Document:

Exhibit 10.39

 

EXECUTION COPY

 

SECURITIES
PURCHASE AGREEMENT

 

THIS AGREEMENT (this “Agreement”),
dated this 30th day of September, 2008 (the “Execution
Date”), is entered into by and among PharmAthene, Inc., a
Delaware corporation, having its
office at One Park Place; Suite #450, Annapolis, MD 21401 (the “Company”), and its successors and permitted assigns, and
Kelisia Holdings Ltd., a company limited by shares established under the laws
of Cyprus, having its office at 29 Theklas Lyssioti Street, Cassandra Centre, 2nd
Floor, 3731 Limassol, Cyprus (the “Investor”), and
its successors and permitted assigns.

 

WHEREAS:

 

1.                                       The
Company is engaged in the business of research development, manufacture and
marketing of pharmaceutical formulations and vaccines;

 

2.                                       The
Investor is an indirect wholly-owned Subsidiary (as defined hereinafter) of
Panacea Biotec Limited, a public limited company established under the laws of
India, having its registered office at Ambala-Chandigarh Highway, Lalru-140501,
Punjab, India (“PBL”), which has been formed for
various purposes, including, but not limited to conducting research,
development, manufacturing and marketing of pharmaceutical formulations and
vaccines and making strategic investments in entities engaged in related
fields; and

 

3.                                       The
Company, PBL and the Investor, desirous of entering into a strategic alliance,
the scope, terms and conditions of which are to be mutually agreed upon but may
include (x) manufacturing and/or process development services to be
provided to the Company by the Investor and/or PBL and (y) marketing of
biodefense products manufactured by the Investor and/or PBL in the United
States by PIP, wish to provide for the purchase and sale of Shares and a
Warrant (both as hereinafter defined) to the Investor, as more specifically set
forth hereinafter.

 

NOW, THEREFORE,
in consideration of the mutual covenants and agreements herein contained and
for other good and valuable consideration, the receipt and sufficiency of which
has been acknowledged by the parties, the parties hereto, intending to be
legally bound, hereby agree as follows:

 

SECTION 1.  
Authorization of Issuance and Sale of Shares and Warrant.

 

Subject to the terms and conditions hereof, the
Company has authorized the issuance and sale to Investor on the Closing Date
(as defined in Section 3 hereof) of (i) 3,733,334 shares (the “Shares”) of common stock, having a par value of US$0.0001
per share, of the Company (the “Common Stock”)
at a price of US$3.50 per share and (ii) a warrant to purchase up to 2,745,098 shares of
Common Stock (the “Warrant Shares”)
at an exercise price of US$5.10 per share, whether in one or more tranches,
subject to adjustment as set forth therein, in the form attached hereto as Exhibit A (the “Warrant”) (the Shares and the Warrant issuable to the
Investor hereunder and the Warrant Shares are collectively sometimes referred
to as the “Securities”).

 

 

SECTION 2.  
Sale and Delivery of Shares and Warrant.

 

2.1                                 Agreement to Sell and Purchase the Shares.  Subject to the satisfaction or waiver of the
conditions precedent set forth in Section 6 hereof and the other terms and
conditions set forth in this Agreement, at the Closing, the Company shall issue
and sell to the Investor, and the Investor shall purchase from the Company, at
an aggregate purchase price of US$13,066,669.00
(the “Purchase Price”): (a) the Shares and (b) the Warrant.

 

2.2                                 Delivery of Shares and Warrant.  At the Closing, the Company shall deliver to
the Investor (i) a certificate, registered in the name of the Investor,
representing the Shares being purchased by the Investor and (ii) the
Warrant executed by the Company.  The
delivery of such certificate and Warrant shall be made against receipt by the
Company at the Closing of a wire transfer to the account designated in writing
by the Company of immediately available funds in the amount of US$13,066,669.00.

 

SECTION 3.  
The Closing.

 

3.1                                 Closing.  The closing
(the “Closing”) hereunder, with respect to
the transactions contemplated by Section 2 hereof, shall take place on the
second Business Day (excluding the date of receipt of notice) following receipt
by the Company of written notice (the “Closing Notice”)
from the Investor (such date sometimes being referred to herein as the “Closing Date”) that the Closing is to occur at the offices
of the Company at One Park Place, Suite 450, Annapolis, Maryland 21401; provided
that, in the event the Company has not received the Closing Notice by October 18,
2008, the Closing shall occur on October 20, 2008, notwithstanding the absence
of a Closing Notice.  The Closing may be
accomplished by the facsimile or email transmission of executed copies of the
documents contemplated hereby to be delivered at the Closing, confirmed by
delivery of originally executed copies of such documents within five (5) Business
Days of the Closing Date.  The term “Business Day” shall mean a day, other than Saturday, Sunday
or a public holiday, in the country of the Company and the country of the
Investor.

 

SECTION 4.  
Representations and Warranties of the Company to the Investor.

 

The Company hereby makes the
representations and warranties contained herein to the Investor and
acknowledges that the Investor has agreed to the transaction described in Section 2
hereof in reliance on such representations and warranties. The representations
and warranties shall be deemed to be true and correct as of the date hereof,
except as set forth in the disclosure schedules to be delivered to the Investor
by the Company on the date hereof (the “Disclosure Schedules”), and to have
been relied upon by the Investor and there shall be no obligation on the
Company to update such representations, warranties or Disclosure Schedules  subsequent to the date hereof.  Disclosures made in the Disclosure Schedules
shall not be deemed to constitute additional representations or warranties of
the Company but set forth disclosures, exceptions and exclusions called for
under this Agreement. The Company hereby represents and warrants to the
Investor as follows:

 

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4.1                                 Organization.  The
Company and each Subsidiary (as defined hereinafter) is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of organization and have all requisite corporate power and
authority to own and lease its property and to carry on its respective
businesses as presently conducted and as proposed to be conducted as described
in the Company Reports (as defined in Section 4.18 below).  The Company and each Subsidiary is duly
qualified to do business as a foreign corporation under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such qualification, or is
subject to no material liability or disability by reason of the failure to be
so qualified in any such jurisdiction. 
Neither the Company nor any Subsidiary owns or leases property or
engages in any activity in any other jurisdiction that would require its
qualification in such jurisdiction and in which the failure to be so qualified
would have a Material Adverse Effect.  As
used in this Agreement, the term “Material Adverse Effect”
shall mean any event,
occurrence, fact, condition, change, development or effect that is materially
adverse to the business, operations, properties (including intangible
properties), of the Company and its Subsidiaries taken as a whole; or which has
the effect of materially increasing the liabilities of the Company and its
Subsidiaries taken as a whole; or which has the effect of materially impairing
the ability of the Company and its Subsidiaries to perform their obligations
hereunder.

 

4.2                                Capitalization.

 

(a)                                  As
more fully described in the capitalization table included in the Company’s
filings with the SEC, but taking due account for changes in the numbers since
the dates of such filings, the authorized and outstanding capital stock of the
Company immediately prior to the Closing consists of:

 

(i)                         100,000,000
authorized shares of Common Stock, of which:

 

(A)                              22,319,928
shares of Common Stock are validly issued and outstanding, fully paid and
non-assessable;

 

(B)                                11,823,863
shares duly reserved for issuance upon conversion or exercise of securities
that may be converted into or exercised for Common Stock (not including Option
Shares as defined below); and

 

(C)                                3,591,272
shares duly reserved for issuance in connection with options available under
the Company’s 2007 Long-Term Incentive Compensation Plan (the “Option Shares”);

 

(ii)                      1,000,000
authorized shares of preferred stock of the Company, par value US$0.0001 per
share, none of which have been designated and none of which are issued or
outstanding.

 

(b)                                 As
more fully described in the capitalization table set forth in Exhibit B
attached hereto, the authorized and outstanding capital stock of the Company
immediately following the Closing shall consist of:

 

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(i)                         100,000,000
authorized shares of Common Stock, of which:

 

(A)                              26,053,262
shares of Common Stock shall be validly issued and outstanding, fully paid and
non-assessable;

 

(B)                                14,568,961
shares shall have been duly reserved for issuance upon conversion or exercise
of securities that may be converted into or exercised for Common Stock,
including the Warrant Shares (not including Option Shares); and

 

(C)                                3,591,272
shares shall have been duly reserved for issuance in connection with Option
Shares.

 

(ii)                      1,000,000
authorized shares of preferred stock of the Company, par value US$0.0001 per
share, none of which shall have been designated and none of which shall be
issued or outstanding.

