Exhibit 10.40


 


[LETTERHEAD OF PHARMATHENE, INC.]


 


September 30, 2008


 


PANACEA BIOTEC LTD.


B-1 Extn./ G-3, Mohan
Co-op. Indl. Estate


Mathura Road, New Delhi -
110 044


India


 


Attn: Rajesh Jain


 


Re:   Letter
Agreement


 


Ladies and Gentlemen:


 


In connection with the purchase by Kelisia Holdings Ltd., a company limited by shares established under the laws of
Cyprus (“Kelisia”), an indirect wholly-owned
subsidiary of Panacea Biotec Ltd., a public limited company established under
the laws of India (together with its affiliates, “PBL”),
of securities of PharmAthene, Inc., a Delaware corporation (“PIP”), pursuant to the Securities Purchase Agreement dated of
even date herewith between PIP and Kelisia (the “Securities
Purchase Agreement”) and the Investor Rights Agreement between PIP
and Kelisia to be executed in the form attached as an exhibit to the Securities
Purchase Agreement (the “Investor Rights Agreement”),
(i) PBL has agreed to be bound by certain restrictions on its activities
with respect to the securities to be acquired, and (ii) both PBL and PIP
have agreed to engage in discussions from time to time relating to, among other
things, the manufacture and/or process development by PBL of a portion of PIP’s
proprietary Biodefense Medical Countermeasurers under development (the “PIP Countermeasures”) and to afford PIP a right of first
negotiation respecting the possible commercialization and marketing of certain
of PBL’s products, as more fully set forth in this letter below.  Unless otherwise stated herein, capitalized
terms that are not defined in this letter agreement have the meaning set forth
in the Securities Purchase Agreement.


 

















 


Representations


 


PBL represents to PIP that Kelisia is an indirect
wholly-owned subsidiary of PBL and agrees that it will remain an indirect
majority-owned subsidiary of PBL so long as Kelisia owns or holds, directly or
indirectly, any of the Securities.  PBL
agrees that during such time it will not transfer, directly or indirectly, a
substantial part of its ownership in Kelisia or Kelisia’s immediate parent
company to (i) any individuals or entities whose business purpose in whole
or in substantial part is competitive with the business of the Company (except
to the extent that such transfer is to a wholly-owned direct or indirect subsidiary
of PBL), (ii) individuals, entities or organizations (including
governments or governmental agencies or organizations) then appearing on the
list of Specially Designated National and Blocked Persons maintained by the
U.S. Office of Foreign Assets Control (“OFAC”) or
entities or individuals, transfer of such rights to whom might reasonably be
expected to have an adverse effect on the ability of the Company to bid for and
receive grants or contracts from the United States government, or (iii) entities
or organizations then controlled by such individuals or having their registered
office, headquarters or primary place of business located in a nation that is
then subject to an OFAC sanctions program; provided that restriction contained
in this paragraph shall no longer apply from such time at which the aggregate
number of Shares (as defined in the Investor Rights Agreement) owned by Kelisia
and that Kelisia may acquire upon exercise of the Warrant is 500,000 or
fewer.  In the case of any transfer prior
to such time, any transferee must, as a condition to such transfer, agree not
to transfer, directly or indirectly, a substantial part of its ownership, if
any, in Kelisia or Kelisia’s immediate parent company to individuals, entities
or organizations listed in (i), (ii) or (iii) above.


 


To the knowledge of PBL after due inquiry, none of PBL, its
directors, its executive officers and its Affiliates currently own any
securities of the Company or any of its affiliates, nor did any of PBL, its
directors, its executive officers and its Affiliates own securities of the
Company prior to July 28, 2008, the date on which PBL and the Company
entered into that certain Letter of Intent.


