Warrant, the Per Share
Purchase Price of this Warrant, and the provisions of Sections 1, 2 and 12
hereof, may not be amended, and the right to exercise this Warrant may not be
waived, without the written consent of the Holder (it being agreed that an
amendment to or waiver under any of the provisions of Section 3 of this Warrant
shall not be considered an amendment of the number of Warrant Shares or the Per
Share Purchase Price). The Company shall give prompt written notice to the
Holder of any amendment hereof or waiver hereunder that was effected without
such Holder’s written consent. No waivers of any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.

 

A-7

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed this 7th
day of July, 2009.

 

NILE THERAPEUTICS, INC. By:  

 

Name:   Title:  

 

A-8

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APPENDIX I

SUBSCRIPTION

The undersigned,                                     , pursuant to the
provisions of the foregoing Warrant, hereby agrees to subscribe for and purchase
         shares of the Common Stock, par value $.001 per share, of Nile
Therapeutics, Inc. covered by said Warrant, and makes payment therefor in full
at the price per share provided by said Warrant.

 

Dated:                     , 20    

    Name of Holder:  

 

    By:  

 

    Name:  

 

    Title:  

 

    (Signature must conform in all respects to name of Holder as specified on
the face of the Warrant)

ASSIGNMENT

FOR VALUE RECEIVED                      hereby sells, assigns and transfers unto
                                 the foregoing Warrant and all rights evidenced
thereby, and does irrevocably constitute and appoint
                                        , attorney, to transfer said Warrant on
the books of Nile Therapeutics, Inc.

 

Dated:                     , 20         Name of Holder:  

 

    By:  

 

    Name:  

 

    Title:  

 

    (Signature must conform in all respects to name of Holder as specified on
the face of the Warrant)

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED                      hereby assigns and transfers unto
                                     the right to purchase          shares of
Common Stock, par value $.001 per share, of Nile Therapeutics, Inc. covered by
the foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
                                             , attorney, to transfer such part
of said Warrant on the books of the Company.

 

Dated:                     , 20         Name of Holder:   

 

    By:  

 

    Name:  

 

    Title:  

 

    (Signature must conform in all respects to name of Holder as specified on
the face of the Warrant)

 

A-9

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EXHIBIT B

CONFIDENTIAL INVESTOR QUESTIONNAIRE

The Purchaser represents and warrants that he, she or it comes within one
category marked below, and that for any category marked, he, she or it has
truthfully set forth, where applicable, the factual basis or reason the
Purchaser comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish
any additional information which the Company deems necessary in order to verify
the answers set forth below.

 

Category A         The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net worth with his or
her spouse, presently exceeds $1,000,000.    Explanation. In calculating net
worth you may include equity in personal property and real estate, including
your principal residence, cash, short-term investments, stock and securities.
Equity in personal property and real estate should be based on the fair market
value of such property less debt secured by such property. Category B        
The undersigned is an individual (not a partnership, corporation, etc.) who had
an income in excess of $200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each of those years (in
each case including foreign income, tax exempt income and full amount of capital
gains and losses but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expectation of reaching
the same income level in the current year. Category C         The undersigned is
a director or executive officer of the Company. Category D        

The undersigned is a bank; a savings and loan association; insurance company;
registered investment company; registered business development company; licensed
small business investment company (“SBIC”); or employee benefit plan within the
meaning of Title 1 of ERISA and (a) the investment decision is made by a plan
fiduciary which is either a bank, savings and loan association, insurance
company or registered investment advisor, or (b) the plan has total assets in
excess of $5,000,000 or (c) is a self directed plan with investment decisions
made solely by persons that are accredited investors. (describe entity)

 

 

Category E        

The undersigned is a private business development company as defined in section
202(a)(22) of the Investment Advisors Act of 1940. (describe entity)

 

 

 

B-1

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Category F        

The undersigned is either a corporation, partnership, Massachusetts business
trust, or non-profit organization within the meaning of Section 501(c)(3) of the
Internal Revenue Code, in each case not formed for the specific purpose of
acquiring the Securities and with total assets in excess of $5,000,000.
(describe entity)

 

 

Category G         The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the Securities,
where the purchase is directed by a “sophisticated investor” as defined in
Regulation 506(b)(2)(ii) under the Act. Category H        

The undersigned is an entity (other than a trust) in which all of the equity
owners are “accredited investors” within one or more of the above categories. If
relying upon this Category alone, each equity owner must complete a separate
copy of this Agreement. (describe entity)

 

Category I         The undersigned is not within any of the categories above and
is therefore not an accredited investor.    The undersigned agrees that the
undersigned will notify the Company at any time on or prior to the Closing Date
in the event that the representations and warranties in this Agreement shall
cease to be true, accurate and complete.