 

Except pursuant to the
terms of this Agreement, the Investor Rights Agreement to be executed and
delivered on the Closing Date in the form attached hereto as Exhibit C
(the “Investor Rights Agreement”), and as set
forth in Schedule 4.2 attached hereto and the Company Reports (as
defined in Section 4.6(b)), there are, and immediately following the
Closing there will be, (i) no outstanding warrants, options, rights,
agreements, convertible securities or other commitments or instruments pursuant
to which the Company is or may become obligated to issue, sell, repurchase or
redeem any shares of capital stock or other securities of the Company, (ii) no
preemptive, contractual or similar rights to purchase or otherwise acquire
shares of capital stock of the Company pursuant to any provision of law, the
certificate of incorporation of the Company (the “Certificate”),
the bylaws of the Company (the “Bylaws”) or any
agreement to which the Company, or to the Company’s knowledge, any of its
officers, directors or affiliates, is a party or may otherwise be bound, (iii) no
restrictions on the transfer of capital stock of the Company imposed by the
Certificate or Bylaws of the Company, any agreement to which the Company, or to
the Company’s knowledge, any of its officers, directors or affiliates, is a
party, any order of any court or any Governmental Authority to which the
Company, or to the Company’s knowledge, any of its officers, directors or
affiliates, is subject, or any statute other than those imposed by relevant
state and federal securities laws, (iv) no cumulative voting rights for
any of the Company’s capital stock, (v) no registration rights under the
Securities Act of 1933, as amended (the “Securities
Act”), with respect to shares of the Company’s capital stock, (vi) to
the Company’s knowledge, no options or other rights to purchase shares of
capital stock from stockholders of the Company granted by such stockholders and
(vii) no agreements, written or oral, between the Company and any holder
of its securities, or, to the Company’s knowledge, among holders of its
securities, relating to the acquisition, disposition or voting of the
securities of the Company.

 

4.3                                 Authorization of this Agreement and the Investor Rights Agreement.  The execution, delivery and performance by
the Company of this Agreement and the Investor Rights Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all requisite action on the part of the Company and/or its
shareholders.  Each of this Agreement and
the Investor Rights Agreement has been duly 

 

4

 

executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable in accordance with
its respective terms.  The execution,
delivery and performance of this Agreement and the Investor Rights Agreement
and the compliance with the provisions hereof and thereof by the Company will
not:

 

(a)                      violate any
provision of law, statute, ordinance, rule or regulation or any ruling,
writ, injunction, order, judgment or decree of any court, administrative agency
or other Governmental Authority;

 

(b)                     conflict with
or result in any breach of any of the terms, conditions or provisions of, or
constitute (with due notice, lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under (i) any
agreement, document, instrument, contract, note, indenture, mortgage or lease
to which the Company is a party or under which the Company or any of its assets
is bound or affected, (ii) the
Certificate or (iii) the Bylaws; or

 

(c)                      result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company, except
to such extent as would not, individually or in the aggregate, have a Material
Adverse Effect.

 

As used in this
Agreement, “Governmental Authority” shall mean
any nation or government; any federal, state, municipal, local, provincial,
regional or other political subdivision thereof; and any entity or person
exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, government.

 

4.4                                 Authorization of Common Stock, Warrant and Warrant Shares.  The issuance, sale and delivery of the
Shares, Warrant and Warrant Shares contemplated hereby have been duly
authorized by all requisite action of the Company, and, when issued, sold and
delivered in accordance with (i) this Agreement, the Shares will be
validly issued and outstanding, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof, and not subject to any
encumbrances, rights of first refusal, preemptive rights or similar rights of
the stockholders of the Company or others except for any such rights of the
Investor under the Investor Rights Agreement, and (ii) the Warrant, and
upon the exercise thereof in accordance with the terms of the Warrant, the
Warrant Shares will be, validly issued and outstanding, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and not subject to any encumbrances, rights of first refusal, preemptive rights
or similar rights of the stockholders of the Company or others except for any
such rights of the Investor under the Investor Rights Agreement.  The Company has reserved from its duly
authorized capital stock the maximum number of the Warrant Shares (subject to
adjustment as provided by the terms of the Warrant) that are issuable upon the
exercise of the Warrant.

 

4.5                                 Consents and Approvals. 
No authorization, consent, license, application, approval or other order
of, or declaration to or filing with, any Governmental Authority (other than
filings that are required to be made under applicable federal and state
securities laws  (which filings shall be
made by the Company in accordance with applicable federal and/or state
securities laws) or any other person, entity or association is required for (a) the
valid 

 

5

 

authorization, execution, delivery and performance by
the Company of this Agreement and the Investor Rights Agreement or (b) the
valid authorization, issuance, sale and delivery of the Securities.  The Company has obtained all consents that
are necessary to permit the consummation of the transactions contemplated
hereby and thereby, including, without limitation, any consent required by the
Trading Market.

 

4.6                                 The Company.

 

(a)                                  Except
as set forth in Schedule 4.6(a) attached hereto, the business
of the Company and its Subsidiaries (the “Business”) is
described in the Company Reports.

 

(b)                                 The
Company has filed all reports, registration statements, proxy statements and
information statements required to be filed by it under the Securities Act and
the Exchange Act, including pursuant to Section 13(a) and 15(d) thereof,
for the two years preceding the date hereof (collectively, as they have been
amended since the time of their filing and including all exhibits thereto, the “Company Reports”). As of their respective dates (and, if
amended or superseded by a filing prior to the date hereof, then on the date of
such filing), (x) the Company Reports filed over the last two years
complied as to form in all material respects with the applicable requirements
of the Securities Act and the Exchange Act and the rules and regulations
of the Securities and Exchange Commission (the “Commission”)
promulgated thereunder, and (y) none of such Company Reports contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The Company is in compliance
with applicable requirements of the Sarbanes-Oxley Act of 2002 and applicable rules and
regulations promulgated by the Commission thereunder in effect as of the
date of this Agreement, except where such noncompliance will not have,
individually or in the aggregate, a Material Adverse Effect.  To the knowledge of the Company, none of the
Company Reports currently is the subject of any review or investigation by the
Commission or any other Governmental Authority and there is no currently
unresolved violation asserted in writing by the Commission or any Governmental
Authority with respect to any of the Company Reports.  All statutory books, minutes and registers in
relation to the Company have been properly recorded and kept by the Company and
all documents which the Company is required by applicable law to file with or
deliver to a Person have been correctly filed and/or delivered, except where
failure to so record, keep, file or deliver will not have, individually or in
the aggregate, a Material Adverse Effect.

 

(c)                                  Except
as set forth in Schedule 4.6(c) attached hereto and the
Company Reports:

 

(i)                         Neither
the Company nor any Subsidiary has entered into, and is a party to, and is
otherwise bound or affected by, any written or oral contract, agreement,
understanding, arrangement, lease, guaranty or other obligation or series of
related obligations or transactions in excess of two hundred and fifty thousand
U.S. dollars (US$250,000), other than this Agreement;

 

6

 

(ii)                      Neither the
Company nor any Subsidiary is a party to, or, directly or indirectly, bound by,
any material indenture, mortgage, deed of trust or other agreement or
instrument relating to the borrowing of money, the guarantee of indebtedness or
the granting of any security interest, negative pledge or other encumbrance on
the assets of the Company; and

 

(iii)                   Neither the
Company nor any Subsidiary has incurred, and is subject to any, liabilities or
obligations, fixed or contingent, matured or unmatured or otherwise that,
individually or in the aggregate, could have a Material Adverse Effect.

 

(d)                                 The
financial statements included in the Company Reports, including any notes
thereto, reflect all liabilities of the Company as of the date of such
financial statements.  Since the date of
the unaudited balance sheet dated June 30, 2008 (the “June 30,
2008 Balance Sheet”), the Company and its Subsidiaries have not
incurred any obligation (or series of related obligations) or liability,
contingent or otherwise, in excess of two hundred and fifty thousand U.S.
dollars (US$250,000) except as set forth in Schedule 4.6(d) attached
hereto. The Company has established and maintains internal control over
financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under
the Securities Exchange Act of 1934, as amended; a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. GAAP (as defined in Section 4.6(l) below).

 

(e)                                  Except
as set forth in Schedule 4.6(e) attached hereto and the
Company Reports, (i) there are no actions, suits, arbitrations, claims,
investigations or legal or administrative proceedings pending or, to the
Company’s knowledge, threatened, against the Company or any Subsidiary, whether
at law or in equity, that, if determined
adversely to the Company or any Subsidiary, would reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect, (ii) there
are no judgments, decrees, injunctions or orders of any court or Governmental
Authority entered or existing against the Company or any Subsidiary or any of
their assets or properties for any of the forgoing or otherwise and (iii) the
Company and its Subsidiaries have not (A) admitted in writing its
inability to pay its debts generally as they become due, (B) filed or
consented to the filing against it of a petition in bankruptcy or a petition to
take advantage of any insolvency act, (C) made an assignment for the
benefit of creditors, consented to the appointment of a receiver for itself or
for the whole or any substantial part of its property, (D) had a petition
in bankruptcy filed against it, (E) been adjudicated  bankrupt, or (F) filed a petition or
answer seeking reorganization or arrangement under the federal bankruptcy laws
or any other laws of the United States or any other jurisdiction.

