Document:

Exhibit 4.2

 

        NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE
HAVE 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. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED
BY SUCH SECURITIES.

VALENTIS, INC. 

WARRANT 

	
  Warrant No. [    ]

  	
   

  	
  Date of Original
  Issuance: [    ]

  

        Valetis, Inc., a Delaware corporation (the “Company”), hereby certifies that, for
value received, [    ] or its registered assigns (the “Holder”), is entitled to purchase from the
Company up to a total of [    ] shares of common stock,
$.001 par value (the “Common Stock”),
of the Company (each such share, a “Warrant
Share” and all such shares, the “Warrant
Shares”) at an exercise price equal to $3.00 per share (as adjusted
from time to time as provided in Section 9, the “Exercise Price”), at any time and from time to time from and
after the date hereof and through and including the fifth year anniversary of
the issuance date hereof (the “Expiration
Date”), and subject to the following terms and conditions:

        1.    Definitions.    In
addition to the terms defined elsewhere in this Warrant, capitalized terms that
are not otherwise defined herein shall have the meanings given to such terms in
the Securities Purchase Agreement of even date herewith to which the Company
and the original Holder are parties (the “Purchase
Agreement”).

        2.    Registration of Warrant.    The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, absent actual notice to
the contrary.

        3.    Registration of Transfers.    The
Company shall register the transfer of any portion of this Warrant in the
Warrant Register, upon surrender of this Warrant, with the Form of Assignment
attached hereto duly completed and signed, to the Company at its address
specified herein. Upon any such registration or transfer, a new Warrant to
purchase Common Stock, in substantially the form of this Warrant (any such new
Warrant, a “New Warrant”),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance by such transferee of all of the rights and obligations of a holder
of a Warrant. Notwithstanding the foregoing, this Warrant is subject to the
transfer restrictions set forth in Section 4.1 of the Purchase Agreement.

 

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4.    Exercise
and Duration of Warrants.

        (a)   This
Warrant shall be exercisable by the registered Holder at any time and from time
to time on or after the date hereof to and including the Expiration Date.
Subject to Section 11(ii), at 6:30 p.m., New York City time on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value, provided,
that if the closing sales price of the Common Stock on the Expiration Date is greater
than 102% of the Exercise Price on the Expiration Date, then this Warrant shall
be deemed to have been exercised in full (to the extent not previously
exercised) on a “cashless exercise” basis at 6:30 P.M. New York City time
on the Expiration Date.

        (b)   Subject
to the provisions of this Section 4(b), at any time after the first
anniversary of the Closing Date, if the: (i) VWAP (as defined below) of
the Common Stock for each of 30 consecutive Trading Days after such first
anniversary is greater than $5.00 (as may be adjusted pursuant to
Section 9), (ii) the Warrant Shares are either registered for resale
pursuant to an effective registration statement naming the Holder as a selling
stockholder thereunder (and the prospectus thereunder is available for use by
the Holder as to all then available Warrant Shares) or freely transferable
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act, as determined by counsel to the Company pursuant to a written
opinion letter addressed and in form and substance reasonably acceptable to the
Holder and the transfer agent for the Common Stock, and (iii) the Company
shall have fully honored in accordance with the terms of this Warrant all
Exercise Notices delivered prior to 6:30 p.m. (New York City time) on the
Call Date (as defined below), then the Company may, subject to Section 11,
require cash exercise pursuant to Section 10(a) hereof of all, but not
less than all, of the portion of this Warrant for which Exercise Notices have
not been delivered by 6:30 p.m. on the Call Date. To exercise this right,
the Company must deliver to the Holder an irrevocable written notice (a “Call
Notice”), indicating therein that this Warrant shall be exercised. If the
conditions for such Call are satisfied from the period from the date of the
Call Notice through and including the Call Date, then, subject to
Section 11, this Warrant shall be deemed to have been exercised in full on
a cash basis pursuant to Section 10(a) hereof at 6:30 p.m. (New York
City time) on the tenth Trading Day after the date the Call Notice is received
by the Holder (such date, the “Call Date”). The Holder shall deliver payment in
immediately available funds of the Exercise Price for the number of Warrant
Shares for which this Warrant is required to be exercised under this subsection
promptly but in any event no later than ten business days following the Call
Date. The Company covenants and agrees that it will honor all Forms of Election
to Purchase with respect to Warrant Shares that are tendered from the time of
delivery of the Call Notice through 6:30 p.m. (New York City time) on the
Call Date. “VWAP” means on any particular Trading Day or for any particular
period, the volume weighted average trading price per share of Common Stock on
such date or for such period as reported by Bloomberg L.P., or any successor
performing similar functions. The Company and the Holder agree that, if and to
the extent Section 11 of this Warrant would restrict the ability of the
Holder to exercise this Warrant in full in the event of a delivery of a Call
Notice, then notwithstanding anything to the contrary set forth in the Call
Notice, the Call Notice shall be deemed automatically amended to apply only to
such portion of this Warrant as may be exercised by the Holder by the Call Date
in accordance with Section 11. The Holder will promptly (and, in any
event, prior to the Call Date) notify the Company in writing following receipt
of a Call Notice if Section 11 would restrict its exercise of the Warrant,
specifying therein the number of Warrant Shares so restricted.