 

2. SUITABILITY (please answer each question)

(a) For an individual Purchaser, please describe your current employment,
including the company by which you are employed and its principal business:

 

 

 

 

 

(b) For an individual Purchaser, please describe any college or graduate degrees
held by you:

 

 

 

 

 

B-2

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(c) For all Purchasers, please list types of prior investments:

 

 

 

 

(d) For all Purchasers, please state whether you have you participated in other
private placements before:

YES                                         NO             

(e) If your answer to question (d) above was “YES”, please indicate frequency of
such prior participation in private placements of:

 

    

Public

Companies

  

Private

Companies

  

Public or Private
Biotechnology Companies

Frequently

                       

Occasionally

                       

Never

                       

(f) For individual Purchasers, do you expect your current level of income to
significantly decrease in the foreseeable future:

YES                                         NO             

(g) For trust, corporate, partnership and other institutional Purchasers, do you
expect your total assets to significantly decrease in the foreseeable future:

YES                                         NO             

(h) For all Purchasers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:

YES                                         NO             

(i) For all Purchasers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?

YES                                         NO             

 

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(j) For all Purchasers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?

YES                                         NO             

 

3. MANNER IN WHICH TITLE IS TO BE HELD (check one):

 

(a)    Individual Ownership                    (b)    Community Property   
                (c)    Joint Tenant with Right of Survivorship (both parties
must sign)                    (d)    Partnership*                    (e)   
Tenants in Common                    (f)    Company*                    (g)   
Trust*                    (h)    Other                   

 

 

* If Securities are being subscribed for by an entity, the attached Certificate
of Signatory must also be completed.

 

4. FINRA AFFILIATION.

Are you affiliated or associated with an FINRA member firm (please check one):

Yes                                          No             

If Yes, please describe:

 

 

 

 

* If Purchaser is a Registered Representative with an FINRA member firm, have
the following acknowledgment signed by the appropriate party:

The undersigned FINRA member firm acknowledges receipt of the notice required by
FINRA Conduct Rule 3040 (a) and (b).

 

 

Name of FINRA Member Firm By:  

 

  Authorized Officer Date:  

 

 

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EXHIBIT C

NILE THERAPEUTICS, INC.

Selling Stockholder Questionnaire

The undersigned beneficial owner of common stock (the “Registrable Securities”)
of Nile Therapeutics, Inc., a Delaware corporation (the “Company”), understands
that the Company has filed or intends to file with the Securities and Exchange
Commission (the “Commission”) a registration statement (the “Registration
Statement”) for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the “Securities Act”), of the Registrable Securities, in
accordance with the terms of the Securities Purchase Agreement (the “Purchase
Agreement”) to which this document is annexed. A copy of the Purchase Agreement
is available from the Company upon request at the address set forth below. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Purchase Agreement.

Certain legal consequences arise from being named as a selling stockholder in
the Registration Statement and the related prospectus. Accordingly, holders and
beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling stockholder in the Registration Statement and the related
prospectus. The undersigned hereby furnishes to the Company the following
information for use by the Company in connection with the preparation of the
Registration Statement.

 

  (1) Name and Contact Information:

 

Full legal name of record holder:  

 

Address of record holder:

 

 

 

 

Identity of beneficial owner (if different than record holder):

 

 

Name of contact person:

 

 

Telephone number of contact person:

 

 

Fax number of contact person:

 

 

E-mail address of contact person:

 

 

 

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  (2) Beneficial Ownership of Other Securities of the Company Owned by the
Selling Stockholder:

 

Except as set forth below in this Item (3), the undersigned is not the
beneficial or registered owner of any securities of the Company other than the
Registrable Securities acquired in connection with the Purchase Agreement. Type
and amount of other securities beneficially owned by the Selling Stockholder:

 

 

 

  (3) Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates,
officers, directors or principal equity holders (5% or more) has held any
position or office or has had any other material relationship with the Company
(or its predecessors or affiliates) during the past three years.