 

(f)                                    The
Company and its Subsidiaries are in compliance with all obligations, agreements
and conditions contained in any evidence of indebtedness or any loan agreement
or other contract or agreement (whether or not relating to indebtedness) to
which the Company or any Subsidiary is a party or is subject (collectively, the
“Obligations”), the lack of compliance
with which could afford to any person the right to accelerate any indebtedness
or terminate any right of or agreement with the Company or any Subsidiary,
except for such lack of compliance that would not, individually or in the
aggregate, have a Material Adverse Effect. 
To 

 

7

 

the Company’s knowledge, all other parties to such
Obligations are in compliance with the terms and conditions of such
Obligations.

 

(g)                                 Except
for employment and consulting agreements set forth in Schedule 4.6(c) attached
hereto and the Company Reports and for agreements and arrangements relating to
the Option Shares and except as set forth in Schedule 4.6(g) attached
hereto and the Company Reports, this Agreement and the Investor Rights
Agreement, there are no agreements, understandings or proposed transactions
between the Company and any of its officers, directors or other “affiliates”
(as defined in Rule 405 promulgated under the Securities Act), and there
are no transactions between any of such persons and the Company of a type
required to be disclosed under Rule 404 of Regulation S-K promulgated
under the Securities Act, that have not been so disclosed. There are no
employment related disputes/monetary claims involving the employees as parties
or otherwise affecting their rights and obligations under a relevant employment
agreement, pending or, to the Company’s knowledge, threatened against the
Company.

 

(h)                                 All
of the employees of the Company and its Subsidiaries who have, or are proposed
to have, access to confidential and/or proprietary information of the Company
or any Subsidiary, are signatories to, and are bound by, agreements with the
Company or such Subsidiary relating to nondisclosure, proprietary information
and assignment of patent, copyright and other intellectual property rights in
substantially the forms provided to the Investor.

 

(i)                                     The
Company’s executive officers as of the date hereof, i.e., David P. Wright,
Christopher C. Camut, Valerie Riddle, Eric I. Richman, Francesca Cook, Wayne
Morges, Joan Fusco, and Jordan P. Karp, are signatories to, and are bound by,
agreements with the Company relating to non-competition.

 

(j)                                     To
the Company’s knowledge, no employee of, or consultant to, the Company or any
Subsidiary is in violation of any term of any employment contract,
patent-disclosure agreement or any other contract or agreement including, but
not limited to, those matters relating to (i) the relationship of any such
employee with the Company or a Subsidiary or to any other party as a result of
the nature of the Company’s business as currently conducted or (ii) unfair
competition, trade secrets or proprietary information.

 

(k)                                  Neither
the Company nor any Subsidiary has a collective-bargaining agreement covering
any of its employees or any employee-benefit plans, except as set forth in Schedule 4.6(k) attached
hereto and the Company Reports.

 

(l)                                     Neither
the Company nor any Subsidiary is in violation of, or default under, any
provision of its Bylaws or Certificate (or any similar organizational
documents), or any material contract, instrument, judgment, order, writ or
decree to which it is a party or by which it or any of its properties is bound,
and the Company and its Subsidiaries are not in violation of any provision of
any federal or state statute, rule or regulation applicable to the Company
or any Subsidiary.

 

8

 

(m)                               

 

(i)                         Included
in the Company Reports is the balance sheet dated December 31, 2007 (the “2007 Balance Sheet”), and statements of operation, stockholders’
equity and cash flows for the year then ended (collectively, the “Financial Statements”), audited by Ernst &
Young LLP, independent certified public accountants of the Company, each
of which Financial Statements has been prepared in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”)
consistently applied, and fairly present the financial position of the Company
as of the date of such financial statements and the results of its operations
for the period covered thereby, subject only to the matters described in the
accountant’s report attached thereto. 
Also included in the Company Reports is the June 30, 2008 balance
sheet and the statements of operation and cash flows for the period from January 1,
2008, through June 30, 2008 (collectively, the “Unaudited
Financial Statements”).  The
Unaudited Financial Statements are complete and correct, are in accordance with
the books and records of the Company and present fairly the financial condition
and results of operation of the Company, as at the dates and for the periods
indicated, and have been prepared in accordance with U.S. GAAP consistently
applied, except that the Unaudited Financial Statements may not be in
accordance with U.S. GAAP solely because of the absence of footnotes normally
contained therein and are subject to normal year-end audit adjustments.  Specifically, but not by way of limitation,
the June 30, 2008 balance sheet discloses all of the Company’s debts,
liabilities and obligations of any nature, whether due or to become due, as of
their respective dates (including, without limitation, absolute, accrued and
contingent liabilities) to the extent such debts, liabilities and obligations
are required to be disclosed in accordance with U.S. GAAP.

 

(ii)                      Since the
date of the June 30, 2008 balance sheet and other than as set forth in the
Company Reports, there has not been:

 

(A)                              any
damage, destruction or loss to any property of the Company or its Subsidiaries,
whether or not covered by insurance, that has had, or will have, a Material
Adverse Effect;

 

(B)                                any
waiver by the Company or any Subsidiary of a material right or of a material
debt owed to it;

 

(C)                                any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company or any Subsidiary, except such a satisfaction,
discharge or payment made in the ordinary course of business that would not
reasonably be expected to have a Material Adverse Effect;

 

(D)                               any
change or amendment to a material contract or arrangement by which the Company,
any Subsidiary or any of their assets or properties is bound or subject;

 

(E)                                 any
material change in any compensation arrangement or agreement with any present
or prospective employee, contractor or director of the Company or any Subsidiary;

 

9

 

(F)                                 any
loan to any officer, director or shareholder of the Company or any Subsidiary,
other than advances in the ordinary course of business and as permitted under
the Securities Laws (as hereinafter defined);

 

(G)                                any
debt, obligation or liability incurred, assumed or guaranteed by the Company,
except for those that are immaterial in amount and for current liabilities
incurred in the ordinary course of business;

 

(H)                               any
other event or condition of any character that would have a Material Adverse
Effect; or

 

(I)                                    any
agreement by the Company or any Subsidiary to do any of the foregoing.

 

(iii)                   Neither the
Company nor any Subsidiary has any liabilities, whether actual or contingent,
that were not reflected in the June 30, 2008 balance sheet, except for
liabilities incurred after the date thereof in the ordinary course of business, which will not have any
Material Adverse Effect on the Company.

 

4.7                                 Payment of Taxes. 
Neither the Company, any Subsidiary, nor any entity to whose liabilities
the Company has succeeded, has filed or been included in a consolidated,
unitary or combined tax return with another person.  Except as set forth in Schedule 4.7
and the Company Reports, the Company represents and warrants that (a) the
Company and each Subsidiary has filed all tax returns and reports required to
have been filed by or for it, including but not limited to income tax, sales
tax, use tax and payroll tax returns, (b) all material information set
forth in such returns or reports is accurate and complete, (c) the Company
and each Subsidiary has paid or made adequate provision for all taxes,
additions to tax, penalties, and interest payable by the Company and its
Subsidiaries, (d) no material unpaid tax deficiency has been asserted
against or with respect to the Company or any Subsidiary by any taxing
authority, nor has the Company or any Subsidiary received written notice of any
such assertion, (e) the Company and each Subsidiary has collected or
withheld all amount required to be collected or withheld by it for any taxes,
and, to the extent required by law, all such amounts have been paid to the
appropriate governmental agencies or set aside in appropriate accounts for
future payment when due, (f) the Company and each Subsidiary is in
compliance with, and its records contain all information and documents
necessary to comply with, all applicable information-reporting and
tax-withholding requirements, (g) the June 30, 2008 balance sheet
fully and properly reflects, as of the date thereof, the liabilities of the
Company and its Subsidiaries for all accrued taxes, additions to tax,
penalties, and interest, (h) for periods ending after June 30, 2008,
the books and records of the Company and its Subsidiaries fully and properly
reflect its liability for all accrued taxes, additions to tax, penalties and
interest, (i) the Company and its Subsidiaries have not granted, nor are
they subject to, any waiver of the period of limitations of the assessment of
tax for any currently open taxable period, (j) the Company and its
Subsidiaries have not made or entered into, and holds no asset subject to, a
consent filed pursuant to Section 341(f) of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), and the
regulations thereunder or a “safe harbor lease” subject to former Section 168(f)(8) of
the Internal Revenue Code of 1954, as 

 

10

 

amended before the Tax Reform Act of 1986, and the
regulations thereunder, (k) the Company and its Subsidiaries are not
required to include in income any amount for an adjustment pursuant to Section 481
of the Code or the regulations thereunder and (l) the Company and its
Subsidiaries are not a party, or obligated under, any agreement or other
arrangement providing for the payment of any amount that would be an “excess
parachute payment” under Section 280G of the Code.

