Exhibit 10.12

SUBSCRIPTION AGREEMENT

This Subscription Agreement (this “Agreement”) is made as of the date set forth
on the signature page of this Agreement by and between Nile Therapeutics, Inc.,
a Delaware corporation (the “Company”), and each party who is a signatory hereto
(individually, a “Subscriber” and collectively with other signatories of similar
subscription agreements entered into in connection with the Offering described
below, the “Subscribers”).

RECITALS:

WHEREAS, the Company is offering to sell shares (the “Shares” or the
“Securities”) of the Company’s common stock, $0.001 par value per share (the
“Common Stock”) in a private offering (the “Offering”) to qualified investors as
a price per share equal to $7.92 (the “Offering Price”);

WHEREAS, the Company desires to raise in the Offering a minimum of Fifteen
Million Dollars ($15,000,000.00) (the “Minimum Offering”) and a maximum of and a
maximum of Twenty Million Dollars ($20,000,000.00) (the “Maximum Offering”). The
minimum investment per Subscriber is $500,000.00, although the Company, in its
sole discretion, may accept subscriptions for lesser amounts;

WHEREAS, the terms of the Offering are summarized in that certain Confidential
Term Sheet dated August 16, 2007 (the “Memorandum”) that has been previously
provided to the Subscriber;

WHEREAS, simultaneously with the Closing (as defined below), the Company intends
to complete a “reverse merger” (the “Merger”) with the wholly-owned subsidiary
(“Merger Sub”) of a publicly reporting company (“Pubco”) pursuant to the merger
agreement (the “Merger Agreement”) attached as an exhibit to the Memorandum. The
Company expects that such Merger Sub will be Nile Merger Sub, Inc., a Delaware
corporation, a wholly-owned subsidiary of SMI Products, Inc., a Delaware
corporation;

WHEREAS, the Company has retained Riverbank Capital Securities, Inc., a National
Association of Securities Dealers, Inc. (“NASD”) member broker dealer to act as
its placement agent in connection with the sale of the securities pursuant to
this Agreement (the “Placement Agent”); and

WHEREAS, the Company desires to enter into this Agreement to issue and sell the
Securities and the Subscriber desires to purchase that number of Securities set
forth on the signature page hereto on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the promises and the mutual representations
and covenants hereinafter set forth, the parties hereto do hereby agree as
follows:

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ARTICLE I SUBSCRIPTION OF SECURITIES

1.1. Subject to the terms set forth herein and in the Memorandum, the Subscriber
hereby irrevocably subscribes for and agrees to purchase from the Company that
number of Securities as is set forth on the signature page hereto at the
Offering Price; the total purchase price is set forth on the signature page
attached hereto (the “Purchase Price”). The aggregate Purchase Price is payable
by wire transfer of immediately available funds pursuant to the wire
instructions attached as Exhibit B.

1.2. The minimum purchase that may be made by any prospective investor shall be
$500,000.00. Subscriptions for investment below the minimum investment may be
accepted at the discretion of the Company. The Company reserves the right to
reject any subscription made hereby, in whole or in part, in its sole
discretion. The Company’s agreement with each Subscriber is a separate agreement
and the sale of the Securities to each Subscriber is a separate sale.

1.3. Pending the sale of the Securities, all funds paid hereunder shall be
deposited by the Subscriber in escrow with US Bank National Association
Corporation Trust (the “Escrow Agent”). The Offering shall expire on August 31,
2007, subject to extension for up to 30 days (the “Termination Date”) at the
discretion of the Company, and upon written notice by the Company to Pubco. The
Subscriber hereby authorizes and directs the Company and the Placement Agent to
direct the Escrow Agent to return any funds for unaccepted subscriptions to the
same account from which the funds were drawn, without interest.

1.4. On or prior to Termination Date, the Company shall conduct a closing of the
purchase and sale of Securities (the “Closing”). The Closing shall occur at the
offices of the Placement Agent at 689 5th Avenue, 14th Floor, New York, New
York, 10022. Certificates evidencing the Common Stock purchased by the
Subscriber pursuant to this Agreement will be prepared for delivery to the
Subscriber within ten (10) business days following the Closing. The Subscriber
hereby authorizes and directs the Company to deliver the certificates
representing the Common Stock purchased by the Subscriber pursuant to this
Agreement directly to the residential or business address indicated on the
signature page hereto. In the event the Company shall not have accepted
subscriptions (including the subscription accepted by its execution and delivery
of this Agreement in accordance with the terms and conditions herein) for
purchases of the Minimum Amount on or before the Termination Date, then this
subscription shall be void an all purchases hereunder by the Subscriber shall be
returned to the Subscriber, without interest.

1.5. The Subscriber hereby authorizes and directs the Company to return, without
interest, any funds for unaccepted subscriptions (including any subscriptions
that were not accepted as a result of the termination of the Offering) to the
same account from which the funds were drawn.
 
1.6. At Closing, the Company shall pay to the Placement Agent a non-accountable
expense allowance of $100,000 for introductions to investors and other services
related to the Offering.

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ARTICLE II REPRESENTATIONS BY SUBSCRIBER

The Subscriber agrees, represents and warrants to the Company and the Placement
Agent, severally and solely with respect to itself and its purchase hereunder
and not with respect to any of the other Subscribers, that:

2.1. Organization and Qualification. If an entity, the Subscriber is duly
incorporated, organized or otherwise formed, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated,
organized or otherwise formed.