5.    Delivery
of Warrant Shares.

        (a)   To
effect exercises hereunder, the Holder shall not be required to physically
surrender this Warrant unless the aggregate Warrant Shares represented by this
Warrant is being exercised. Upon delivery of the Exercise Notice to the Company
(with the attached Warrant Shares Exercise

 

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Log) at its address for notice set forth herein and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, the Company shall promptly (but
in no event later than three Trading Days after the Date of Exercise (as
defined herein)) issue and deliver to the Holder, a certificate for the Warrant
Shares issuable upon such exercise, which, unless otherwise required by the
Purchase Agreement, shall be free of restrictive legends. The Company shall,
upon request of the Holder and subsequent to the date on which a registration
statement covering the resale of the Warrant Shares has been declared effective
by the Securities and Exchange Commission, use its best efforts to deliver
Warrant Shares hereunder electronically through the Depository Trust Corporation
or another established clearing corporation performing similar functions, if
available, provided, that, the Company may, but will not be required to change
its transfer agent if its current transfer agent cannot deliver Warrant Shares
electronically through the Depository Trust Corporation. A “Date of Exercise” means the date on which
the Holder shall have delivered to Company: (i) the Exercise Notice (with
the Warrant Exercise Log attached to it), appropriately completed and duly
signed and (ii) if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, payment of the Exercise Price for the
number of Warrant Shares so indicated by the Holder to be purchased.

        (b)   If
by the third Trading Day after a Date of Exercise the Company fails to deliver
the required number of Warrant Shares in the manner required pursuant to
Section 5(a), then the Holder will have the right to rescind such
exercise.

        (c)   If
by the third Trading Day after a Date of Exercise the Company fails to deliver
the required number of Warrant Shares in the manner required pursuant to
Section 5(a), and if after such third Trading Day and prior to the receipt
of such Warrant Shares, the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by the
Holder of the Warrant Shares which the Holder anticipated receiving upon such
exercise (a “Buy-In”), then the
Company shall (1) pay in cash to the Holder the amount by which
(x) the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of Warrant Shares that the Company
was required to deliver to the Holder in connection with the exercise at issue
by (B) the closing bid price of the Common Stock at the time of the
obligation giving rise to such purchase obligation and (2) at the option
of the Holder, either reinstate the portion of the Warrant and equivalent
number of Warrant Shares for which such exercise was not honored or deliver to
the Holder the number of shares of Common Stock that would have been issued had
the Company timely complied with its exercise and delivery obligations
hereunder. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In.

        (d)   The
Company’s obligations to issue and deliver Warrant Shares in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation
of law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of Warrant Shares. Nothing herein shall
limit a Holder’s right to pursue any other remedies available to it hereunder,
at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the Company’s failure to
timely deliver certificates representing shares of Common Stock upon exercise
of the Warrant as required pursuant to the terms hereof.

6.    Charges,
Taxes and Expenses.    Issuance and delivery of
certificates for shares of Common Stock upon exercise of this Warrant shall be
made without charge to the Holder for any issue or

 

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transfer
tax, withholding tax, transfer agent fee or other incidental tax or expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder. The Holder shall be responsible for
all other tax liability that may arise as a result of holding or transferring
this Warrant or receiving Warrant Shares upon exercise hereof.

        7.    Replacement of Warrant.    If
this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Warrant, a New Warrant, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction and customary and reasonable indemnity (which shall
not include a surety bond), if requested. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company as
a condition precedent to the Company’s obligation to issue the New Warrant.

        8.    Reservation of Warrant
Shares.    The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9).
The Company covenants that all Warrant Shares so issuable and deliverable
shall, upon issuance and the payment of the applicable Exercise Price in
accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.

        9.    Certain Adjustments.    The
Exercise Price and number of Warrant Shares issuable upon exercise of this
Warrant are subject to adjustment from time to time as set forth in this Section 9.

        (a)    Stock Dividends and Splits.    If
the Company, at any time while this Warrant is outstanding, (i) pays a
stock dividend on its Common Stock or otherwise makes a distribution on any
class of capital stock that is payable in shares of Common Stock, (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, or
(iii) combines outstanding shares of Common Stock into a smaller number of
shares, then in each such case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this paragraph occurs
during the period that an Exercise Price is calculated hereunder, then the
calculation of such Exercise Price shall be adjusted appropriately to reflect
such event.

        (b)    Pro Rata Distributions.    If
the Company, at any time while this Warrant is outstanding, distributes to all
holders of Common Stock (i) evidences of its indebtedness, (ii) any
security (other than a distribution of Common Stock covered by the preceding
paragraph), (iii) rights or warrants to subscribe for or purchase any
security, or (iv) any other asset (in each case, “Distributed Property”), then, at the
request of any Holder delivered before the 90th day after the record date fixed
for determination of stockholders entitled to receive such distribution, the
Company will deliver to such Holder, within five Trading Days after such
request (or, if later, on the effective date of such distribution), the
Distributed Property that such Holder would have been entitled to receive in
respect of the Warrant Shares for which such Holder’s Warrant could have

 

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been exercised immediately prior to such record date.
If such Distributed Property is not delivered to a Holder pursuant to the
preceding sentence, then upon any exercise of the Warrant that occurs after
such record date, such Holder shall be entitled to receive, in addition to the
Warrant Shares otherwise issuable upon such conversion, the Distributed
Property that such Holder would have been entitled to receive in respect of
such number of Warrant Shares had the Holder been the record holder of such
Warrant Shares immediately prior to such record date.