 

4.8                                 Intellectual Property Rights.   Except as provided in Schedule 4.8, the
Company and each Subsidiary owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service-mark registrations, copyrights, licenses,
know-how, software, systems and technology (including trade secrets and other
unpatented or unpatentable proprietary or confidential information, systems or
procedures) used or held for use in the conduct of the Business as presently
conducted (collectively, the “Company
Intellectual Property Rights”). 
To the Company’s knowledge, the Company Intellectual Property Rights that comprise registered trademarks or issued
patents are valid and enforceable. 
To the Company’s knowledge, (i) the operation of the business of
the Company, and the products or services in development or which are marketed
or sold (or proposed to be marketed or sold) by the Company, do not violate any
license or, subject to Schedule 4.8, infringe any intellectual property rights
of any party and (ii) there is no unauthorized use, infringement or
misappropriation by any third party of any Company Intellectual Property Rights
owned by or licensed to the Company. 
Except as set forth in Schedule 4.8, other than with respect to
commercially available software products which the Company and its Subsidiaries
license under standard end-user object code license agreements, there are no
outstanding material options, licenses, agreements, claims, encumbrances or
shared ownership interests of any kind relating to any of the material Company
Intellectual Property Rights.  To the
knowledge of the Company, no third party has made a claim that the Company or
its Subsidiaries have violated or, by conducting their business, would violate
any Intellectual Property rights of any other person or entity and, to the
knowledge of the Company, no such claim has been threatened.  Each employee, former employee, contract
worker, agent, consultant other service provider and contractor who has
contributed to or participated in the conception or development of the Company
Intellectual Property Rights, other than those licensed by Company from a third
party, has assigned or is obligated to assign to the Company all intellectual
property rights relating to such Company Intellectual Property Rights.  To the knowledge of the Company, all of the
Company Intellectual Property Rights which are registered or have been filed
for registration with any third party are in good standing and all of the fees
and filings due with respect thereto have been duly made.  The Company and its Subsidiaries are not or,
as a result of the execution or delivery of this Agreement, or the performance
of the Company’s obligations hereunder, will not be in violation of any
license, sublicense, agreement or instrument involving Intellectual Property to
which the Company is a party or otherwise bound, nor will the execution or
delivery of this Agreement or the consummation of the transactions contemplated
hereby, cause the diminution, license, transfer,  termination or forfeiture of the Company’s
rights in any Company Intellectual Property Rights.  The Company has taken commercially reasonable
measures to protect the proprietary nature of the proprietary Company
Intellectual Property Rights owned by the Company and to maintain in confidence
all trade secrets and confidential information owned or used by the Company.  No proceedings or, to the 

 

11

 

Company’s knowledge, investigations challenging or
threatening the validity, enforceability, effectiveness or ownership by the
Company or its Subsidiaries of any Company Intellectual Property Rights have
been made or are outstanding.  For the
purposes of this Section 4.8, “to the Company’s knowledge” shall mean
actual knowledge, as of the date of this Agreement, of executive officers of
the Company.

 

4.9                                 Securities Laws.  Except as disclosed
pursuant to this Agreement, neither the Company nor anyone acting on its
behalf has offered securities of the Company for sale to, or solicited any
offers to buy the same from, or sold securities of the Company to, any person
or organization, in any case so as to subject the Company, its promoters,
directors or officers to any liability under the Securities Act, the Securities
and Exchange Act of 1934, as amended (the “Exchange Act”),
or any state securities or “blue sky” law and the rules and regulations
promulgated thereunder (collectively, the “Securities Laws”).  None of the offer, grant, sale or issuance of
the Securities to the Investor contemplated by this Agreement and the Investor
Rights Agreement will be in violation of the Securities Laws when offered, sold
and issued.

 

4.10                           Title to Assets and Properties. Except as set forth in Schedule 4.10
attached hereto and the Company Reports, the Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property and assets owned by them, in each
case free and clear of all liens, encumbrances and defects except such as, in
the aggregate, do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its Subsidiaries; and any real property and buildings held under
lease by the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries. 
All the assets of the Company,
whether movable or immovable, including without limitation, equipment and
machinery, owned, leased or licensed to or by the Company or employed by it,
are in serviceable condition for use thereof in the ordinary course of
Business.

 

4.11                           Investments in Other Persons.  Except and to the extent set forth in Schedule 4.11
attached hereto and the Company Reports, (a) the Company and its
Subsidiaries have not made any loan or advance to any person or entity that is
outstanding on the date hereof, nor is it committed or obligated to make any
such loan or advance, and (b) the Company has never owned or controlled,
and do not currently own or control, directly or indirectly, any subsidiaries
and has never owned or controlled, and does not currently own or control, any
capital stock or other ownership interest, directly or indirectly, in any
corporation, association, partnership, trust, joint venture or other entity
(except to the extent reflected on Schedule 4.11, each a “Subsidiary” and collectively the “Subsidiaries”).

 

4.12                           ERISA/Employee Benefit Plans.

 

 (a)                               Schedule
4.12 and the Company Reports contain a true and complete list of each
material “employee benefit plan” (within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)) and each other 

 

12

 

material employment, stock option, stock purchase,
restricted stock or other equity-based, incentive, severance, termination,
retention, change of control or other material benefit plans, programs,
agreements, contracts, policies or arrangements contributed to, sponsored or
maintained by the Company or any of its Subsidiaries (or which the Company or
any of its Subsidiaries is obligated to contribute to, sponsor or maintain) as
of the date hereof for the benefit of any future, current, former or retired employee,
officer, consultant, independent contractor or director of the Company or any
of its Subsidiaries (collectively, the “Company Employees”)
or to which the Company or any of its Subsidiaries is a party or with respect
to which the Company or any of its Subsidiaries has or would reasonably be
expected to have any liability (such plans, programs, policies, agreements and
arrangements, including the Company Stock Plans, and including material bonus,
vacation, deferred compensation, profit sharing, savings, retirement, retiree
medical or life insurance, supplemental retirement, severance and fringe
benefit plans contributed to, sponsored or maintained by the Company or any of
its Subsidiaries (or which the Company or any of its Subsidiaries is obligated
to contribute to, sponsor or maintain) as of the date hereof for the benefit of
any Company Employee, collectively, “Company Plans”).

 

(b)                                 With
respect to each Company Plan, the Company has made available to Investor a
current, accurate and complete copy, including any amendments, of (i) each
such Company Plan (or, if a plan is not written, a written description thereof)
and, to the extent applicable, (ii) any related trust agreement or other
funding instrument, (iii) the most recent determination letter received
from the Internal Revenue Service (the “IRS”) for
each Company Plan that is intended to be qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended and including any applicable
guidance issued or regulations promulgated thereunder (the “Code”), (iv) the most recent
summary plan description and any summaries of any material modification of such
Company Plan, (v) all prospectuses prepared in connection with any such
Company Plan, (vi) any material communications to or from any governmental
agency with respect to any ongoing or pending claim or audit or any claim or
audit concluded on or after January 1, 2006, and (vii) for the most
recent two years (A) the Form 5500 and attached schedules, (B) audited
financial statements, and (C) actuarial valuation reports, if any.

 

(c)                                  Each
Company Plan has been established and administered in all material respects in
accordance with its terms and in compliance with the applicable provisions of
applicable laws, rules and regulations, including ERISA and the Code.  No “prohibited transaction,” within the
meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA, and
not otherwise exempt under Section 408 of ERISA, and no breach of
fiduciary responsibility, has occurred with respect to any Company Plan, and no
event, transaction, fact or condition exists that, to the knowledge of the
Company, presents a risk to the Company or any of its Subsidiaries, or after
the Closing Date, to the Investor, or any of their respective Affiliates (as
such term is defined in the Investor Rights Agreement), of incurring any such
liability.  All contributions, premiums
and other payments required to be made with respect to each Company Plan have
been made on or before their due dates under applicable law and the terms of
such Company Plan and all amounts properly accrued to date or as of the
Effective Time as liabilities of the Company or any of its Subsidiaries which
are not yet due have been properly recorded on the books of the Company and, to
the extent required by Generally Accepted Accounting 

 

13

 

Principles (“GAAP”),
adequate reserves are reflected on the Financial Statements of the Company or
liability thereof was incurred in the ordinary course of business consistent
with past practice since December 31, 2007.  No Company Plan has an “accumulated funding
deficiency” (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA.

 

(d)                                 Neither
the Company nor any of its Subsidiaries is now contributing to or has, since January 1,
2003, contributed to or had, any liability, contingent or otherwise, with
respect to (i) a pension plan (within the meaning of Section 3(2) of
ERISA) subject to Section 412 of the Code or Title IV of ERISA; (ii) a
multiemployer plan (within the meaning of Section 3(37) or 4001(a)(3) of
ERISA); or (iii) a single employer pension plan (within the meaning of Section 4001(a)(15)
of ERISA) for which any other person that, together with the Company or any of
its Subsidiaries, is or was treated as a single employer under Section 414
of the Code would reasonably be expected to incur liability under Section 4063
or 4064 of ERISA.