2.2.  Authorization.

(a) If an entity:

(i) The Subscriber has the requisite corporate or other requisite power and
authority to enter into and to perform its obligations under this agreement and
to consummate the transactions contemplated hereby in accordance with the terms
hereof; and

(ii) the execution, delivery and performance of this Agreement by the Subscriber
and the consummation by it of the transactions contemplated hereby have been
duly authorized by the Subscriber’s Board of Directors or other governing body
and no further consent or authorization of the Subscriber, its Board of
Directors or its shareholders, members or other interest holders is required.

(b) If an individual:

(i) The undersigned has reached the age of 21 and has the legal capacity, power
and authority to execute, deliver and perform the undersigned’s obligations
under this Agreement and all other related agreements or certificates.

2.3. Enforcement. This Agreement has been duly executed by the Subscriber and
constitutes a legal, valid and binding obligation of the Subscriber enforceable
against the Subscriber in accordance with its terms, subject to the effect of
any applicable bankruptcy, insolvency, reorganization or moratorium or similar
laws affecting the rights of creditors generally and the application of general
principles of equity.

2.4. Consents. The Subscriber is not required to give any notice to, make any
filing, application or registration with, obtain any authorization, consent,
order or approval of or obtain any waiver from any person or entity in order to
execute and deliver this Agreement or to consummate the transactions
contemplated hereby, except for such notices, filings, applications,
registrations, authorizations, consents, orders, approvals and waivers (if any)
as have been obtained and the filing of a Form D with the Securities and
Exchange Commission (the “SEC”) and other similar filings required by applicable
state securities or “blue sky” laws and regulations in connection with offerings
of securities under Rule 506 (“Rule 506”) promulgated under the Securities Act
of 1933, as amended (the “Securities Act”).

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2.5. Non-contravention. Neither the execution and the delivery by the Subscriber
of this Agreement, nor the consummation by the Subscriber of the transactions
contemplated hereby, will (a) violate any law, rule, injunction, or judgment of
any governmental agency or court to which the Subscriber is subject or any
provision of its charter, bylaws, trust agreement, or other governing documents
or (b) conflict with, result in a breach of, or constitute a default under, any
agreement, contract, lease, license, instrument, or other arrangement to which
the Subscriber is a party or by which the Subscriber is bound or to which any of
its assets is subject.

2.6. Investment Purpose. The Subscriber is purchasing the Securities for its own
account and not with a present view toward the public sale or distribution
thereof.

2.7. Accredited Subscriber Status. The Subscriber is an “accredited investor” as
defined in Regulation D under the Securities Act and has delivered to the
Company a Confidential Investor Questionnaire substantially in the form of
Exhibit A attached hereto. The Subscriber hereby represents and warrants that,
either by reason of the Subscriber’s business or financial experience or the
business or financial experience of the Subscriber’s advisors (including, but
not limited to, a “purchaser representative” (as defined in Rule 501(h)
promulgated under Regulation D), attorney and/or an accountant each as engaged
by the Subscriber at its sole risk and expense, the Subscriber (a) has the
capacity to protect its own interests in connection with the transaction
contemplated hereby and/or (b) the Subscriber has prior investment experience,
including investments in securities of privately-held companies or companies
whose securities are not listed, registered, quoted and/or traded on a national
securities exchange, including the Nasdaq Global Select Market, the Nasdaq
Global Market, and the Nasdaq Capital Market (together, the “NASDAQ”) and/or (c)
to the extent necessary, the Subscriber has retained, at its sole risk and
expense, and relied upon appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Agreement and the
purchase of the Securities hereunder, and/or (d), if an entity, the Subscriber
was not formed for the sole purpose of purchasing the Securities.

2.8. Reliance on Exemptions. The Subscriber agrees, acknowledges and understands
that the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
applicable state securities or “blue sky” laws and that the Company and its
counsel are relying upon the truth and accuracy of, and the Subscriber’s
compliance with, the representations, warranties, covenants, agreements,
acknowledgments and understandings of the Subscriber set forth herein in order
to determine the availability of such exemptions and the eligibility of the
Subscriber to acquire the Securities.

2.9. No General Solicitation. The Subscriber (a) was contacted regarding the
sale of the Securities by the Company or the Placement Agent (or their
respective authorized agents or representatives) with whom the Subscriber had a
prior substantial pre-existing relationship and (b) no Securities were offered
or sold to it by means of any form of general solicitation or general
advertising, and in connection therewith, the Subscriber did not receive any
general solicitation or general advertising including, but not limited to, the
Subscriber’s: (i) receipt or review of any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, whether closed circuit, or generally
available; or (ii) attendance at any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or general
advertising.

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2.10. Information.

(a) The Subscriber agrees, acknowledges and understands that the Subscriber and
its advisors, if any, have been furnished with all materials relating to the
business, finances and operations of the Company, and materials relating to the
offer and sale of the Securities that have been requested by the Subscriber or
its advisors, if any, including, without limitation, the Memorandum, the risk
factors set forth therein, and all exhibits and appendices to the Memorandum
(collectively with this Subscription Agreement, the “Offering Documents”). The
Subscriber represents and warrants that the Subscriber and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. The
Subscriber agrees, acknowledges and understands that neither such inquiries nor
any other due diligence investigation conducted by the Subscriber or any of its
advisors or representatives modify, amend or affect the Subscriber’s right to
rely on the Company’s representations and warranties contained in ARTICLE III
below.