        (c)    Fundamental Transactions.    If,
at any time while this Warrant is outstanding, (1) the Company effects any
merger or consolidation of the Company with or into another Person,
(2) the Company effects any sale of all or substantially all of its assets
in one or a series of related transactions, (3) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (4) the Company effects
any 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 (in any such case, a “Fundamental Transaction”), then the Holder
shall have the right thereafter to receive, upon exercise of this Warrant, the
same amount and kind of securities, cash or property as it would have been
entitled to receive upon the occurrence of such Fundamental Transaction if it
had been, immediately prior to such Fundamental Transaction, the holder of the
number of Warrant Shares then issuable upon exercise in full of this Warrant
(the “Alternate Consideration”).
For purposes of any such exercise, the determination of the Exercise Price
shall be appropriately adjusted to apply to such Alternate Consideration based
on the amount of Alternate Consideration issuable in respect of one share of
Common Stock in such Fundamental Transaction, and the Company shall apportion
the Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such Fundamental
Transaction. At the Holder’s request, any successor to the Company or surviving
entity in such Fundamental Transaction shall, issue to the Holder a new warrant
substantially in the form of this Warrant and consistent with the foregoing
provisions and evidencing the Holder’s right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (c) and insuring that the Warrant (or any
such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction.

        (d)    Subsequent Equity Sales.

          (i)  If,
prior to the first year anniversary of the issuance date hereof, the Company
issues any shares of Common Stock or the Company or any subsidiary thereof
issues any rights, warrants, options or other securities or debt that is
convertible into, exchangeable for (any such securities, “Common Stock Equivalents”) entitling any
Person to acquire shares of Common Stock at a price per share less than the
average of the closing bid prices per share of Common Stock during the
immediately preceding five (5) Trading Days (the “Threshold Price”) (if the holder of the
Common Stock or Common Stock Equivalent so issued shall at any time, whether by
operation of purchase price adjustments, reset provisions, floating conversion,
exercise or exchange prices or otherwise, or due to warrants, options or rights
issued in connection with such issuance, be entitled to receive shares of
Common Stock at a price less than the Threshold Price, such issuance shall be
deemed to have occurred for less than the Threshold Price), then, at the option
of the Holder for such exercises as it shall indicate, the Exercise Price shall
be multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of such

 

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shares of Common Stock or such Common Stock
Equivalents plus the number of shares of Common Stock which the offering price
for such shares of Common Stock or Common Stock Equivalents would purchase at
the Exercise Price, and the denominator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock so issued or issuable. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are
issued. The Company shall notify the Holder in writing, no later than the fifth
(5th) Trading Day immediately following the issuance of any Common
Stock or Common Stock Equivalent subject to this section, indicating therein
the applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms.

         (ii)  If,
prior to the first year anniversary of the issuance date hereof, the Company or
any Subsidiary issues Common Stock Equivalents at a price per share that floats
or resets or otherwise varies or is subject to adjustment based on market
prices of the Common Stock (a “Floating Price
Security”), then for purposes of applying the preceding paragraph in
connection with any subsequent exercise, the Exercise Price will be determined
separately on each Exercise Date and will be deemed to equal the lowest price
per share at which any holder of such Floating Price Security is entitled to
acquire shares of Common Stock on such Exercise Date (regardless of whether any
such holder actually acquires any shares on such date).

        (iii)  Notwithstanding
the foregoing, no adjustment will be made under this Section 9(d) as a
result of: (i) the issuance of the Securities, (ii) the issuance of
securities upon the exercise or conversion of any Common Stock or Common Stock
Equivalents issued by the Company prior to the date hereof (but will apply to
any amendments, modifications and reissuances thereof), (iii) the grant of
options or warrants, or the issuance of additional securities, under any duly
authorized Company stock option, restricted stock plan or stock purchase plan
whether now existing or approved by the Company and its stockholders in the
future (but not as to any amendments or other modifications to the number of
Common Stock issuable thereunder, the terms set forth therein, or the exercise
price set forth therein, unless such amendments or other modifications are
approved by the company’s shareholders) or (iv) pursuant to one or more
Strategic Transactions.

        (e)    Number of Warrant Shares.    Simultaneously
with any adjustment to the Exercise Price pursuant to paragraphs (a) and
(d) of this Section, the number of Warrant Shares that may be purchased
upon exercise of this Warrant shall
be increased or decreased proportionately, so that after such adjustment the
aggregate Exercise Price payable hereunder for the adjusted number of Warrant
Shares shall be the same as the aggregate Exercise Price in effect immediately
prior to such adjustment.

        (f)    Calculations.    All
calculations under this Section 9
shall be made to the nearest cent or the nearest 1/100th of a share,
as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.

        (g)    Notice of Adjustments.    Upon
the occurrence of each adjustment pursuant to this Section 9, the Company at its expense will promptly
compute such adjustment in accordance with the terms of this Warrant and
prepare a certificate setting forth such adjustment, including a statement of
the adjusted Exercise Price and adjusted number or type of Warrant Shares or
other securities issuable upon exercise of this Warrant (as applicable),
describing the transactions giving rise to such adjustments and showing in
detail the facts upon which such adjustment is based. Upon written request, the
Company will promptly deliver a copy of each such certificate to the Holder and
to the Company’s Transfer Agent.