 

(e)                                  No
proceedings (other than routine claims for benefits in the ordinary course) are
pending or, to the knowledge of the Company, threatened with respect to any
Company Plan or against the assets of such Company Plan.

 

(f)                                    No
Company Plan provides post-termination welfare benefits, and neither the
Company nor any of its Subsidiaries has any obligation to provide any
post-termination welfare benefits, in each case other than health care
continuation as required by Section 4980B of the Code.

 

(g)                                 Each
Company Plan which is intended to be qualified under Section 401(a) of
the Code has received a favorable determination letter from the IRS covering
all tax law changes prior to the Economic Growth and Tax Relief Reconciliation
Act of 2001 or is a prototype plan subject to a favorable opinion letter that
may be relied on, and, to the knowledge of the Company, no circumstances exist
or existed that has or is likely to affect such favorable determination or
result in the loss of qualification of such Company Plan under Section 401(a) of
the Code.  Each outstanding option is a
stock right that is exempt from the provisions of section 409A of the
Code.  Each Company Plan that is a “nonqualified
deferred compensation plan” within the meaning of Section 409A(d)(1) of
the Code and applicable guidance issued thereunder (a “Nonqualified
Deferred Compensation Plan”) that is subject to Section 409A
of the Code has been operated in good faith compliance with Section 409A
of the Code since January 1, 2005. 
No Nonqualified Deferred Compensation Plan that is intended to be exempt
from Section 409A of the Code due to the effective date provisions that
are applicable to Section 409A of the Code, as set forth in Section 885(d) of
the American Jobs Creation Act of 2004, as amended (the “AJCA”),
has been “materially modified” within the meaning of Section 885(d)(2)(B) of
the AJCA after October 3, 2004, based upon a good faith reasonable
interpretation of the AJCA.

 

(h)                                 Neither
the execution by the Company of this Agreement nor the consummation of the
transactions contemplated hereby will (either alone or upon occurrence of 

 

14

 

any additional or subsequent events) (i) constitute
an event under any Company Plan or any trust or loan related to any of those
plans or agreements that will or may result in any payment, acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Company Employee, (ii) result
in the triggering or imposition of any restrictions or limitations on the right
of the Company to amend or terminate any Company Plan or (iii) result in
the failure of any amount to be deductible by reason of Section 280G of
the Code.

 

 (i)                                  No
Company Plan is under audit or is the subject of an investigation by the IRS,
the U.S. Department of Labor, the Pension Benefit Guaranty Corporation, the SEC
or any other governmental agency, nor, to the knowledge of the Company, is any
such audit or investigation pending or threatened.

 

 (j)                                  All
options, equity and equity-based awards under Company Plans have been granted
in compliance with the terms of the applicable Company Plans, with applicable
laws, and with the applicable provisions of the Articles of Incorporation and
Bylaws as in effect at the time of the applicable grant.

 

 (k)                               No
deduction for federal income tax purposes has been or is expected by the
Company to be disallowed for remuneration paid by the Company or any of its
Subsidiaries by reason of Section 162(m) of the Code, including by
reason of the transactions contemplated hereby.

 

4.13                           Labor Matters.  The
Company and its Subsidiaries (i) are in material compliance with all terms
and conditions of employment and all employment laws including, pay equity,
wages and hours of work, occupational health and safety and have undertaken
necessary health and safety risk assessments and have maintained and
implemented all necessary manuals and health and safety management policies and
systems and (ii) have not and are not engaged in any unfair labor practice
and no unfair labor practice complaint, grievance or arbitration proceeding is
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries.  No collective
bargaining agreement is currently in force or is currently being negotiated by
the Company, any Subsidiary, or any other person in respect of the business of
the Company, its Subsidiaries or any of the employees.  No trade union, council of trade unions,
employee bargaining agency or affiliated bargaining agent holds bargaining
rights with respect to any of the employees by way of certification, interim
certification, voluntary recognition, or succession rights, or has applied or,
to the knowledge of the Company, threatened to apply to be certified as the
bargaining agent of the employees of the Company and its Subsidiaries.  To the knowledge of the Company, there are no
threatened or pending union organizing activities involving any of the
employees of the Company or its Subsidiaries. 
There is no labor strike, dispute, work slowdown or stoppage pending or
involving or, to the knowledge of the Company threatened against the Company or
its Subsidiaries.  There are no charges
pending under OHSA in respect of the Company or any Subsidiary.  The Company and each Subsidiary has complied
in all respects with any orders issued under OHSA and there are no appeals of
any orders under OHSA currently outstanding.

 

15

 

4.14                           Permits and Other Rights; Compliance with Laws.  The Company has all material franchises,
material permits, material licenses and other material rights and privileges
necessary to permit it to own its properties and to conduct the Business as
presently conducted (including all certificates, licenses, registrations,
applications, authorizations, approvals and permits required under
Environmental Laws, the Federal Food, Drug and Cosmetic Act of 1938, as amended
(the “FDCA”), the Public Health Service Act
of 1944, as amended (the “PHSA”) and the
regulations of the U.S. Food and Drug Administration (the “FDA”)
promulgated thereunder) (collectively, “Permits”), and
the Company has not received any notice (oral or written) of proceedings
relating to the revocation or modification of any Permit.  The Company and its Subsidiaries are in full
compliance with all laws, including, but not limited to, laws with respect to
manufacturing, clinical research and development, submission of applications
for review by governmental authorities, marketing, promotion, and sale of all
of their products.  There are no pending
or, to the knowledge of the Company, threatened actions or proceedings by the
FDA, U.S. Department of Justice, or any applicable foreign equivalent which
would prohibit or impede the sale of any product currently in development,
under investigation, or manufactured or sold by the Company or any of its
Subsidiaries into any market.  The
Company is in compliance in all material respects under each, and the
transactions contemplated by this Agreement will not cause a violation under
any of such Permits.  The Company is in
compliance in all respects with all material provisions of the laws and
governmental rules and regulations applicable to its businesses,
properties and assets, and to the products and services under development,
investigation, or sold by it, including, without limitation, all such rules,
laws and regulations relating to fair employment practices and public or
employee safety.

 

4.15                           Insurance.  Neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business on terms
consistent with the market for the business in which the Company and its
Subsidiaries operate.  There are
currently no proceedings pending against the Company or any Subsidiary under
any insurance policies currently in effect and covering the property, business
or employees of the Company and its Subsidiary, and all premiums due and
payable with respect to the insurance policies maintained by the Company and
the Subsidiaries have been paid to date. 
The Company and its Subsidiaries have in full force and effect
fire- and casualty and such other insurance policies issued by insurers of
recognized financial responsibility that extend coverage sufficient in amount
as are reasonably prudent and customary in the business in which the Company
and its Subsidiaries are engaged (subject to reasonable deductibles) to allow
it to replace any of its properties that might be damaged or destroyed.  Neither the Company nor any Subsidiary is in
default with respect to its obligations under any insurance policy maintained
by it except for any such defaults as would not reasonably be expected to have
a Material Adverse Effect.

 

4.16                           Investment Company; FIRPTA. 
Neither the Company nor any Subsidiary is, an investment company nor is
either of them an affiliate of an investment company within the meaning of the
Investment Company Act of 1940, as amended. 
The Company and its Subsidiaries are not a U.S. real property holding
corporation within the meaning of the Foreign Investment in Real Property Tax
Act of 1980.

 

16

 

4.17                           Board of Directors. 
Except as set forth in Schedule 4.17 attached hereto and the
Company Reports, the Company has not extended any offer or promise, or entered
into any agreement, arrangement, understanding or otherwise, whether written or
oral, with any person or entity by which the Company has agreed, to allow such
person or entity to participate, in any way, in the affairs of the board of
directors of the Company, including, without limitation, the appointment or
nomination as a member, or the right to appear at, or receive the minutes of, a
meeting of the board of directors of the Company.

 

4.18                           Environmental Matters.

 

(i)                         All of
the current and past operations of the Company, the Subsidiaries and any real
property currently owned, operated, used or leased by the Company or any
Subsidiary (the “Real Property”)
comply and have at all times complied with all federal, state and local laws,
judgments, decrees, orders, consent agreements, authorizations, permits,
licenses, rules, regulations, codes, ordinances, common or decision law
(including, without limitation, principles of negligence and strict liability)
relating to the pollution, protection, investigation, remediation, monitoring,
damages to, or restoration of the environment (including, without limitation,
natural resources) or the health or safety matters of humans and other living
organisms (the “Environmental Laws”),
except where the failure to so comply would not have a Material Adverse
Effect.  To the knowledge of the Company,
all real property formerly owned, operated, used or leased by the Company or any
Subsidiary (the “Former Real Property”)
complied at all times during the term of the Company or such Subsidiary’s
ownership, operation, use or lease thereof with all applicable Environmental
Laws, except where the failure to so comply would not have a Material Adverse
Effect.