(b) The Subscriber agrees, acknowledges and understands that the Placement Agent
has not supplied any information for inclusion in the Memorandum other than
information furnished in writing to the Company by the Placement Agent
specifically for inclusion in the Memorandum relating to the Placement Agent,
that the Placement Agent has no responsibility for the accuracy or completeness
of the Memorandum and that the Subscriber has not relied upon the independent
investigation or verification, if any, which may have been undertaken by the
Placement Agent.

2.11. Acknowledgement of Risk. The Subscriber agrees, acknowledges and
understands that the Subscriber’s investment in the Securities involves a
significant degree of risk, including, without limitation that: (a) the Company
is a development stage business with limited operating history and requires
substantial funds in addition to the proceeds from the sale of the Securities;
(b) an investment in the Company is highly speculative and only subscribers who
can afford the loss of their entire investment should consider investing in the
Company and the Securities; (c) the Subscriber may not be able to liquidate its
investment; (d) transferability of the Common Stock is extremely limited; and
(e) in the event of a disposition of the Common Stock, the Subscriber can
sustain the loss of its entire investment. The Subscriber agrees, acknowledges
and understands that such risks are set forth in greater detail in the
Memorandum.

2.12. Governmental Review. The Subscriber agrees, acknowledges and understands
that no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement of
the Securities or an investment therein.

2.13. Transfer or Resale. The Subscriber agrees, acknowledges and understands
that:

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(a) the Common Stock has not been and, except as set forth in ARTICLE IV, will
not be registered under the Securities Act or any applicable state securities or
“blue sky” laws. Consequently, the Subscriber may have to bear the risk of
holding the Common Stock for an indefinite period of time because the Common
Stock may not be transferred unless: (i) the resale of the Common Stock is
registered pursuant to an effective registration statement under the Securities
Act; (ii) the Subscriber has delivered to the Company an opinion of counsel
reasonably acceptable to the Company and its counsel (in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that the Common Stock to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration including, without
limitation, Common Stock sold or transferred pursuant to Rule 144 promulgated
under the Securities Act (“Rule 144”); and

(b) any sale of the Common Stock made in reliance on Rule 144 may be made only
in accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any
resale of the Common Stock under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter (as
that term is defined in the Securities Act) may require compliance with some
other exemption under the Securities Act or the rules and regulations of the SEC
promulgated thereunder.

2.14. No Shorting. The Subscriber agrees, acknowledges and understands that
during the period commencing on the date hereof through the last date upon which
the Subscriber holds any Securities or Registrable Securities (as defined
below), the Subscriber may not directly or indirectly, through related parties,
affiliates or otherwise, sell “short” or “short against the box” (as those terms
are generally understood) any equity security of the Company.

2.15. Legends. The Subscriber agrees, acknowledges and understands that the
certificates representing the Common Stock (the “Restricted Securities”) will
bear restrictive legends in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Restricted Securities):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR THE SECURITIES OR “BLUE
SKY” LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS (I) THE RESALE OF THE COMMON STOCK IS REGISTERED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; (II)
THE SUBSCRIBER HAS DELIVERED TO THE COMPANY AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL (IN FORM, SUBSTANCE AND SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS) TO THE EFFECT THAT
THE COMMON STOCK TO BE SOLD OR TRANSFERRED MAY BE SOLD OR TRANSFERRED PURSUANT
TO AN EXEMPTION FROM SUCH REGISTRATION, INCLUDING, WITHOUT LIMITATION, COMMON
STOCK SOLD OR TRANSFERRED PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES
ACT (“RULE 144”).

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2.16. The Subscriber agrees, acknowledges and understands that the Company will
make a notation in the appropriate records with respect to the foregoing
restrictions on the transferability of the Restricted Securities. Certificates
evidencing the Restricted Securities shall not be required to contain such
legend or any other legend (a) following any sale of the Restricted Securities
to a non-affiliate of the Company pursuant to Rule 144, or (b) if the Restricted
Securities are being sold under Rule 144(k) or have been sold pursuant to a
registration statement and in compliance with the Subscriber’s obligations set
forth in this Agreement, or (c) such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the SEC), in each such case (a) through
(c) to the extent reasonably determined by the Company’s legal counsel.

2.17. Residency. The Subscriber is a resident of the jurisdiction set forth
immediately below the Subscriber’s name on the signature pages hereto.

2.18. Acknowledgements Regarding Placement Agent.

(a) The Subscriber agrees, acknowledges and understands that the Placement Agent
is acting as placement agent for the Securities being offered hereby but will
not be compensated for acting in such capacity, other than that the Company will
pay the Placement Agent a non-accountable expense allowance of $100,000 for
introductions to investors and other services. The Subscriber further agrees,
acknowledges and understands that the Placement Agent has acted solely as an
agent of the Company in connection with the Offering, that the information and
data provided to the Subscriber in connection with the transactions contemplated
hereby have not been subjected to independent verification by the Placement
Agent and that the Placement Agent makes no representation or warranty with
respect to the accuracy or completeness of such information, data or other
related disclosure material. The Subscriber further agrees and acknowledges that
in making its decision to enter into this Agreement and purchase the Securities,
it has relied on its own examination of the Company and the terms and
consequences of holding the Securities. The Subscriber further agrees,
acknowledges and understands that the provisions of this Section 2.18 are for
the benefit of, and may be enforced by, the Placement Agent.

(b) The Subscriber agrees, acknowledges and understands that the Placement Agent
may engage other persons, selected by it in the Placement Agent’s discretion and
with the consent of the Company, which consent will not unreasonably be
withheld, who are members of the NASD, or who are located outside the United
States, to assist the Placement Agent in connection with this Offering and that
the Placement Agent shall be responsible for the compensation of any selected
dealer so engaged.