 

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        (h)    Notice of Corporate Events.    If
the Company (i) declares a dividend or any other distribution of cash,
securities or other property in respect of its Common Stock, including without
limitation any granting of rights or warrants to subscribe for or purchase any
capital stock of the Company or any Subsidiary, (ii) authorizes or
approves, enters into any agreement contemplating or solicits stockholder
approval for any Fundamental Transaction or (iii) authorizes the voluntary
dissolution, liquidation or winding up of the affairs of the Company, then,
except if such notice and the contents thereof shall be deemed to constitute
material non-public information, the Company shall deliver to the Holder a
notice describing the material terms and conditions of such transaction, at
least 20 calendar days prior to the applicable record or effective date on
which a Person would need to hold Common Stock in order to participate in or
vote with respect to such transaction, and the Company will take all steps
reasonably necessary in order to insure that the Holder is given the practical
opportunity to exercise this Warrant prior to such time so as to participate in
or vote with respect to such transaction; provided, however, that the failure
to deliver such notice or any defect therein shall not affect the validity of
the corporate action required to be described in such notice. Until the
exercise of this Warrant or any portion of this Warrant, the Holder shall not
have nor exercise any rights by virtue hereof as a stockholder of the Company
(including without limitation the right to notification of stockholder meetings
or the right to receive any notice or other communication concerning the
business and affairs of the Company other than as provided in this
Section 9 (h).

10.    Payment
of Exercise Price.    The Holder may pay the
Exercise Price in one of the following manners:

        (a)    Cash Exercise.    The
Holder may deliver immediately available funds; or

        (b)    Cashless Exercise.    The
Holder may notify the Company in an Exercise Notice of its election to utilize
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:

X = Y [(A-B)/A]

where:

X = the number of Warrant Shares to be issued to
the Holder.

Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.

A = the average of the closing prices for the
five Trading Days immediately prior to (but not including) the Exercise Date.

B = the Exercise Price.

For
purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued.

11.    Limitation
on Exercise.    [Investors may individually
elect to omit either or both of clauses (i) and (ii) of this
Section 11 upon first issuance of the Warrant at closing.]

          (i)  Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon any exercise of this Warrant (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such exercise (or other issuance), the total number of shares of
Common Stock then beneficially owned by such Holder and its Affiliates and any
other Persons whose beneficial ownership of Common Stock would be aggregated
with the Holder’s for purposes of Section 13(d) of the Exchange Act, does
not exceed 4.999% of the total number of issued and outstanding shares of
Common Stock

 

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(including for such purpose the shares of Common Stock
issuable upon such exercise). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. Each delivery of an Exercise
Notice hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this paragraph and determined that
issuance of the full number of Warrant Shares requested in such Exercise Notice
is permitted under this paragraph. This provision shall not restrict the number
of shares of Common Stock which a Holder may receive or beneficially own in
order to determine the amount of securities or other consideration that such
Holder may receive in the event of a merger or other business combination or
reclassification involving the Company as contemplated in Section 9 of
this Warrant. By written notice to the Company, the Holder may waive the
provisions of this Section but any such waiver will not be effective until the
61st day after such notice is delivered to the Company.

         (ii)  Notwithstanding
anything to the contrary contained herein, the number of shares of Common Stock
that may be acquired by the Holder upon any exercise of this Warrant (or
otherwise in respect hereof) shall be limited to the extent necessary to insure
that, following such exercise (or other issuance), the total number of shares
of Common Stock then beneficially owned by such Holder and its Affiliates and
any other Persons whose beneficial ownership of Common Stock would be
aggregated with the Holder’s for purposes of Section 13(d) of the Exchange
Act, does not exceed 9.999% of the total number of issued and outstanding
shares of Common Stock (including for such purpose the shares of Common Stock
issuable upon such exercise). For such purposes, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and the
rules and regulations promulgated thereunder. Each delivery of an Exercise
Notice hereunder will constitute a representation by the Holder that it has
evaluated the limitation set forth in this paragraph and determined that
issuance of the full number of Warrant Shares requested in such Exercise Notice
is permitted under this paragraph. This provision shall not restrict the number
of shares of Common Stock which a Holder may receive or beneficially own in
order to determine the amount of securities or other consideration that such
Holder may receive in the event of a merger or other business combination or
reclassification involving the Company as contemplated in Section 9 of
this Warrant. This restriction may not be waived.

12.    No
Fractional Shares.    No fractional shares of
Warrant Shares will be issued in connection with any exercise of this Warrant.
In lieu of any fractional shares which would, otherwise be issuable, the
Company shall pay cash equal to the product of such fraction multiplied by the
closing price of one Warrant Share as reported by Bloomberg L.P. (or the
successor to its function of reporting share prices) on the date of exercise.

13.    Exchange
Act Filings.    The Holder agrees and
acknowledges that it shall have sole responsibility for making any applicable
filings with the U.S. Securities and Exchange Commission pursuant to
Section 13 and 16 of the Securities Exchange Act of 1934, as amended, as a
result of its acquisition of this Warrant and the Warrant Shares and any future
retention or transfer thereof.

14.    Notices.    Any
and all notices or other communications or deliveries hereunder (including,
without limitation, any Exercise Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 6:30 p.m. (New York
City time) on a Trading Day, (ii) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section on a day that is not a Trading Day
or later than 6:30 p.m. (New York City time) on any Trading Day,
(iii) the Trading Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to the address set forth
in the Purchase Agreement, or (ii) if to the Holder, to the address or
facsimile number appearing on the Warrant Register or such

 

8

 

other
address or facsimile number as the Holder may provide to the Company in
accordance with this Section.

15.    Warrant
Agent.    The Company shall serve as warrant
agent under this Warrant. Upon 30 days’ notice to the Holder, the Company
may appoint a new warrant agent. Any corporation into which the Company or any
new warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party or
any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further act.
Any such successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed (by first class mail, postage prepaid) to the
Holder at the Holder’s last address as shown on the Warrant Register.