 

(ii)                      Except as
set forth in Schedule 4.18 and the Company Reports, (A) the Company
and the Subsidiaries have no knowledge of any claim, and has not received
notice of a complaint, loss order, directive, claim, request for information,
violation or citation, and no proceeding has been instituted, nor to the
Company’s knowledge, threatened, raising a claim against the Company, any
Subsidiary or any predecessor thereto or any of their respective Real Property,
Former Real Property  or other
assets indicating or alleging any damage to the environment or any liability or
obligation under or violation of any Environmental Laws and (B) the
Company and the Subsidiaries are not subject to any order, decree, injunction
or other directive of any Governmental Authority.

 

(iii)                   Except as set
forth in Schedule 4.18 and the Company Reports, (A) the Company and
its Subsidiaries have not used and, to the Company’s knowledge, no other Person
has used any portion of any Real Property or Former Real Property during the
term of the Company or its Subsidiaries ownership, operation, use or lease
thereof for the generation, handling, processing, treatment, storage or
disposal of any Hazardous Materials except in accordance with applicable
Environmental Laws; (B) the Company and its Subsidiaries do not own or
operate any underground tank and there are no underground tanks or other
underground storage receptacles, asbestos-containing materials or other
Hazardous Materials located in any portion of any Real Property and (C) the
Company, its Subsidiaries nor, to the Company’s knowledge, any other person,
has not caused or suffered to occur any releases or threatened 

 

17

 

releases of Hazardous Materials on, at, in, under,
above, to, from or about any Real Property or Former Real Property during the
term of the Company and its Subsidiaries ownership, operation, use or lease
thereof.  The Company and its
Subsidiaries have not contractually, by operation of law, including the
Environmental Laws, or otherwise assumed or succeeded to any environmental
liabilities of any predecessors or any other person or entity.  As used herein, the term “Hazardous Materials” shall mean any pollutants,
contaminants, or toxic or hazardous substances, materials, wastes,
constituents, compounds or chemicals, including without limitation petroleum or
any by-products thereof, any form of natural gas, asbestos or
asbestos-containing materials, polychlorinated biphenyls or polychlorinated
biphenyls-containing equipment, radon or other radioactive elements,
carcinogenic or mutagenic agents, pesticides, explosives, flammables,
corrosives and urea formaldehyde foam insulation, in each case that form the
basis of liability, or are subject to regulation, under any Environmental Laws.

 

4.19                           Litigation.  There is
no proceeding pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties
which adversely affects or challenges the legality, validity or enforceability
of any of the transactions contemplated hereby. 
None of the Company, the Subsidiaries or, to the Company’s knowledge,
any director or officer thereof (in his or her capacity as such), is or has
been the subject of any proceeding involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty.  There has not been, and
to the knowledge of the Company, there is not pending or contemplated, any
investigation by the SEC involving the Company, the Subsidiaries or any current
or former director or officer of the Company or any Subsidiary (in his or her
capacity as such).  The SEC has not
issued any stop order or other order suspending the effectiveness of any registration
statement filed by the Company or any Subsidiary under the Exchange Act or the
Securities Act.

 

4.20                           Listing.  The Company’s
Common Stock is listed on the American Stock Exchange (the “Trading Market”).  The
Company is in compliance with the terms of its listing agreement with the
Trading Market and its rules and standards for continued listing and has
complied or will timely comply with such agreement and such rules and
standards in connection with the transactions contemplated by this
Agreement.  No proceeding is pending or,
to the Company’s knowledge, threatened relating to any unresolved violation of
any of such items or delisting of the Common Stock, and the Company has no
reason to believe that the Common Stock will not continue to be so listed.  The Common Stock has never been delisted or
suspended from listing or trading by the Trading Market.

 

4.21                           Product Warranty; Product Liability.  Each product being manufactured by the
Company and its Subsidiaries is being manufactured in conformity with all
product specifications.  Neither the
Company nor any Subsidiary has any liability for damages caused by use of any
such products or other damages in connection therewith or any other customer or
product obligations.

 

18

 

4.22                           Disclosure.

 

 (a)                               Subject to Section 4.22(b),
the sum of the disclosure provided to the Investor regarding the Company, the
Subsidiaries, their business and the transactions contemplated hereby,
including the Company Reports and the Schedules to this Agreement, furnished by
or on behalf of the Company, does not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading.  No event or
circumstance has occurred or information exists with respect to the Company,
the Subsidiaries or their business, properties, prospects, operations or
financial conditions, which, under the Securities Laws of the United States,
requires public disclosure or announcement by the Company but which has not
been so publicly announced or disclosed (assuming for this purpose that the
Company’s reports filed under the 1934 Act are being incorporated into an
effective registration statement filed by the Company under the 1933 Act).

 

 (b)                              Notwithstanding Section 4.22(a),
the Investor acknowledges that the Company has not provided to the Investor
certain disclosure as described in Section 26 hereof.

 

SECTION 5.  
Representations, Warranties and Covenants of the Investor to the
Company.

 

The Investor hereby make the
representations, warranties and covenants contained herein to the Company and
acknowledge that the Company has agreed to the transaction described in Section 2
hereof in reliance on such representations, warranties and covenants. The
representations and warranties shall be deemed to be true and correct as of the
date hereof and to have been relied upon by the Company and there shall be no
obligation on the Investor to update such representation and warranties
subsequent to the date hereof.  The
Investor represents and warrants to and agrees with the Company as follows:

 

5.1.                              Subsidiary Relationship. 
The Investor is an indirect wholly-owned subsidiary of PBL and will
remain an indirect majority owned subsidiary of PBL so long as it owns or holds
any of the Securities.

 

5.2                                 Restrictions on Transfer.  
The Investor shall not transfer, directly or indirectly, through
Affiliates or otherwise, any Securities or any rights therein 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 direct or indirect wholly-owned 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, and (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 non-negotiated bona fide sales
of Shares on the Trading Market (“Non-Negotiated Bona Fide 

 

19

 

Sales”), which, for the sake of clarity, shall not
include negotiated block sales, are excluded from this transfer restriction.  In the event of any transfer (other than
Non-Negotiated Bona Fide Sales), the transferee shall agree to be bound by all
of the terms and conditions imposed on the Investor in this Agreement, the
Investor Rights Agreement and under the Warrant.

 

5.3.                              Prior Ownership of Securities.  To
the knowledge of the Investor after due inquiry, none of the Investor, its
directors, its executive officers and its Affiliates currently own any
securities of the Company or any of its affiliates, nor did any of the
Investor, 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 (the “Letter of
Intent”).

 

5.4.                              Private Placement.

 

 (a)                               The Investor is
acquiring the Shares and Warrant for its own account, for investment and not
with a view to the resale or distribution thereof within the meaning of the
Securities Act.

 

 (b)                              The Investor is an “accredited
investors” as such term is defined in Rule 501(a) promulgated under
the Securities Act.

 

 (c)                               The Investor agrees that
the Company may place a legend on the certificates representing the Securities
stating that the Securities have not been registered under the Securities Act
and, therefore, cannot be offered, sold or transferred unless registered under
the Securities Act or an exemption from such registration is available in the
opinion of counsel satisfactory to the Company.

 

 (d)                              The Investor has such
knowledge and experience in business and financial matters and with respect to
investments in restricted securities so as to enable it to understand and
evaluate the risks of its investment in the Securities and form an investment
decision with respect thereto. The Investor is able to bear the risks of an
investment in the Securities.  The
Investor has been afforded the opportunity, during the course of negotiating
the transactions contemplated by this Agreement, to ask questions of, and to
secure such information from, the Company and its officers and directors as
they have deemed necessary to evaluate the merits of entering into such
transactions.

 

 (e)                               On the Closing Date, the
Investor shall have an adequate net worth and means of providing for their
current needs and personal contingencies to sustain a complete loss of its
investment in the Company.