2.19. Not a Registered Representative. The Subscriber agrees, acknowledges and
understands that if it is a Registered Representative of a NASD member firm, he
or she must give such firm the notice required by the NASD’s Rules of Fair
Practice, receipt of which must be acknowledged by such firm in the Confidential
Investor Questionnaire attached hereto as Exhibit A.

2.20. No Brokers. The Subscriber has not engaged, consented to or authorized any
broker, finder or intermediary to act on its behalf, directly or indirectly, as
a broker, finder or intermediary in connection with the transactions
contemplated by this Agreement. The Subscriber hereby agrees to indemnify and
hold harmless the Company and the Placement Agent from and against all fees,
commissions or other payments owing to any such person or firm acting on behalf
of the Subscriber hereunder.

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2.21. Reliance on Representations. The Subscriber agrees, acknowledges and
understands that the Company and its counsel, as well as the Placement Agent,
are entitled to rely on the representations, warranties and covenants made by
the Subscriber herein.

2.22. No Representations by Placement Agent. The Subscriber acknowledges that
the Placement Agent (including any of its members, managers, employees, agents
or representatives) has not made any representations or warranties to the
Subscriber concerning the Company, Merger Sub, Pubco, their respective
businesses, condition (financial or otherwise) or prospects, or the Merger.

ARTICLE III  REPRESENTATIONS BY THE COMPANY

The Company hereby represents and warrants to each Subscriber and the Placement
Agent that:

3.1. Organization and Qualification. The Company is duly incorporated, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated, with full power and authority (corporate and other) to own, lease,
use and operate its properties and to carry on its business as and where now
owned, leased, used, operated and conducted. The Company is duly qualified to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
the failure to be so qualified or in good standing would not have a material
adverse effect on (a) the business, operations assets or condition (financial or
otherwise) of the Company or (b) the ability of the Company to perform its
obligations pursuant to the transactions contemplated by this Agreement or under
any instruments to be entered into or filed in connection herewith
(collectively, a “Material Adverse Effect”).

3.2. Authorization; Enforcement. The Company has the requisite corporate power
and authority to enter into and to perform its obligations under this Agreement,
to consummate the transactions contemplated hereby and to issue the Securities
in accordance with the terms hereof. The execution, delivery and performance of
this Agreement by the Company and the consummation by it of the transactions
contemplated hereby (including without limitation the issuance of the Common
Stock) have been duly authorized by the Company’s Board of Directors (the
“Board”) and no further consent or authorization of the Company, its Company or
its shareholders is required that has not or will not be obtained prior to the
Closing. This Agreement has been duly executed by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to the effect of any applicable
bankruptcy, insolvency, reorganization or moratorium or similar laws affecting
the rights of creditors generally and the application of general principles of
equity.

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3.3. Capitalization. The authorized capital stock of the Company is as set forth
in the Memorandum. Except as set forth in the Memorandum, there are not issued,
reserved for issuance or outstanding: (a) any Securities of capital stock or
other voting securities of the Company; (b) any securities of the Company
convertible into or exchangeable or exercisable for Securities of capital stock
or voting securities of the Company; or (c) any warrants, calls, options or
other rights to acquire from the Company, or and any obligation of the Company
to issue, any capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of the
Company.

3.4. Issuance of Securities. The Securities purchased under this Agreement are
duly authorized and, upon issuance in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, free and clear
from all taxes, liens, claims, encumbrances and charges with respect to the
issue thereof, will not be subject to preemptive rights or other similar rights
of stockholders of the Company, and will not impose personal liability on the
holders thereof.

3.5. No Conflicts; No Violation.

(a) The execution, delivery and performance of this Agreement by the Company and
the consummation by the Company of the transactions contemplated hereby
(including, without limitation, the issuance of the Securities) will not: (i)
conflict with or result in a violation of any provision of its Certificate of
Incorporation or Bylaws; (ii) violate or conflict with, result in a breach of
any provision of, constitute a default (or an event which with notice or lapse
of time, or both, could become a default) under or give to others any rights of
termination, amendment, acceleration or cancellation of any material agreement,
indenture, patent, patent license or instrument to which the Company is a party;
or (iii) to the best of the Company’s knowledge, result in a material violation
of any law, rule, regulation, order, judgment or decree (including United States
federal and state securities or “blue sky” laws and regulations and regulations
of any self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, breaches, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).

(b) Except as specifically contemplated by this Agreement and as required under
the Securities Act and any applicable state securities or “blue sky” laws or any
listing agreement with any securities exchange or automated quotation system,
the Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement in accordance with the terms
hereof, or to issue and sell the Securities in accordance with the terms hereof.
All consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof.

3.6. Absence of Certain Changes. Except as disclosed in the Memorandum, since
the date of the Memorandum (including any subsequent amendments or supplements
thereto) there has been no material adverse change in the assets, liabilities,
business, properties, operations, financial condition, prospects or results of
operations of the Company, except that the Company has continued losses from
operations.

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3.7. Absence of Litigation. Other than as described in the Memorandum, to the
Company’s there is no action, suit, claim, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened,
against or affecting the Company or any of its officers or directors acting as
such that could, individually or in the aggregate, have a Material Adverse
Effect.