16.    Miscellaneous.

        (a)   This
Warrant shall be binding on and inure to the benefit of the parties hereto and
their respective successors and assigns. Subject to the preceding sentence,
nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.

        (b)   All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant 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 interpretations, enforcement and defense of this
Warrant and the transactions herein contemplated (“Proceedings”) (whether brought against a party hereto or its
respective Affiliates, employees or agents) may be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Warrant and
agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Warrant or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions
of this Warrant, then the prevailing party in such Proceeding shall be
reimbursed by the other party for its attorney’s fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
Proceeding.

        (c)   The
headings herein are for convenience only, do not constitute a part of this
Warrant and shall not be deemed to limit or affect any of the provisions
hereof.

        (d)   In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a valid
and enforceable provision which shall be a commercially reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Warrant.

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INTENTIONALLY LEFT BLANK]

[SIGNATURE PAGE
FOLLOWS]

 

9Exhibit
4.3

REGISTRATION RIGHTS AGREEMENT

        This
Registration Rights Agreement (this “Agreement”)
is made and entered into as of December 2, 2003, by and among
Valentis, Inc., a Delaware corporation (the “Company”), and the investors signatory hereto (each a “Purchaser” and collectively, the “Purchasers”).

        This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the date hereof among the Company and the Purchasers (the “Purchase Agreement”).

        The
Company and the Purchasers hereby agree as follows:

        1.    Definitions.    Capitalized
terms used and not otherwise defined herein that are defined in the Purchase
Agreement shall have the meanings given such terms in the Purchase Agreement.
As used in this Agreement, the following terms shall have the respective
meanings set forth in this Section 1:

        “Additional Shares” shall have the meaning
set forth in the Purchase Agreement.

        “Effective Date” means the date that the
Registration Statement filed pursuant to Section 2(a) is first declared
effective by the Commission.

        “Effectiveness Date” means: (a) with
respect to the initial Registration Statement required to be filed to cover the
resale by the Holders of the Registrable Securities, the earlier of:
(i) the 105th day following the Closing Date and (ii) the fifth
Trading Day following the date on which the Company is notified by the
Commission that the initial Registration Statement will not be reviewed or is
no longer subject to further review and comments, (b) with respect to the
Registration Statement required to be filed to cover the resale by the Holders
of any Additional Shares not previously registered for resale, the earlier of:
(i) the 105th day following the first year anniversary of the Closing Date
and (ii) the fifth Trading Day following the date on which the Company is
notified by the Commission that the initial Registration Statement will not be
reviewed or is no longer subject to further review and comments, and (c) with
respect to any additional Registration Statements that may be required pursuant
to Section 2(a) hereof, the earlier of: (i) the 105th day following
the date on which the Company first knows, or reasonably should have known,
that such additional Registration Statement is required under such Section and
(ii) the fifth Trading Day following the date on which the Company is
notified by the Commission that such additional Registration Statement will not
be reviewed or is no longer subject to further review and comments. “Effectiveness Date” shall also have the
meaning specified in Section 2(b).

        “Effectiveness Period” shall have the
meaning set forth in Section 2(a).

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

        “Filing Date” means: (a) with respect
to the initial Registration Statement required to be filed to cover the resale
by the Holders of the Registrable Securities, the 45th day following the
Closing Date, (b) with respect to the Registration Statement required to
be filed to cover the resale by the Holders of any Additional Shares not
previously registered for resale, the first year anniversary of the Closing
Date and (c) with respect to any additional Registration Statements that
may be required pursuant to Section 2(a) hereof, the 45th day following
the date on which the Company first knows, or reasonably should have known,
that such additional Registration Statement is required under such Section.

        “Holder” or “Holders” means the holder or holders, as the case may be,
from time to time of Registrable Securities.

        “Indemnified Party” shall have the meaning
set forth in Section 5(c).

        “Indemnifying Party” shall have the meaning
set forth in Section 5(c).

 

1

 

        “Losses” shall have the meaning set forth
in Section 5(a).

        “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.

        “Prospectus” means the prospectus included
in a Registration Statement (including, without limitation, a prospectus that
includes any information previously omitted from a prospectus filed as part of
an effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

        “Registrable Securities” means:
(i) the Shares issued pursuant to the Purchase Agreement, (ii) the
Warrant Shares and (iii) the Additional Shares issued and/or issuable
pursuant to the Purchase Agreement, together with any securities issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event, or any conversion price adjustment with respect thereto.

        “Registration Statement” means each of the
following: (i) an initial registration statement which is required to
register the resale of the Registrable Securities, (ii) an additional
registration statement which is required to register the resale of any
Additional Shares not previously registered for resale, and (iii) each
additional registration statement, if any, contemplated by Section 2(d),
and including, in each case, the Prospectus, amendments and supplements to each
such registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.

        “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.

        “Rule 415” means Rule 415
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.

        “Rule 424” means Rule 424
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.

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

        “Shares” shall have the meaning set forth
in the Purchase Agreement.

        “Warrant Shares” shall have the meaning set
forth in the Purchase Agreement.