State any exceptions here:

 

 

 

  (4) Plan of Distribution:

Except as set forth below, the undersigned intends to distribute pursuant to the
Registration Statement the Registrable Securities in accordance with the “Plan
of Distribution” substantially in the form attached hereto as Appendix A:

State any exceptions here:

 

 

 

  (5) Selling Stockholder Affiliations:

(a) Is the Selling Stockholder a registered broker-dealer?

 

(b) Is the Selling Stockholder an affiliate of a registered broker-dealer(s)?
(For purposes of this response, an “affiliate” of, or person “affiliated” with,
a specified person, is a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.)

 

 

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(c) If the answer to Item (5)(b) is yes, identify the registered
broker-dealer(s) and describe the nature of the affiliation(s):

 

(d) If the answer to Item (5)(b) is yes, did the Selling Stockholder acquire the
Registrable Securities in the ordinary course of business (if not, please
explain)?

 

(e) If the answer to Item (5)(b) is yes, did the Selling Stockholder, at the
time of purchase of the Registrable Securities, have any agreements, plans or
understandings, directly or indirectly, with any person to distribute the
Registrable Securities (if yes, please explain)?

 

 

  (6) Voting or Investment Control over the Registrable Securities:

If the Selling Stockholder is not a natural person, please identify the natural
person or persons who have voting or investment control over the Registrable
Securities:

 

Remainder of page left intentionally blank

 

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By signing below, the undersigned consents to the disclosure of the information
contained herein in its answers to Items (1) through (6) above and the inclusion
of such information in the Registration Statement, any amendments thereto and
the related prospectus. The undersigned understands that such information will
be relied upon by the Company in connection with the preparation or amendment of
the Registration Statement and the related prospectus.

The undersigned has reviewed the answers to the above questions and affirms that
the same are true, complete and accurate. THE UNDERSIGNED AGREES TO NOTIFY THE
COMPANY IMMEDIATELY OF ANY CHANGES IN THE FOREGOING INFORMATION.

 

Dated:                     , 2009    

 

    Signature of Record Holder     (Please sign your name in exactly the same
manner as the certificate(s) for the shares being registered)

 

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Appendix A

Plan of Distribution

We are registering the shares offered by this prospectus on behalf of the
selling stockholders. The selling stockholders, which as used herein includes
donees, pledgees, transferees or other successors-in-interest selling shares of
common stock or interests in shares of common stock received after the date of
this prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the time
of sale, or at negotiated prices. To the extent any of the selling stockholders
gift, pledge or otherwise transfer the shares offered hereby, such transferees
may offer and sell the shares from time to time under this prospectus, provided
that this prospectus has been amended under Rule 424(b)(3) or other applicable
provision of the Securities Act to include the name of such transferee in the
list of selling stockholders under this prospectus.

The selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:

 

  •  

ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;

 

  •  

block trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;

 

  •  

purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;

 

  •  

an exchange distribution in accordance with the rules of the applicable
exchange;

 

  •  

privately negotiated transactions;

 

  •  

short sales;

 

  •  

through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;

 

  •  

broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;

 

  •  

a combination of any such methods of sale; and

 

  •  

any other method permitted pursuant to applicable law.

The selling stockholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.

 

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In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

The aggregate proceeds to the selling stockholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.

The selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.

The selling shareholders might be, and any broker-dealers that act in connection
with the sale of securities will be, deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the securities sold by them
while acting as principals will be deemed to be underwriting discounts or
commissions under the Securities Act.

To the extent required, the shares of our common stock to be sold, the names of
the selling stockholders, the respective purchase prices and public offering
prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.

In order to comply with the securities laws of some states, if applicable, the
common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and is complied
with.

We have advised the selling stockholders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the market
and to the activities of the selling stockholders and their affiliates. In
addition, we will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling stockholders for the

 

C-6

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purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.

We have agreed to indemnify the selling stockholders against liabilities,
including liabilities under the Securities Act and state securities laws,
relating to the registration of the shares offered by this prospectus.

We have agreed with the selling stockholders to keep the registration statement
that includes this prospectus effective until the earlier of (1) such time as
all of the shares covered by this prospectus have been disposed of pursuant to
and in accordance with the registration statement that contains this prospectus
or (2) the date on which the shares may be sold without registration or
restriction pursuant to Rule 144 of the Securities Act.

 

C-7

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EXHIBIT D

Form of Opinion of Company Counsel

1. The Company is validly existing as a corporation and in good standing in the
State of Delaware, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted.