3.8. Intellectual Property Rights. The Company owns or possesses licenses or
rights to use all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights that it believes are necessary to
enable it to conduct its business as now operated (the “Intellectual Property”).
Except as set forth in the Memorandum, there are no material options, licenses
or agreements relating to the Intellectual Property, nor is the Company bound
by, or a party to, any material options, licenses or agreements relating to the
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names or copyrights of any other person or entity. Except as disclosed in the
Memorandum, there is no claim or action or proceeding pending or, to the
Company’s knowledge, threatened, that challenges the right of the Company with
respect to any Intellectual Property.

3.9. Tax Status. The Company has timely made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has timely paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. To the knowledge
of the Company, there are no unpaid taxes in any material amount claimed to be
due by the taxing authority of any jurisdiction, and the officers of the Company
know of no basis for any such claim. The Company has not executed a waiver with
respect to the statute of limitations relating to the assessment or collection
of any foreign, federal, state or local tax. To the Company’s knowledge, none of
the Company’s tax returns are presently being audited by any taxing authority.

3.10. No Brokers. Except as disclosed in the Memorandum, the Company has taken
no action which would give rise to any claim by any person for brokerage
commissions, finder’s fees or similar payments relating to this Agreement or the
transactions contemplated hereby, except for dealings with the Placement Agent,
whose commissions and fees will be paid by the Company.

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3.11. Investment Company Status. The Company is not, and upon consummation of
the sale of the Securities will not be, an “investment company,” a company
controlled by an “investment company” or an “affiliated person” of, or
“promoter” or “principal underwriter” for, an “investment company” as such terms
are defined in the Investment Company Act of 1940, as amended.

3.12. Placement Agent. The Company has engaged, consented to and authorized the
Placement Agent to act as agent of the Company in connection with the
transactions contemplated by this Agreement. The Company will pay the Placement
Agent a non-accountable expense allowance of $100,000 for introduction to
investors and other services and the Company agrees to indemnify and hold
harmless the Subscribers from and against all fees, commissions or other
payments owing by the Company to the Placement Agent or any other person or firm
acting on behalf of the Company hereunder.

3.13. Financial Statements. The financial statements of the Company included in
the Memorandum (the “Financial Statements”) (a) fairly present in all material
respects the financial condition and position of the Company at the dates and
for the periods indicated; (b) have been prepared in conformity with generally
accepted accounting principles in the United States (“GAAP”) consistently
applied throughout the periods covered thereby, except as may be otherwise
specified in such Financial Statements or the notes thereto and except that any
unaudited financial statements may not contain all footnotes required by GAAP;
and (c) fairly present in all material respects the financial position of the
Company 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 any unaudited
statements, to normal, immaterial, year-end audit adjustments. Since the date of
the most recent balance sheet included as part of the Financial Statements, and
except as set forth in the Memorandum, there has not been to the Company’s
knowledge (a) any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements, other
than changes in the ordinary course of business, including ongoing losses, none
of which individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect; or (b) any other event or condition of any character
that, either individually or cumulatively, would reasonably be expected to have
a Material Adverse Effect, except for the expenses incurred in connection with
the transactions contemplated by this Agreement.

3.14. Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to its properties and assets, including the properties and
assets reflected in the most recent balance sheet included in the Financial
Statements, and good title to its leasehold estates, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (a) those
resulting from taxes which have not yet become delinquent; (b) liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company; (c) those
that have otherwise arisen in the ordinary course of business; and (d) those
that would not reasonably be expected to have a Material Adverse Effect. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.

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3.15. Obligations to Related Parties. Except as disclosed in the Memorandum or
as would not reasonably be expected to have a Material Adverse Effect, there are
no obligations of the Company to officers, directors, stockholders, or employees
of the Company other than (a) for payment of salary or other compensation for
services rendered; (b) reimbursement for reasonable expenses incurred on behalf
of the Company; (c) standard indemnification provisions in the certificate of
incorporation and by-laws; and (d) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board). Except as may be
disclosed in the Memorandum or Financial Statements, the Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.

3.16. Employee Relations; Employee Benefit Plans. The Company is not a party to
any collective bargaining agreement or a union contract. The Company believes
that its relations with its employees are good. No executive officer (as defined
in Rule 501(f) of the Securities Act) of the Company has notified the Company
that such officer intends to leave the Company or otherwise terminate such
officer’s employment with the Company. The Company is in compliance with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours,
except where failure to be in compliance would not, either individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
Except as disclosed in the Memorandum, the Company does not maintain any
compensation or benefit plan, agreement, arrangement or commitment (including,
but not limited to, “employee benefit plans”, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) for any
present or former employees, officers or directors of the Company or with
respect to which the Company has liability or makes or has an obligation to make
contributions, other than any such plans, agreements, arrangements or
commitments made generally available to the Company’s employees.

3.17. Environmental Laws. To the knowledge of the Company (a) is in compliance
with any and all Environmental Laws (as hereinafter defined); (b) has received
all permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its business; and (c) are in compliance with all
terms and conditions of any such permit, license or approval where, in each of
the foregoing clauses (a), (b) and (c), the failure to so comply would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect. The term “Environmental Laws” means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.

3.18. Disclosure. The Offering Documents and all other documents delivered to
the Subscriber in connection herewith at the Closing, do not, as of their
respective dates, contain any untrue statement of a material fact, or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. There are no facts
that, individually or in the aggregate, would have a Material Adverse Effect
that have not been disclosed in the Offering Documents (including the Schedules
and Exhibits thereto) or any other documents delivered to the Subscriber in
connection herewith or therewith at the Closing.