        2.    Registration.

        (a)   On
or prior to each Filing Date, the Company shall prepare and file with the
Commission a Registration Statement covering the resale of all Registrable
Securities not already covered by an existing and effective Registration
Statement for an offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form S-3 (except if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on
another appropriate form for such purpose) and shall contain (except if
otherwise required pursuant to written comments received from the Commission
upon a review of such Registration Statement) the “Plan of Distribution”
attached hereto as Annex A. The
Company shall cause the Registration Statement to be declared effective under
the Securities Act as soon as possible but, in any event, no later than the
Effectiveness Date, and shall use its best efforts to

 

2

 

keep the Registration Statement continuously effective
under the Securities Act until the date which is two years after the date that
the Registration Statement is declared effective by the Commission or such
earlier 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 Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the
Company’s transfer agent and the affected Holders (the “Effectiveness Period”). It is agreed and
understood that the Company shall, from time to time, be obligated to file an
additional Registration Statement to cover any Registrable Securities which are
not registered for resale pursuant to a pre-existing Registration Statement.

        (b)   If
for any reason the Commission does not permit all of the Registrable Securities
to be included in the Registration Statement filed pursuant to
Section 2(a), then the Company shall prepare and file as soon as possible
after the date on which the Commission shall indicate as being the first date
or time that such filing may be made, but in any event by the 30th
day following such date, an additional Registration Statement covering the
resale of all Registrable Securities not already covered by an existing and
effective Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415, on Form S-3 (except if the Company is not
then eligible to register for resale the Registrable Securities on
Form S-3, in which case such registration shall be on another appropriate
form for such purpose). Each such Registration Statement shall contain (except
if otherwise required pursuant to written comments received from the Commission
upon a review of such Registration Statement) the “Plan of Distribution”
attached hereto as Annex A. The
Company shall cause each such Registration Statement to be declared effective
under the Securities Act as soon as possible but, in any event, no later than
the 90th day following the date on which the Company becomes aware
that such Registration Statement is required to be filed under this Agreement (each
such 90th day, the “Effectiveness Date” for such Registration
Statement), and shall use its best efforts to keep such Registration Statement
continuously effective under the Securities Act during the entire Effectiveness
Period.

        (c)   If:
(i) a Registration Statement is not filed on or prior to its Filing Date
(if the Company files a Registration Statement without affording the Holders
the opportunity to review and comment on the same as required by
Section 3(a) hereof, the Company shall not be deemed to have satisfied
this clause (i)), or (ii) a Registration Statement is not declared
effective by the Commission on or prior to its required Effectiveness Date, or
(iii) after its Effective Date, such Registration Statement ceases for any
reason to be effective and available to the Holders as to all Registrable
Securities to which it is required to cover at any time prior to the expiration
of its Effectiveness Period for an aggregate of more than 20 consecutive
Trading Days or an aggregate of 40 Trading Days (which need not be
consecutive), (any such failure or breach being referred to as an “Event,” and for purposes of clauses
(i) or (ii) the date on which such Event occurs, or for purposes of
clause (iii) the date which such 20 consecutive or 40 Trading Day-period
(as applicable) is exceeded, being referred to as “Event Date”), then, in addition to any other rights available
to the Holders: (x) on the first month anniversary of each such Event Date
the Company shall pay to each Holder an amount in cash, as liquidated damages
and not as a penalty, equal to 1% of the aggregate purchase price paid by such
Holder pursuant to the Purchase Agreement; and (y) on each monthly
anniversary of each such Event Date thereof (if the applicable Event shall not
have been cured by such date) until the applicable Event is cured, the Company
shall pay to each Holder an amount in cash, as liquidated damages and not as a
penalty, equal to 1.5% of the aggregate purchase price paid by such Holder
pursuant to the Purchase Agreement, provided,
that all periods shall be tolled, with respect to a Holder, by the number of
Trading Days in excess of five (5) during which such Holder fails to
provide the Company with information regarding such Holder which was requested
by the Company in order to effect the registration of such Holder’s Registrable
Securities. It shall be a condition precedent to the obligations of the Company
to pay any liquidated damages pursuant to this Section 2 with respect to
the Registrable Securities of any

 

3

 

Holder that such Holder shall furnish to the Company
such information regarding itself and the Registrable Securities held by it. If
the Company fails to pay any liquidated damages pursuant to this Section in
full within seven days after the date payable, the Company will pay interest
thereon at a rate of 12% per annum (or such lesser maximum amount that is
permitted to be paid by applicable law) to the Holder, accruing daily from the
date such liquidated damages are due until such amounts, plus all such interest
thereon, are paid in full. The liquidated damages pursuant to the terms hereof
shall apply on a pro rata basis for any portion of a month prior to the cure of
an Event.

        3.    Registration Procedures

        In
connection with the Company’s registration obligations hereunder, the Company
shall:

        (a)   Not
less than four Trading Days prior to the filing of a Registration Statement or
any related Prospectus or any amendment or supplement thereto, the Company
shall furnish to the Holders copies of all such documents proposed to be filed
which documents (other than those incorporated by reference) will be subject to
the review of such Holders. The Company shall not file a 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.

        (b)   (i) Prepare
and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration Statement
continuously effective as to the applicable Registrable Securities for its
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; (ii) cause the related Prospectus
to be amended or supplemented by any required Prospectus supplement, and as so
supplemented or amended to be filed pursuant to Rule 424;
(iii) respond as promptly as reasonably possible, and in any event within
ten Trading Days, to any comments received from the Commission with respect to
each Registration Statement or any amendment thereto and, as promptly as
reasonably possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to such Registration
Statement that pertains to the Holders as Selling Stockholders but not any
comments that would result in the disclosure to the Holders of material and
non-public information concerning the Company; and (iv) comply in all
material respects with the provisions of the Securities Act and the Exchange
Act with respect to the Registration Statements and the disposition of all
Registrable Securities covered by each Registration Statement.