2. The Company is duly qualified to do business as a foreign corporation and is
in good standing under the laws of California.

3. The Company has all requisite corporate power and authority to execute and
deliver Transaction Documents and the Introduction Agreement and to perform its
obligations thereunder, including, without limitation, to issue, sell and
deliver the Securities and the Placement Warrants and to issue the Warrant
Shares and Placement Warrant Shares upon exercise of the Warrants and the
Placement Warrants, respectively.

4. The Transaction Documents and the Introduction Agreement have been duly and
validly executed and delivered by the Company. The execution and delivery of the
Transaction Documents and the Introduction Agreement by the Company and the
consummation by the Company of the transactions contemplated thereby, including
without limitation, the issuance of the Securities, the Placement Warrants, and
the Warrant Shares and Placement Warrant Shares upon exercise of the Warrants
and the Placement Warrants, respectively, have been duly authorized by all
necessary corporate action on the part of the Company. The Transaction Documents
constitute legal, valid and binding obligations of the Company, enforceable
against the Company according to their terms.

5. No approval, authorization, waiver, consent, registration, filing,
qualification, license or permit of or with any court, regulatory,
administrative or other governmental body is required for the execution and
delivery of the Transaction Documents or the consummation of the transactions
contemplated thereby, except for the filing of a Form D with the Securities and
Exchange Commission and such other filings required under applicable state
securities laws.

6. The Securities and the Placement Warrants have been duly authorized and, when
paid for and issued in accordance with the Purchase Agreement and the
Introduction Agreement, as applicable, will be validly issued, fully paid and
non-assessable. The Placement Warrants have been duly authorized and, when paid
for and issued in accordance with the Purchase Agreement, will be validly
issued, fully paid and non-assessable. The Warrant Shares and the Placement
Warrant Shares have been duly and validly reserved, and, when issued in
accordance with the terms of the Warrants and the Placement Warrants, will be
validly issued, fully paid and nonassessable.

7. Subject to the accuracy of the Purchasers’ representations set forth in
Section 3.2 of the Purchase Agreement, the offer and sale of the Securities to
the Purchasers in accordance with the terms of the Purchase Agreement is exempt
from the registration requirements of Section 5 of the Securities Act and from
the securities registration and qualification requirements of all applicable
state securities laws.

 

D-1

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8. The authorized capital stock of the Company consists of [        ] shares of
Common Stock and 10,000,000 shares of preferred stock. Based solely on the
representations made by the Company in the Securities Purchase Agreement, as of
June [    ], 2009, there were [        ] shares of Common Stock issued and
outstanding, [        ] shares of Common Stock reserved for issuance pursuant to
outstanding options and [        ] shares of Common Stock reserved for issuance
pursuant to outstanding warrants. There are no shares of any class or series of
preferred stock issued or outstanding. To our knowledge, other than as set forth
above or in the SEC Reports, there are no other options, warrants, conversion
privileges, calls, preemptive rights or other rights, commitments or agreements
of any character to which the Company is a party or by which the Company is
bound or obligating the Company to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of the Company or obligating the Company to grant, extend or
enter into any such option, warrant, conversion privilege, call, preemptive
right or other right, commitment or agreement.

9. The execution, delivery and performance by the Company, and the compliance by
the Company with the terms of the Transaction Documents and the Introduction
Agreement and the issuance, sale and delivery of the Securities and the
Placement Warrants pursuant to the Transaction Documents and the Introduction
Agreement, as applicable, will not (a) violate any provision of the Certificate
of Incorporation or Bylaws, (b) result in a breach of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or result in or permit the termination or modification of, any agreement
or instrument that is included as an exhibit to the SEC Reports, or (c) violate
any order, writ, judgment or decree known to us to which the Company is a party
or is subject.

 

D-2

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EXHIBIT E

WIRE INSTRUCTIONS

US BANK NATIONAL ASSOCIATION

COPORATION TRUST, ST. PAUL MINNESOTA

ABA#: [                    ]

SWIFT #: [                    ]

BNF: U.S. BANK, NA

ACCOUNT #: [                    ]

Further Credit to: Riverbank Capital & Nile Therapeutics, Inc.

SEI#: [                    ]

Attention: [                    ]

Tel: [                    ]

Fax: [                    ]

Ref: [Investor Name] *

 

 

* It is imperative that the investing entity is listed on the wire

 

E-1