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: June 10, 2004

  

 

Valentis,
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 $6.98 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:

 

This Warrant
is one of a series of warrants issued pursuant to that certain Securities
Purchase Agreement of even date herewith to which the Company and the original
Holder are parties (the “Purchase Agreement”).

 

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 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.

 

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,
at 5:00 p.m., California 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 5:00 p.m. California 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 any thirty (30) consecutive Trading Days after
such first anniversary of the Closing Date is greater than $10.00 (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 5:00 p.m. (California 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 5:00 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 5:00 p.m. (California 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

 

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Election to Purchase with
respect to Warrant Shares that are tendered from the time of delivery of the
Call Notice through 5:00 p.m. (California 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 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

 

3

 

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 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

 

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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 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.

 

5

 

(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)                                 Number of Warrant Shares.  Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a) 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.

 

(e)                                  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.

 

(f)                                    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,

 

6

 

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.

 

(g)                                 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.

 

7

 

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 (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

 

8

 

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 5:00 p.m.
(California 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 5:00 p.m. (California 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 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 in writing signed by the Company and the Holder and their successors
and assigns and the Warrants issued pursuant to the Purchase Agreement,
including this Warrant,

 

9

 

may be amended in writing
signed by the Company and the Holders of no less than two-thirds of the Warrant
Shares issuable upon exercise of all such then outstanding Warrants. The
Company shall provide prior notice to all Holders of any proposed waiver or
amendment.

 

(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
California, 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 San Francisco (the “California Courts”).  Each party hereto hereby irrevocably submits
to the non-exclusive jurisdiction of the California 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 California 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.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

10

 

IN WITNESS WHEREOF,
the Company has caused this Warrant to be duly executed by its authorized
officer as of the date first indicated above.

 

	
   

  	
  VALENTIS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

SIGNATURE PAGE TO VALENTIS, INC. WARRANT

 

 

EXERCISE NOTICE

 

To Valentis, Inc.:

 

The
undersigned hereby irrevocably elects to purchase 
                 shares
of common stock, $.001 par value, of Valentis, Inc. (“Common Stock”), pursuant to Warrant No.
[  ], originally issued June 10, 2004
(the “Warrant”), and, if such
Holder is not utilizing the cashless exercise provisions set forth in the
Warrant, encloses herewith
$                
in cash, certified or official bank check or checks or other immediately
available funds, which sum represents the aggregate Exercise Price (as defined
in the Warrant) for the number of shares of Common Stock to which this Exercise
Notice relates, together with any applicable taxes payable by the undersigned
pursuant to the Warrant.

 

By its
delivery of this Exercise Notice, the undersigned represents and warrants to
the Company that in giving effect to the exercise evidenced hereby the Holder
will not beneficially own in excess of the number of shares of Common Stock
(determined in accordance with Section 13(d) of the Securities Exchange Act of
1934) permitted to be owned under Section 11 of this Warrant to which this
notice relates.

 

The
undersigned requests that certificates for the shares of Common Stock issuable
upon this exercise be issued in the name of

 

PLEASE INSERT SOCIAL SECURITY OR

TAX IDENTIFICATION NUMBER

 

 

(Please print name and address)

 

 

Warrant Shares Exercise Log

 

 

	
  Date

  	
   

  	
  Number of Warrant

  Shares Available to be

  Exercised

  	
   

  	
  Number of Warrant

  Shares Exercised

  	
   

  	
  Number of Warrant

  Shares Remaining to

  be Exercised

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

FORM OF ASSIGNMENT

 

[To be
completed and signed only upon transfer of Warrant]

 

FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
                                               
the right represented by the within Warrant to purchase
                 
shares of Common Stock of Valentis, Inc. to which the within Warrant relates
and appoints
                         
attorney to transfer said right on the books of Valentis, Inc. with full power
of substitution in the premises.

 

	
  Dated:

  	
                             ,
         

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Signature must conform in all respects to name of

  holder as specified on the face of the Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address of Transferee

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  In the presence of:EXHIBIT 4.3

 

REGISTRATION
RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”)
is made and entered into as of June 7, 2004, 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”).

 

NOW, THEREFORE, IN CONSIDERATION of the mutual
covenants contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchasers 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:

 

“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, and (b) 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, and (b) 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).

 

“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 the Shares issued pursuant to the Purchase Agreement and
the Warrant Shares, 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, and (ii) 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.

 

2

 

“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” in substantially the form 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 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” in substantially the form 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.