        (c)   Notify
the Holders as promptly as reasonably possible (and, in the case of (i)(A)
below, not less than three Trading Days prior to such filing) and (if requested
by any such Person) confirm such notice in writing no later than one Trading
Day following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to a Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a
“review” of such Registration Statement and whenever the Commission comments in
writing on such Registration Statement (the Company shall provide true and complete
copies thereof and all written responses thereto to each of the Holders that
pertain to the Holders as a Selling Stockholder or to the Plan of Distribution,
but not information which the Company believes would constitute material and
non-public information); and (C) with respect to each Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a Registration
Statement or Prospectus or for additional information that pertains to the
Holders as Selling Stockholders or the Plan of Distribution; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of a
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that

 

4

 

purpose; (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that
makes the financial statements included in a Registration Statement ineligible
for inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.

        (d)   Use
its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
of (i) any order suspending the effectiveness of a 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.

        (e)   Furnish
to each Holder, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto and all exhibits to the
extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission; provided, that the Company shall have no obligation to provide any
document pursuant to this clause that is available on the EDGAR system.

        (f)    Promptly
deliver to each Holder, without charge, as many copies of each Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request. The Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

        (g)   Prior
to any public offering of Registrable Securities, use its best efforts to
register or qualify or cooperate with the selling Holders in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of those jurisdictions within the United States set
forth on Schedule 3(g) hereto to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness
Period and to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the Registration Statements; provided,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or subject the Company to
any material tax in any such jurisdiction where it is not then so subject.

        (h)   Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a
transferee pursuant to the Registration Statements, which certificates shall be
free, to the extent permitted by the Purchase Agreement, of all restrictive
legends, and to enable such Registrable Securities to be in such denominations
and registered in such names as any such Holders may request.

        (i)    Upon
the occurrence of any event contemplated by Section 3(c)(v), as promptly
as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to the affected Registration Statements or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so that,
as thereafter delivered, no Registration Statement nor any Prospectus will
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

 

5

 

        (j)    The
Company may require each selling Holder to furnish to the Company a certified
statement as to the number of shares of Common Stock beneficially owned by such
Holder and any Affiliate thereof.

        (k)   The
Company has read and understands the exercise limitations contained in certain
of the Warrants and, except as may be required by applicable law or rules or
regulations of the Commission, will not take a position in any Registration
Statement or other filing with the Commission that a Holder whose Warrant
contains such exercise limitations is the beneficial owner of more than the
percentage of Common Stock permitted to be beneficially owned by such Holder
absent an affirmative written statement by such Holder to such effect. It is
understood and agreed that current law, rules and regulations of the Commission
do not require the adoption of a position that a Holder whose Warrant contains
such exercise limitations is the beneficial owner of more than the percentage
of Common Stock permitted to be beneficially owned by such Holder pursuant to
the exercise limitations contained in the Warrants.

        4.    Registration Expenses.    All
fees and expenses incident to the Company’s performance of its obligation under
this Agreement (excluding any underwriting discounts and selling commissions
and all legal fees and expenses of legal counsel for any Holder) shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to a
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with
respect to filings required to be made with the Trading Market on which the
Common Stock is then listed for trading, and (B) in compliance with
applicable state securities or Blue Sky laws), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable
Securities and of printing prospectuses if the printing of prospectuses is
reasonably requested by the holders of a majority of the Registrable Securities
included in the Registration Statement), (iii) messenger, telephone and
delivery expenses, (iv) fees and disbursements of counsel for the Company,
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

        5.    Indemnification.

        (a)    Indemnification by the
Company.    The Company shall, notwithstanding
any termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents, investment advisors, partners, members,
shareholders and employees of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, reasonable costs of preparation
and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or
relating to any untrue or alleged untrue statement of a material fact contained
in any Registration Statement, any Prospectus or any form of prospectus or in
any amendment or supplement thereto (it being understood that the Holder has
approved Annex A hereto for this
purpose) or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus or
form of prospectus or supplement thereto, in light of the circumstances under
which they were made) not misleading, except to the extent, but only to the extent,
that (1) such untrue statements or omissions are based solely upon
information regarding

 

6

 

such Holder furnished in writing to the Company by
such Holder expressly for use therein, or to the extent that such information
relates to such Holder or such Holder’s proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in writing by
such Holder expressly for use in the Registration Statement, such Prospectus or
such form of Prospectus or in any amendment or supplement thereto (it being
understood that the Holder has approved Annex A hereto for this purpose) or
(2) in the case of an occurrence of an event of the type specified in
Section 3(c)(ii)-(v), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
an Advice or an amended or supplemented Prospectus, but only if and to the
extent that following the receipt of the Advice or the amended or supplemented
Prospectus the misstatement or omission giving rise to such Loss would have
been corrected. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.

        (b)    Indemnification by Holders.    Each
Holder shall, notwithstanding any termination of this Agreement, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange
Act), and the directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from and against
all Losses, as incurred, arising solely out of or based solely upon:
(x) such Holder’s failure to comply with the prospectus delivery requirements
of the Securities Act or (y) any untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
or based solely upon any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent that, (1) such untrue statements or
omissions are based solely upon information regarding such Holder furnished in
writing to the Company by such Holder expressly for use therein, or to the
extent that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement (it being understood that the Holder has approved Annex A hereto for
this purpose), such Prospectus or such form of Prospectus or in any amendment
or supplement thereto or (2) in the case of an occurrence of an event of
the type specified in Section 3(c)(ii)-(v), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt
by such Holder of an Advice or an amended or supplemented Prospectus, but only
if and to the extent that following the receipt of the Advice or the amended or
supplemented Prospectus the misstatement or omission giving rise to such Loss
would have been corrected. In no event shall the liability of any selling
Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

        (c)    Conduct of Indemnification
Proceedings.    If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party
shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment of
all fees and expenses incurred in connection with defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not relieve
the Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally determined
by a court of competent jurisdiction (which determination is not subject to
appeal or further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party.