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3.19. Securities Law Exemption. Assuming the truth and accuracy of the
Subscriber’s representations and warranties in this Agreement and the truth and
accuracy of each of the other Subscribers’ representations and warranties set
forth in the subscription agreements executed by such other Subscribers, the
offer, sale and issuance of the Securities as contemplated by this Agreement and
the other subscription agreements are exempt from the registration requirements
of the Act and applicable state securities laws, and neither the Company nor any
authorized agent acting on its behalf has taken or will take any action
hereafter that would cause the loss of such exemption.

3.20. Licenses and Permits.

(a) Except as set forth in the Offering Documents, the Company has obtained and
maintains all federal, state, local and foreign licenses, permits, consents,
approvals, registrations, authorizations and qualifications required to be
maintained in connection with its operations as presently conducted and as
proposed to be conducted, except where the failure to obtain or maintain such
licenses, permits, consents, approvals, registrations, authorizations and
qualifications could not have a Material Adverse Effect. The Company is not in
default in any material respect under any of such licenses, permits, consents,
approvals, registrations, memberships, authorizations and qualifications.

(b) To the Company’s knowledge, the conduct of its business as presently and
proposed to be conducted is not presently subject to continuing oversight,
supervision, regulation or examination by any governmental official or body of
the United States or any other jurisdiction wherein the Company conducts or
proposes to conduct business, except as described in the Offering Documents and
except such regulation as is applicable to commercial enterprises generally.

3.21. No Integrated Offering. 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 in any security or solicited any offers to buy any security
under circumstances that would require registration under the Securities Act.
Except as disclosed in the Offering Documents, the Company has not sold or
issued any shares of Common Stock, convertible notes or warrants during the past
six months, including sales pursuant to Rule 144A, Regulation D or Regulation S
under the Act, other than shares issued pursuant to employee benefit plans, if
any.

3.22. Related Party Transactions. No transaction has occurred between or among
the Company and any of its affiliates, officers or directors or any affiliate of
any such officer or director that is required to be described in the Offering
Documents that is not so described.

3.23. Books and Records. The books, records and accounts of the Company
accurately and fairly reflect, in reasonable detail, the transactions in, and
dispositions of, the assets of, and the results of operations of, the Company,
all to the extent required by generally accepted accounting principles.

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ARTICLE IV  COVENANTS OF THE COMPANY AND SUBSCRIBER

4.1. Form D; Blue Sky Laws. The Company shall timely file with the SEC a Notice
of Sale of Securities on Form D with respect to the Offering, as required under
Regulation D. The Company will, on or before the Closing Date, take such action
as it reasonably determines to be necessary to qualify the Securities for sale
to the Subscriber under this Agreement under applicable securities (or “blue
sky”) laws or regulations of the states of the United States (or to obtain an
exemption from such qualification).

4.2. Expenses. The Company and the Subscriber are liable for, and shall pay,
their own expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement, including, without limitation,
attorneys’ and consultants’ fees and expenses.
 
ARTICLE V   CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBER

The Subscriber’s obligation to purchase Securities at the Closing is subject to
the fulfillment on or prior to the Closing of the following conditions, which
conditions may be waived at the option of the Subscriber to the extent permitted
by law:

5.1. Representations and Warranties Correct. The representations and warranties
made by the Company in ARTICLE III hereof shall be true and correct in all
material respects when made, and, except for any representations and warranties
made by the Company as of a specific date, shall be true and correct in all
material respects on the Closing Date with the same force and effect as if they
had been made on and as of said date. 

5.2. Covenants. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to such purchase shall have
been performed or complied with in all material respects. 

5.3. No Legal Order Pending. There shall not then be in effect any legal or
other order enjoining or materially restraining the transactions contemplated by
this Agreement.

5.4. No Law Prohibiting or Restricting Such Sale. There shall not be in effect
any law, rule or regulation prohibiting or materially restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Common Stock (except as otherwise provided in this
Agreement).

5.5. Legal Opinion. The Placement Agent shall have received a legal opinion from
the Company’s outside counsel covering such matters as reasonably requested by
the Placement Agent.

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5.6. Officer’s Certificates. The Company shall have delivered a Certificate,
executed on behalf of the Company by its Chief Executive Officer, dated as of
the Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1, 5.2, 5.3, and 5.4 of this ARTICLE V, and (ii) Pubco and Merger Sub
shall have delivered a Certificate, executed by their respective Chief Executive
Officers or Chief Financial Officers, dated as of the Closing Date, certifying
to the representations and warranties and conditions set forth in the Merger
Agreement.

5.7. Secretary Certificates. The Company shall have delivered a Certificate,
executed on behalf of the Company by its Secretary, dated as of the Closing
Date, certifying the resolutions adopted by the Board of Directors of the
Company approving, as applicable, the transactions contemplated by this
Agreement and the issuance of the Common Stock, certifying the current versions
of its Articles of Incorporation and Bylaws or other organizational documents
and certifying as to the signatures and authority of persons signing this
Agreement and related documents on its behalf.

ARTICLE VI REGISTRATION RIGHTS.

6.1. Registration; Definitions.

(a) No later than sixty (60) days following the Merger (as defined in the
Memorandum) (the “Registration Due Date”), the Company shall prepare and file
with the SEC a registration statement covering the resale of all of the
Registrable Securities (the “Registration Statement”). The Registration
Statement required hereunder shall be on Form S-1, SB-2, 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(k), 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
SEC on or before Registration Due Date, the Company shall pay to each
Subscriber, 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 Subscriber, until the point
in time when the Company has filed the Registration Statement with the SEC.