 

3

 

(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 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 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.

 

4

 

(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
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.

 

5

 

(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.

 

6

 

(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

 

7

 

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 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

 

8

 

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.

 

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).

 

9

 

(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 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)                                 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.

 

10

 

(c)                                  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.

 

(d)                                 Amendments
and Waivers. No provision of this Agreement may be waived or amended except
in a written instrument signed by the Company and the Holder or Holders (as
applicable) of no less than two-thirds of the then outstanding Registrable
Securities.  The Company shall provide
prior notice to all Holders of any proposed waiver or amendment.  No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.

 

(e)                                  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 number specified in this Section prior to 5:00 p.m. (California
time) on a Business Day, (ii) the Business 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 5:00 p.m. (California
time) on any date and earlier than 11:59 p.m. (California time) on such date,
(iii) the Business 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:

  
							

 

11

 

	
   

  	
  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.

 

(f)                                    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.

 

(g)                                 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 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.

 

(h)                                 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 California, 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 San Francisco (the “California
Courts”).  Each party hereto
hereby irrevocably submits to the non-exclusive jurisdiction of the California
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 California 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.

 

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

 

12

 

(j)                                     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.

 

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

 

(l)                                     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 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.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES TO FOLLOW]

 

13

 

IN WITNESS WHEREOF, the parties have executed
this Registration Rights Agreement as of the date first written above.

 

	
   

  	
  VALENTIS,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
      /s/   Benjamin
  F. McGraw

  
	
   

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

  
	
   

  	
  Title:    President
  and Chief Executive Officer

  

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGES OF PURCHASER TO FOLLOW]

 

 

IN WITNESS WHEREOF, the parties have executed
this Registration Rights Agreement as of the date first written above.

 

	
   

  	
  PURCHASER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  Address for
  Notice:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile
  No.:

  
	
   

  	
  Attn.:

  
	
   

  	
   

  
	
   

  	
  With a copy
  to:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile
  No.:

  
	
   

  	
  Attn:

  

 

 

ANNEX A

 

PLAN OF DISTRIBUTION

 

The Selling Stockholders and any of their pledgees,
donees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of Common Stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions.  These sales may be at fixed or negotiated
prices.  The Selling Stockholders may
use any one or more of the following methods when selling shares:

 

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

 

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

 

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

 

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

 

•                  privately
negotiated transactions;

 

•                  short sales;

 

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

 

•                  a combination of
any such methods of sale; and

 

•                  any other method
permitted pursuant to applicable law.

 

The Selling Stockholders may also sell shares
under Rule 144 under the Securities Act, if available, rather than under this
prospectus.

 

Broker-dealers engaged by the Selling
Stockholders may arrange for other brokers-dealers to participate in
sales.  Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated.  The Selling
Stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.

 

The Selling Stockholders may from time to
time pledge or grant a security interest in some or all of the Shares owned by
them and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell shares of Common Stock from time
to time under this prospectus, or under an amendment to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of 1933
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus.

 

 

Upon the Company being notified in writing by a
Selling Stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of Common Stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of
each such Selling Stockholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such the shares of
Common Stock were sold, (iv)the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction.  In
addition, upon the Company being notified in writing by a Selling Stockholder
that a donee or pledge intends to sell more than 500 shares of Common Stock, a
supplement to this prospectus will be filed if then required in accordance with
applicable securities law.

 

The Selling Stockholders also may transfer the shares
of common stock in other circumstances, in which case the transferees, pledgees
or other successors in interest will be the selling beneficial owners for purposes
of this prospectus.

 

The Selling Stockholders and any broker-dealers or
agents that are involved in selling the shares may be deemed to be
“underwriters” within the meaning of the Securities Act in connection with such
sales.  In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. 
Each Selling Stockholders has represented and warranted to the Company
that it does not have any agreement or understanding, directly or indirectly,
with any person to distribute the Common Stock.

 

The Company has advised the Selling Stockholders that
they are required to comply with Regulation M promulgated under the Securities
and Exchange Act during such time as they may be engaged in a distribution of
the shares.  The foregoing may affect
the marketability of the common stock.

 

The Company is required to pay all fees and expenses
incident to the registration of the shares. 
The Company has agreed to indemnify the Selling Stockholders against
certain losses, claims, damages and liabilities, including liabilities under
the Securities Act.

 

 

SCHEDULE 3(g)

 

BLUE SKY JURISDICTIONS

 

•                  New York

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