 

7

 

        An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (1) the Indemnifying Party has agreed in writing to pay such fees
and expenses; (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party), provided,
that the Indemnifying Party shall not be liable for the fees and expenses of
more than one separate firm of attorneys at any time for all Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

        All
fees and expenses of the Indemnified Party (including reasonable fees and
expenses to the extent incurred in connection with investigating or preparing
to defend such Proceeding in a manner not inconsistent with this Section) shall
be paid to the Indemnified Party, as incurred, within ten Trading Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

        (d)    Contribution.    If
a claim for indemnification under Section 5(a) or 5(b) is unavailable to
an Indemnified Party (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations set
forth in Section 5(c), any reasonable attorneys’ or other reasonable fees
or expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

        The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation or by
any other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be
required to

 

8

 

contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by such Holder from the sale
of the Registrable Securities subject to the Proceeding exceeds the amount of
any damages that such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.

        The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.

6.    Miscellaneous

        (a)    Remedies.    In
the event of a breach by the Company or by a Holder, of any of their
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.

        (b)    No Piggyback on
Registrations.    Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto) may
include securities of the Company in a Registration Statement other than the
Registrable Securities, and the Company shall not during the Registration
Period enter into any agreement providing any such right to any of its security
holders. Except as and to the extent specified in Schedule 6(b) hereto,
the Company has not previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person which
have not been fully satisfied.

        (c)    Compliance.    Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to the Registration Statement.

        (d)    Discontinued Disposition.    Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the kind
described in Section 3(c), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder’s receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration
Statement. The Company may provide appropriate stop orders to enforce the
provisions of this paragraph.

        (e)    Piggy-Back Registrations.    If
at any time during the Effectiveness Period there is not an effective
Registration Statement covering all of the Registrable Securities (including,
but not limited to, any Additional Shares) 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 stock option or other employee benefit plans, then the Company
shall send to each Holder written notice of such determination and, if within
fifteen days after receipt 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 (including, but not

 

9

 

limited to, any Additional Shares) such holder
requests to be registered, subject to customary underwriter cutbacks applicable
to all holders of registration rights.

        (f)    Amendments and Waivers.    The
provisions of this Agreement, including the provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and the Holder or Holders (as applicable) of
no less than 85% of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of certain Holders and that does not directly or indirectly affect the
rights of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates, provided, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.

        (g)    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 (i) the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Agreement later than 6:30 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such
date, (iii) the Trading Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) 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 follows: 

	
  

  If to the Company:

  	
  

   

  	
  

  Valentis, Inc.

  863A Mitten Road

  Burlingame, CA 94010

  ATTN: Benjamin F. McGraw III, Pharm. D.

  
	
  

  With a copy to:

  	
  

   

  	
  

  Patrick A. Pohlen

  Latham & Watkins LLP

  135 Commonwealth Drive

  Menlo Park, CA 94025

  
	
  

  If to a Purchaser:

  	
  

   

  	
  

  To the address set forth under such Purchaser’s name on the signature pages
  hereto.

  
	
  

  If to any other Person who is then the registered Holder:

  	
  

   

  	
  

  To the address of such Holder as it appears in the stock transfer books of
  the Company

  

or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.

        (h)    Successors and Assigns.    This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign its rights or obligations hereunder without
the prior written consent of each Holder. Each Holder may assign their
respective rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.

        (i)    Execution and Counterparts.    This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature is

 

10

 

delivered by facsimile transmission, such signature
shall create a valid binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as
if such facsimile signature were the original thereof.

        (j)    Governing Law.    All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all Proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement (whether brought against a party hereto or its
respective Affiliates, employees or agents) may be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby
irrevocably submits to the non-exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any Proceeding, any claim that it is not
personally subject to the jurisdiction of any New York Court, or that such
Proceeding has been commenced in an improper or inconvenient forum. Each party
hereto hereby irrevocably waives personal service of process and consents to
process being served in any such Proceeding by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Agreement
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. Each party
hereto hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any Proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby. If either
party shall commence a Proceeding to enforce any provisions of this Agreement,
then the prevailing party in such Proceeding shall be reimbursed by the other
party for its attorney’s fees and other costs and expenses incurred with the
investigation, preparation and prosecution of such Proceeding.

        (k)    Cumulative Remedies.    The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.

        (l)    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 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.

        (m)    Headings.    The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

        (n)    Independent Nature of
Purchasers’ Obligations and Rights.    The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. The decision of each Purchaser to purchase Securities
pursuant to the Transaction Documents has been made independently of any other
Purchaser. Nothing contained herein or in any other agreement or document
delivered at any closing, and no action taken by any Purchaser pursuant hereto
or thereto, shall be deemed to constitute the Purchasers as a partnership, an
association, a joint venture or any other kind of

 

11

 

entity, or create a presumption that the Purchasers
are in any way acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Purchaser acknowledges that
no other Purchaser has acted as agent for such Purchaser in connection with
making its investment hereunder and that no Purchaser will be acting as agent
of such Purchaser in connection with monitoring its investment in the
Securities or enforcing its rights under the Transaction Documents. Each
Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not
be necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.

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12

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