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(c) The term “Registrable Securities” shall mean (i) the Common Stock sold in
the Offering, or (ii) the securities received by a Holder (as defined below) in
connection with the Merger; provided, however, that securities 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 pursuant to Rule 144(k) (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.

6.2. Registration Procedures; Company. In connection with the Company’s
registration obligations set forth in Section 6.1 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
(including 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 SEC 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 SEC 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 SEC.
 
(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 SEC which permits the
selling of any such securities without registration or pursuant to such form.

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6.3. Registration Procedures; Subscriber. In connection with the Company’s
registration obligations set forth in Section 6.1 above:

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

(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
Subscriber 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 Subscriber that the Blackout Period has
terminated and (ii) the Subscriber receives copies of a supplemented or amended
prospectus, if necessary. If so directed by the Company, the Subscriber 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 Subscriber’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 Subscriber determines to engage an underwriter (other than the
Subscriber) in connection with the offering of any Registrable Securities (an
“Underwritten Offering”), the Subscriber 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 are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities. The Subscriber 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.

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(d) The Subscriber 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.

6.4. Registration Expenses. All fees and expenses of the Company incident to the
performance of or compliance with Section 6.1 and Section 6.2 hereof by the
Company shall be borne by the Company. In addition, the Company shall pay, on a
one-time basis, 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 6.1 hereof, as directed by the then Holders
of a majority of the Registrable Securities.

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

(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 Securities Exchange Act of
1934, as amended (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 6.5(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 which 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. 

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(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 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 6.5(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 6.5(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 6.5(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 6.5 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 6.5, 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
6.5, 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 6.5.

(d) If the indemnification provided for in this Section 6.5 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 6.5 shall
survive the completion of any offering of Registrable Securities in a
Registration Statement under this ARTICLE VI, and otherwise.

6.6. Cutback. In connection with filing the Registration Statement pursuant to
Section 6.1 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 which will provide, among other things, that the Company will use its
commercially reasonable efforts to register additional changes 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.

6.7. Sales by Subscribers. The Subscriber 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 Subscriber 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.

6.8. 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 SEC 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 fifteen (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.

6.9. 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 VI 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 VII MISCELLANEOUS

7.1. Governing Law; Jurisdiction. This Agreement will be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States federal and state courts located in
the Borough of Manhattan, in the State of New York with respect to any dispute
arising under this Agreement or the transactions contemplated hereby or thereby.

7.2. Counterparts; Signatures by Facsimile. This Agreement may be executed in
two or more counterparts, all of which are considered one and the same agreement
and will become effective when counterparts have been signed by each party and
delivered to the other parties. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

7.3. Headings. The headings of this Agreement are for convenience of reference
only, are not part of this Agreement and do not affect its interpretation.

7.4. Severability. If any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
will be deemed modified in order to conform to such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law will not
affect the validity or enforceability of any other provision hereof.

7.5. Entire Agreement; Amendments. This Agreement (including all schedules and
exhibits hereto) constitutes the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. Except as set forth in ARTICLE VI, no provision of this Agreement may be
waived or amended other than by an instrument in writing signed by the party to
be charged with enforcement.

7.6. Notices. Any notices required or permitted to be given under the terms of
this Agreement must be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) and will be effective five days after being placed
in the mail, if mailed by regular United States mail, or upon receipt, if
delivered personally, or by courier (including a recognized overnight delivery
service), in each case addressed to a party. The addresses for such
communications are:

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If to the Company:

Mr. Peter M. Strumph
2850 Telegraph Avenue, Suite 310
Berkeley, CA 94705
Tel: (510) 281-7701
Fax: (510) 288-1310

With a copy to:
 
Ira L. Kotel, Esq.
Dickstein Shapiro LLP
1177 Avenue of the Americas
New York, NY 10036

If to the Subscriber: To the address set forth immediately below the
Subscriber’s name on the signature pages hereto.

Each party will provide written notice to the other parties of any change in its
address.

7.7. Successors and Assigns. This Agreement is binding upon and inures to the
benefit of the parties and their successors and assigns. The Company will not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Subscriber and the Subscriber may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the Company, and any such assignment without the prior written
consent of the Company shall be void ab initio. Notwithstanding the foregoing,
the Subscriber may assign all or part of its rights and obligations hereunder to
any of its “affiliates,” as that term is defined under the Securities Act,
without the consent of the Company so long as the affiliate is an accredited
investor (within the meaning of Regulation D) and agrees in writing to be bound
by this Agreement. This provision does not limit the Subscriber’s right to
transfer the Common Stock pursuant to the terms of this Agreement or to assign
the Subscriber’s rights hereunder to any such transferee pursuant to the terms
of this Agreement.

7.8. Third Party Beneficiaries. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.

7.9. Further Assurances. Each party will do and perform, or cause to be done and
performed, all such further acts and things, and will execute and deliver all
other agreements, certificates, instruments and documents, as another party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

7.10. No Strict Construction. The language used in this Agreement is deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

7.11. Acceptance. Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Securities as herein provided, subject to
acceptance by the Company; subject, however, to the right hereby reserved to the
Company to enter into the same agreements with other Subscribers and to add
and/or delete other persons as Subscribers.

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7.12. Waiver. It is agreed that a waiver by either party of a breach of any
provision of this Agreement shall not operate, or be construed, as a waiver of
any subsequent breach by that same party.