 

5.5.                              Authorization of this Agreement and Investor Rights Agreement. The
execution, delivery and performance by the Investor of this Agreement and the
Investor Rights Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all requisite action on the
part of the Investor.  This  Agreement has been duly executed and
delivered by the Investor and constitutes a valid and binding obligation of the
Investor, enforceable in accordance with its respective terms.  When executed and 

 

20

 

delivered by the Investor in accordance with this Agreement, the
Investor Rights Agreement will constitute a valid and binding obligation of the
Investor, enforceable in accordance with its respective terms. The execution,
delivery and performance of this Agreement and the Investor Rights Agreement
and the compliance with the provisions hereof and thereof by the Investor will
not:

 

 (a)                               violate any provision of
law, statute, ordinance, rule or regulation or any ruling, writ,
injunction, order, judgment or decree of any court, administrative agency or
other Governmental Authority, as would not, individually or in the aggregate,
have a Material Adverse Effect;

 

 (b)                              conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute
(with due notice, lapse of time or both) a default (or give rise to any right
of termination, cancellation or acceleration) under (i) any agreement,
document, instrument, contract, understanding, arrangement, note, indenture,
mortgage or lease to which the Investor is a party or under which the Investor
or any of their assets is bound or affected,
except for such conflicts, breaches or defaults as would not, individually or
in the aggregate, have a material adverse effect on the business or
financial condition of the Investor, (ii) the
Certificate or (iii) the Bylaws; or

 

5.6.                              Resale Conditions. 
The Investor further understands that the exemptions from registration
afforded by Rule 144 and Rule 144A (the provisions of which are known
to them) promulgated under the Securities Act depend on the satisfaction of
various conditions and that, if applicable, Rule 144 may afford the basis
for sales only in limited amounts.

 

5.7.                              Organization.  The
Investor is duly organized and validly existing and have the power and
authority to enter into this Agreement.

 

5.8.                              Consents.

 

 (a)                               No consent, approval,
order or authorization of, or registration, qualification, designation,
declaration or filing with, any Governmental Authority on the part of the
Investor is required in connection with the consummation of the transactions
contemplated by this Agreement.

 

 (b)                              No consent or approval on
the part of any third party to any agreement with the Investor (aside from
those already obtained) is required in connection with the transactions
contemplated by this Agreement.

 

SECTION 6.  
Documents to be Delivered.

 

6.1                                 Documents to be Delivered on the Execution Date.  On or prior to the date hereof,
the parties agree to take and shall have taken the following actions:

 

21

 

(a)                                  The
Company shall have furnished to the Investor a copy of the waivers and consents
to be obtained in connection with the transactions contemplated by this
Agreement.

 

(b)                                 The
Company shall have furnished to the Investor a copy of all applicable consents,
permits, approvals, qualifications and registrations required to be obtained or
effected under any applicable Securities Laws.

 

(c)                                  The
Company shall have furnished to the Investor a certificate or certificates,
dated as of the Execution Date, of the Secretary of the Company certifying as
to (i) the resolutions of the Company’s board of directors authorizing the
execution and delivery of this Agreement, the issuance to the Investor of the
Securities, the execution and delivery of such other documents and instruments
as may be required by this Agreement and the consummation of the transactions
contemplated hereby, and certifying that such resolutions were duly adopted and
have not been rescinded or amended as of said date, and (ii) the name and
the signature of the officers of the Company authorized to sign, as
appropriate, this Agreement, the Investor Rights Agreement and the other
documents and certificates to be delivered pursuant to this Agreement by either
the Company or any of its officers.

 

(d)                                 The
Company shall have furnished to the Investor a certificate or certificates,
dated as of the Execution Date, of the President of the Company certifying as
to the truth, accuracy and completeness of the representations and warranties
made by the Company pursuant to this Agreement.

 

(e)                                  The
Company shall have furnished to the Investor a certificate or certificates,
dated as of the Execution Date, of the Chief Financial Officer or Treasurer of
the Company certifying that, since the date of the Unaudited Financial
Statements, there has not been any material adverse change in the financial
condition or operations of the Company and that, except as to the extent
reflected in the Unaudited Financial Statements and except for liabilities
arising in the ordinary course of business, the Company has no material accrued
or contingent liabilities arising out of any transaction or state of facts
existing prior to the date of this Agreement.

 

(f)                                    The
Company shall have furnished to the Investor a certificate to the effect that
the consummation of the transactions contemplated by this Agreement shall not
be in violation of any law or regulation, and shall not be subject to any
injunction, stay or restraining order.

 

(g)                                 The
Investor shall have furnished to the Company a certificate or certificates,
dated as of the Execution Date, of the Director or such other officer of equal
ranking of the Investor certifying as to the truth, accuracy and completeness
of the representations and warranties made by the Investor  pursuant to this Agreement.

 

(h)                                 The
Investor shall have furnished to the Company a certificate to the effect that
all waivers and consents to be obtained in connection with the transactions
contemplated by this Agreement have been taken or obtained.

 

22

 

(i)                                     The
Investor shall have furnished to the Company a copy of all applicable consents,
permits, approvals, qualifications and registrations required to be obtained or
effected by the Investors under any applicable Securities Laws.

 

(j)                                     The
Investor shall have furnished to the Company a certificate to the effect that
the consummation of the transactions contemplated by this Agreement shall not
be in violation of any law or regulation, and shall not be subject to any
injunction, stay or restraining order.

 

(k)                                  That
certain letter agreement shall have been executed on the date hereof (the “Letter Agreement”).

 

6.2                               Closing Conditions—Investor. 
Set forth below are the only conditions to the payment by the Investor
of the Purchase Price on the Closing Date, as described in Section 2
hereof, and there shall be no other conditions or rights of the Investor not to
make such payment as described therein. 
On or before the Closing Date:

 

(a)                                  The
Company shall have delivered, or caused to have delivered, to the Investor
stock certificates representing the Shares as set forth in Section 2.

 

(b)                                 The
Company shall have delivered, or caused to have delivered, to the Investor the
Warrant as set forth in Section 2.

 

(c)                                  The
Company shall have delivered the legal opinion of its counsel, in the form
attached hereto as Exhibit D, executed by such counsel.

 

(d)                                 The
Letter Agreement shall be in full force and effect as of the Closing Date.

 

(e)                                  The
Company shall have executed the Investor Rights Agreement.

 

6.3                               Closing Conditions—Company. 
Set forth below are the only conditions to the delivery of the
certificates representing the Shares and the Warrant to the Investor as
described in Section 2 hereof and there shall be no other conditions or
rights of the Company not to make such delivery as described therein.  On or before the Closing Date:

 

(a)                                  The
Investor shall have delivered the Purchase Price in the manner and to the
account specified by the Company in writing.

 

(b)                                 The
Letter Agreement shall be in full force and effect as of the Closing Date.

 

(c)                                  The
Investor shall have executed the Investor Rights Agreement.

 

23

 

6.4                                 Further Covenants.

 

 (a)                               The Company shall use
its best efforts to obtain approval for the listing of the Shares on the
Trading Market promptly after the date hereof and shall use its reasonable best
efforts to maintain the continuous listing of the Shares on the Trading Market.

 

 (b)                              The Company agrees to
make the requisite entries reflecting the issuance of the Shares and the
Warrant in the register of shareholders and register of Warrants of the
Company, respectively, and shall furnish copies thereof to the Investor for its
records.

 

SECTION 7.  
Reservation and Listing of Warrant Shares.

 

7.1                                 Reservation of Warrant Shares.  The
Company shall maintain a reserve from its fully authorized Common Shares for
issuance pursuant to the Warrant in such amount as may be required to fulfill
its obligations in full under the Warrant.

 

7.2                                 Listing of Warrant Shares. 
The Company shall (i) prepare and timely file with the Trading
Market an additional shares listing application covering all of the Warrant
Shares issued or issuable under the Warrant, (ii) use its best efforts to
cause such Warrant Shares to be approved for listing on the Trading Market as
soon as practicable thereafter but in any event no later than 14 days after the
issuance and allotment of the Warrant Shares to the Investor, (iii) provide
to the Investor evidence of such listing, and (iv) use its reasonable best
efforts to maintain the continuous listing of such Warrant Shares on such
Trading Market.

 

SECTION 8.  
Expenses and Fees.

 

Each of the parties shall pay all costs, fees and
expenses incurred or to be incurred by it in negotiating, executing, delivering
and preparing the Agreement, the Investor Rights Agreement and the other
documents contemplated hereby and thereby and in closing and carrying out the
transactions contemplated hereby and thereby, including the Closing.

 

SECTION 9.  
Brokers or Finders.

 

Except as set forth on Schedule 9 hereto,
the Company represents and warrants to the Investor, and the Investor
represents and warrants to the Company, that no person or entity has or will
have, as a result of the transactions contemplated by this Agreement, any
right, interest or valid claim against or upon the Company or the Investor for
any commission, fee or other compensation as a finder or broker because of any
act or omission by the Company or the Investor or by any agent of the Company
or the Investor.

 

SECTION 10.  
Exchanges; Lost, Stolen or Mutilated Certificates.