 


                For a period beginning on the date hereof and
ending on the third anniversary of the Closing Date, other than with respect to
Kelisia’s purchase of securities from the Company under the Securities Purchase
Agreement, the Warrant or the Investor Rights Agreement, PBL agrees that
neither it, nor any of its officers, directors or Affiliates will, directly or
indirectly, as a member of a group or otherwise, purchase, offer to purchase,
enter into any agreement relating to the purchase of, or otherwise engage in
any transaction relating to, any securities of PIP whether publicly or privately.  Any breach of the covenant in the preceding
sentence would cause PIP substantial and irrevocable damage and therefore, in
the event of a breach or threatened breach by PBL of such covenant, PIP and/or
its Affiliates, in addition to such other remedies which may be available, will
be entitled to specific performance of such covenant and injunctive relief
without the necessity of proving actual damages.  Such covenant shall survive any termination
of this letter agreement.


 


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PBL furthermore 
represents and warrants that, during the period beginning 30 days prior
to the date of this letter agreement and ending on the date of this letter
agreement, none of the Investor or its Affiliates, or any entity acting under
their direction or control, have engaged, directly or indirectly, in any
trading of Common Stock, including, without limitation, short sales or hedging
of any kind, other than as contemplated by the Securities Purchase Agreement.


 


PBL acknowledges and agrees that PBL’s representations set
forth above under the heading “Representations”
constitute material inducements to PIP to enter into the Securities Purchase
Agreement and the Investor Rights Agreement (and the other agreements and
documents contemplated thereby) with Kelisia.


 


Manufacturing/Process Development Work


 


As reasonably
requested by either party from time to time, representatives of PIP will meet
(whether in person, by telephone, video conference or other means) with
authorized PBL personnel to discuss in good faith whether the parties are
interested in negotiating and potentially entering into a manufacturing,
process development or other similar arrangement with respect to the PIP
Countermeasures (or components thereof), which to the extent permitted by law
(including rules and regulations of the U.S. Food and Drug Administration
(“FDA”), the U.S. Department of
Health and Human Services and the International Traffic in Arms Regulations
(ITAR)), shall include PIP’s Valortim®, Protexia® and SparVaxTM product candidates.  If as a result of these discussions, PBL and
PIP enter into a manufacturing, process development or other arrangement, any
such arrangement and the work thereunder will comply in all respects with
applicable U.S. laws, rules and regulations, including where applicable
the FDA’s current Good Manufacturing Practices regulations (“cGMP”).


 


If, following their initial
discussions, either PBL or PIP determines that it does not have an interest in
a manufacturing, process development or similar arrangement with respect to one
or more of the PIP Countermeasures or PIP determines that PBL’s manufacturing
facilities are not being operated in compliance with cGMP, neither party shall
be further obligated to engage in discussions in the future.  Furthermore, neither PIP nor PBL shall have
any legally binding obligation to engage in negotiations with respect to, or to
enter into, any manufacturing, process development or other arrangement
respecting the PIP Countermeasures.  If
PBL and PIP enter into negotiations with respect to any such potential
arrangement, each of PBL and PIP shall have the right to terminate such
negotiations at any time for any reason in its sole discretion (including in
the case of PIP a determination on its part that the manufacture of, or process
development related to, one or more of the PIP Countermeasures, or components
thereof, outside the United States could have the effect of reducing the
likelihood that any such PIP Countermeasure would be eligible to win a procurement
award) and without any liability to the other party unless a definitive
agreement is executed governing manufacturing, process development or other
similar arrangement with respect to the PIP Countermeasures (or components
thereof).


 


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Nothing in this letter agreement
shall be construed as precluding, limiting, restricting or preventing PIP in
any way from discussing, negotiating or entering into manufacturing, process
development or other arrangements or agreements, including option agreements,
respecting the PIP Countermeasures or otherwise with any third party.  PIP shall be entitled to enter into any of
the foregoing with any third party at any time (even if PIP is still in
discussions or negotiations with PBL) without limitation or restriction.