7.13. Other Documents. The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Agreement.

7.14. Public Statements. The Subscriber agrees not to issue any public statement
with respect to the Subscriber’s investment or proposed investment in the
Company or the terms of any agreement or covenant between them and the Company
without the Company’s prior written consent, except such disclosures as may be
required under applicable law or under any applicable order, rule or regulation.

7.15. Exculpation Among Subscribers. The Subscriber agrees, acknowledges and
understands that it is not relying on any of the other Subscribers in making its
investment or decision to invest in the Company. The Subscriber agrees,
acknowledges and understands that none of the other Subscribers nor their
respective controlling persons, officers, directors, partners, agents or
employees shall be liable to the Subscriber for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
purchase of the Securities or the execution of or performance under this
Agreement, nor shall the Subscriber be liable to the other Subscribers for any
action heretofore or hereafter taken or omitted to be taken by the Subscriber in
connection with the purchase of the Securities or the execution of or
performance under this Agreement.

7.16. Several Obligations. The obligations of each Subscriber under any
Subscription Agreements are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under any Subscription
Agreement. Nothing contained herein or in any other Subscription Agreement, and
no action taken by any Subscriber pursuant hereto or thereto, shall be deemed to
constitute the Subscribers as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Subscribers are in
any way acting in concert or as a group with respect to such obligations or the
transactions contemplated by the Subscription Agreements. Each Subscriber
confirms that it has independently participated in the negotiation of the
transaction contemplated hereby with the advice of its own counsel and advisors.
Each Subscriber shall be entitled to independently protect and enforce its
rights, including, without limitation, the rights arising out of this Agreement
or out of any other Subscription Agreements, and it shall not be necessary for
any other Subscriber to be joined as an additional party in any proceeding for
such purpose. The Company acknowledges that each of the Subscribers has been
provided with the same Subscription Agreements for the purpose of closing a
transaction with multiple Subscribers and not because it was required or
requested to do so by any Subscriber.

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7.17. Counterparts. This Agreement may be executed in two or more counterparts
each of which shall be deemed an original, but all of which shall together
constitute one and the same instrument.

[Signature Page to Follow]

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NUMBER OF SHARES
 
x
$
 
=
$
           
(Offering Price) 
   
(Investment Amount) 
 

 

       
Signature
 
Signature (if purchasing jointly)
                 
Name Typed or Printed
 
Name Typed or Printed
                 
Entity Name
 
Entity Name
                 
Address
 
Address
                 
City, State and Zip Code
 
City, State and Zip Code
                 
Telephone-Business
 
Telephone—Business
                 
Telephone-Residence
 
Telephone—Residence
                 
Facsimile-Business
 
Facsimile—Business
                 
Facsimile-Residence
 
Facsimile—Residence
 

Tax ID # or Social Security #
 
 

Name in which securities should be issued:
 
 

Dated:
 
, 2007

 
This Subscription Agreement is agreed to and accepted as of _________________,
2007.
 
                                                                               (Date)

 
NILE THERAPEUTICS, INC.
         
By:
 

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

 
Name:  Mr. Peter M. Strumph
 
Title:    Chief Executive Officer

 
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CERTIFICATE OF SIGNATORY

(To be completed if Securities 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 Subscription Agreement and to purchase and hold the
Securities, and certify further that the Subscription 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
_________________,_2007
 

   

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

 
(Signature)

 
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EXHIBIT A

CONFIDENTIAL INVESTOR QUESTIONAIRRE
 
1. The Subscriber 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
Subscriber 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 which is
issuing and selling the Preferred Stock.

 
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)

   

  ____________________________________________________________

  ____________________________________________________________

27

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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)

   

  ____________________________________________________________  

  ____________________________________________________________  

 

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 Preferred Stock 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 Preferred Stock, 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 Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
 
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  

 
28

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(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
 
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
 
(c) For all Subscribers, please list types of prior investments:
 
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
___________________________________________________________________________________________________  
 
(d) For all Subscribers, please state whether you have you participated in other
private placements before:

 
YES r
NO r

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

 
Public
 
Private
 
Public or Private
 
Companies
 
Companies
 
Biotechnology Companies
           
Frequently
_________________________    _________________________   
_________________________ 
Occasionally
_________________________    _________________________  
_________________________ 
Never
_________________________   _________________________   
_________________________ 

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

 
YES r
NO r

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

 
YES r
NO r

(h) For all Subscribers, 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 r
NO r

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

 
YES r
NO r

(j) For all Subscribers, 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 r
NO r

3. MANNER IN WHICH TITLE IS TO BE HELD. (circle 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 Preferred Stock are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
 
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4. NASD AFFILIATION.

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

Yes r
No r

If Yes, please describe:

____________________________________________________________     
____________________________________________________________      
____________________________________________________________      

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

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

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

Name of NASD Member Firm

By:
 

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

Authorized Officer

Date:
 

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

The undersigned is informed of the significance to the Company of the foregoing
representations and answers contained in the Confidential Investor Questionnaire
and such answers have been provided under the assumption that the Company will
rely on them.

31

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EXHIBIT B

WIRE INSTRUCTIONS

US BANK NATIONAL ASSOCIATION
COPORATION TRUST, ST. PAUL MINNESOTA

ABA#: [ ]
BNF: U.S. BANK, NA
ACCOUNT #: [ ]
Further Credit to: Nile Therapeutics, Inc.
SEI#: 117882000
Attention: Stefan Ronchetti
Tel: 651-495-2148
Fax: 651-495-8087
Ref: [Investor Name] *

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

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