 


PIP Right of First Negotiation


 


PIP shall have a right of first
negotiation with respect to the sales, marketing and distribution of any and
all PBL products (whether owned, developed or in-licensed by PBL – except to
the extent that a specific license agreement prohibits such grant of first
negotiation) that have utility or potential utility as a biodefense product in
the United States (but excluding PBL’s rPA anthrax vaccine currently under
development) (“PBL Biodefense Products”).  As such, subject to all of the provisions of
the existing confidentiality agreements between the parties, PBL shall disclose
to PIP all relevant information regarding the PBL Biodefense Products with
respect to which PBL has any rights to sell, market, use or develop, and shall
provide such additional information, including access to employees, as PIP may
reasonably request from time to time. 
For purposes of this letter agreement, the biodefense products in the
United States shall include all biodefense medical countermeasures for “category
A, B and C pathogens” as designated by the U.S. National Institutes of Allergy
and Infectious Diseases (NIAID) and which may include emerging infectious
diseases.


 


From time to time following written notice (the “Notice”)
from PIP, and for five (5) years from the date of this letter agreement,
PBL will negotiate with PIP in good faith and on an exclusive basis for sixty
(60) days (the “Exclusivity Period”) to provide
for the grant to PIP of exclusive sales, marketing and distribution rights in
the United States (including a sub-license to all necessary intellectual
property (the “Necessary Intellectual Property”),
to the extent such sub-license is permitted) of one or more PBL Biodefense
Products as identified in the Notice on such commercially reasonable terms as
are mutually agreed upon by the parties. During the Exclusivity Period, neither
PBL nor any of its officers, directors, employees, consultants and advisors
will enter into any discussions, negotiations or legally binding agreements
with any third party for the sale, marketing and/or distribution of any PBL
Biodefense Product identified in the Notice in the United States.  For a period ending on the later of (i) the
date that is five (5) years from the date of this letter agreement or (ii) the
end of the Exclusivity Period, PBL covenants not to enter into any agreements
that would restrict the sub-licensing of Necessary Intellectual Property to
PIP.


 


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Termination


 


The parties under this letter
agreement hereby agree that in the event that the Securities Purchase Agreement
is terminated by either party pursuant to Section 28 of the Securities
Purchase Agreement, that this letter agreement shall be rendered null and void.


 


Other Terms


 


Unless otherwise agreed to in the relevant agreement, any manufacturing,
process development or similar arrangement with respect to the PIP
Countermeasures and any arrangement with respect to the sales, marketing and
distribution of any and all PBL Biodefense Products is subject to termination
at PIP’s or PBL’s option, respectively, following an acquisition or other
transaction, by a third party, which would result in change of control of PBL
or PIP.


 


Information exchanged by the parties under this letter agreement will be
subject to, and governed by, the terms and conditions of the confidentiality
agreement executed between the parties and effective on 4th April, 2008.


 


Each party agrees that in event
that a settlement of any controversy, claim or dispute is not reached by mutual
agreement, such controversy, claim or dispute will be settled by arbitration
administered in accordance with the Commercial Arbitration Rules of the
American Arbitration Association.  The place of arbitration will be in London,
England and the arbitrator’s report will be submitted within six (6) months
of the initiation of the arbitration process. 
The applicable federal or state court shall have jurisdiction to enforce
any award or remedy granted in the arbitration. 
Each party will bear its own costs incurred in the course of
arbitration.


 


This letter agreement embodies the
entire agreement and understanding between the parties hereto and supersedes
all prior oral or written agreements and understandings relating to the subject
matter hereof.  This letter agreement and
the rights and obligations of each party hereto may not be assigned or
delegated without the prior written consent of the other parties hereto.  This letter agreement shall not be modified
or amended except by an instrument in writing signed by or on behalf of the
parties hereto.  This letter agreement
may be executed in one or more counterparts each of which will be deemed an
original, but all of which together shall constitute one and the same
instrument.


 


	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  PHARMATHENE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  David P. Wright

  
	
   

  	
   

  	
  David P. Wright, CEO

  



 


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AGREED AND ACCEPTED:


 


PANACEA BIOTEC LTD.


 


 


	
  By: 

  	
  /s/
  Rajesh Jain

  	
   

  
	
  Name: Rajesh Jain

  	
   

  
	
  Title: Joint Managing Director

  	
   

  
	
   

  	
   

  
	
  Date: September 30, 2008

  	
   

  



 


 


[SIGNATURE PAGE TO PIP-PBL LETTER AGREEMENT]


 


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