 

Upon surrender by the Investor to the Company of
Securities purchased or acquired by the Investor hereunder, the Company, at its
expense, will issue in exchange therefor, and deliver to such Investor, a new
certificate or certificates or replacement Warrant, as the case may be,
representing such Securities in such denominations as may be requested by such
Investor.  Upon 

 

24

 

receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any certificate representing any Shares or the Warrant purchased or acquired by
the Investor hereunder and, in case of any such loss, theft or destruction,
upon delivery of any indemnity agreement satisfactory to the Company, or in
case of any such mutilation, upon surrender and cancellation of such
certificate or Warrant, the Company, at its expense, will issue and deliver to
the Investor a new certificate for such Shares or a replacement Warrant as
applicable, of like tenor, in lieu of such lost, stolen or mutilated
certificate.

 

SECTION 11.  
Survival of Representations and Warranties.

 

The representations and warranties set forth in
Sections 4 and 5 hereof shall survive the Closing for a period of 18
months following the Effective Date of the Registration Statement as defined in
the Investor Rights Agreement. 
Notwithstanding the foregoing, the representations and warranties contained
in Sections 4.1, 4.2, 4.3, 4.4, 4.7, 4.9, 4.10, 4.14, 5.5, 5.7 and Section 9
shall survive the Closing for the applicable statute of limitations.

 

SECTION 12.  
Indemnification.

 

The Company shall indemnify,
defend and hold the Investor harmless against any and all liabilities, loss,
cost or damage, together with all reasonable costs and expenses related thereto
(including reasonable legal and accounting fees and expenses), arising from,
relating to and the result of (x) an untruth, inaccuracy or breach of any
representations, warranties or covenants of the Company contained herein, or (y) any
claim with regard to the items disclosed on Schedule 9 hereto, which amount
shall in no event in the aggregate for all claims hereunder exceed the
aggregate of the Purchase Price and the consideration paid for the Warrants (to
the extent exercised) as specified in Section 1 of this Agreement.

 

SECTION 13.  
Remedies.

 

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.

 

SECTION 14.  
Successors and Assigns.

 

Except as otherwise expressly provided herein, this
Agreement shall bind and inure to the benefit of the Company and the Investor
and their respective successors and permitted assigns.    This Agreement is not assignable except by
written consent of each of the parties hereto or by 

 

25

 

operation of law.  Any purported assignment of this Agreement in
violation of this Section shall be null and void.  Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective permitted successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement

 

SECTION 15.  
Entire Agreement.

 

This Agreement, together with the other writings
referred to herein or delivered pursuant hereto that form a part hereof,
contains the entire agreement among the parties with respect to the subject
matter hereof and amends, restates and supersedes all prior and contemporaneous
arrangements or understandings, whether written or oral, with respect thereto,
including without limitation the Letter of Intent.

 

SECTION 16.  
Notices.

 

All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person, duly sent by first-class
registered, certified or overnight mail, postage prepaid, sent by reputable
express courier services (such as FedEx., UPS, DHL, etc.) or telecopied with a
confirmation copy by regular mail, addressed or telecopied, as the case may be,
to such party at the address or telecopier number, as the case may be, set
forth below or such other address or telecopier number, as the case may be, as
may hereafter be designated in writing by the addressee to the addressor
listing all parties:

 

if to the Company, to:

 

PharmAthene, Inc.

One Park Place, Suite 450

Annapolis, Maryland  21401

Attention: General Counsel

Telecopier:  +1 410 269 2601

 

with a copy to:

 

Sonnenschein Nath &
Rosenthal LLP

1221 Avenue of the Americas 

New York, New York 10020

Attention:  Jeffrey A. Baumel, Esq.

Telecopier:  +1 212 768 6800

 

26

 

if to the Investor, to:

 

Kelisia Holdings Limited

C/o Fortis Intertrust Management N.V., Curacao, Geneva Branch

Boulevard des Philosophes 15

1205 Geneva

Switzerland

Postal Address: P.O. Box 3292 - 1211 Geneva 3, Switzerland

Attention: Nicholas Welton

Telecopier: +41 22 317 80 11

 

with a copy to:

 

Panacea Biotec Limited

B-1 Extension/ A-27

Mohan Co-op. Industrial Estate

Mathura Road

New Delhi - 110044

INDIA

Attention:  Mr. Rajesh Jain

Telecopier:  +99 11  2694 0199, 4167 9070

 

with a copy to:

 

Foley & Lardner,
LLP

500 Woodward Avenue; Suite 2700

Detroit, Michigan 48226

Attention:  Daljit S. Doogal, Esq.

Telecopier:  (313) 234-2800

 

All such notices, requests, consents and other
communications shall be deemed to have been received (a) in the case of
personal delivery or delivery by express courier service, on the date of such
delivery, (b) in the case of mailing, on the third Business Day following
the date of such mailing, (c) in the case of overnight mail, on the first
Business Day following the date of such mailing, and (d) in the case of
facsimile transmission, when confirmed by facsimile-machine report.

 

SECTION 17.  
Changes.

 

(a)                                  For
the purposes of this Agreement and all agreements executed pursuant hereto, no
course of dealing between or among any of the parties hereto and no delay on
the part of any party hereto in exercising any rights hereunder or thereunder
shall operate as a waiver of the rights hereof and thereof.  No provision hereof may be waived otherwise
than by a written instrument signed by the party or parties so waiving such
covenant or other provision as contemplated herein.

 

(b)                                 No
amendment or modification of this Agreement may be made and no provisions
hereof may be waived, without the written consent of the Company and Investor.

 

27

 

SECTION 18.  
Counterparts.

 

This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.

 

SECTION 19.  
Headings.

 

The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.

 

SECTION 20.  
Nouns and Pronouns; Knowledge.

 

Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of names and pronouns shall
include the plural and vice-versa.  As
used in this Agreement (except for Section 4.8, with respect to which a
different definition applies), the phrase “to the Company’s knowledge” shall
mean the actual knowledge, as of the date of this Agreement, of executive
officers of the Company who because of their office and duties and/or after due
care and inquiry knew.

 

SECTION 21.  
Severability.

 

Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

 

SECTION 22.  
Governing Law.

 

This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, excluding choice-of-law rules thereof.

 

SECTION 23.  
Disclosure.

 

Except as otherwise required by law (including the rules of
the American Stock Exchange), Investor and the Company agree that they shall
make no written or other public disclosures regarding this transaction or
regarding the parties hereto to any individual or organization without the
prior written consent of the other party hereto (which consent  shall not be unreasonably withheld);
provided, however, that nothing in this Agreement shall restrict the parties
hereto from disclosing information (a) that is already publicly available,
(b) to its attorneys, accountants, consultants and other advisors to the
extent necessary to obtain their services in connection with Investor’s
investment in the Company, and (c) in the case of the 

 

28

 

Company to other
prospective investors, lenders and other potential sources of financing for the
Company.  If any announcement is required
by law to be made by any party hereto, prior to making such announcement such
party will deliver a draft of such announcement to the other party and shall
give the other party a reasonable opportunity to comment thereon.

 

SECTION 24.  
Integration.

 

The Company shall not, and shall use reasonable
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with
the offer or sale of the Securities in a manner that would require the
registration under the Securities Act of the sale of the Securities to the
Investor, or that would be integrated with the offer or sale of the Securities
for purposes of the rules and regulations of the Trading Market with the
effect of requiring approval by the Company’s stockholders under such rules and
regulations.

 

SECTION 25.  
Further Assurances.

 

(a)                                  The parties to this Agreement shall from time
to time execute and deliver all such further documents and do all acts and
things as the other party may reasonably require to effectively carry on the
full intent and meaning of this Agreement and/or to complete the transactions
contemplated hereunder.

 

(b)                                 If, for any reason whatsoever, any term
contained in this Agreement cannot be performed or fulfilled, the Parties agree
to meet and explore alternative solutions depending upon the new circumstances,
but keeping in view the spirit and core objectives of this Agreement.

 

SECTION 26.   Acknowledgement.

 

The parties hereto acknowledge that in connection with
the transactions contemplated hereby, (i) the Company did not provide
information to the Investor or its Affiliates regarding its recombinant
Protective Antigen Anthrax vaccine program and the Investor and its Affiliates
did not provide information to the Company regarding their recombinant
Protective Antigen Anthrax vaccine program and (ii) the Company did not
provide to the Investor or its Affiliates any information, including without
limitation information relating to Protexia®, where the provision of
such information would have violated applicable U.S. law, rules or
regulations.

 

SECTION 27.   Standstill.

 

For a period beginning on
the date hereof and ending on the third anniversary of the Closing Date, other
than with respect to its purchase of securities from the Company under this
Agreement, the Warrant or the Investor Rights Agreement, the Investor 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 the Company whether
publicly or privately.  Any breach of
this Section 27 by the Investor would cause the Company substantial 

 

29

 

and irrevocable damage and therefore, in the event of
a breach or threatened breach by the Investor of this Section 27, the  Company and/or its Affiliates, in addition
to such other remedies which may be available, will be entitled to specific
performance of this Section 27 and injunctive relief without the necessity
of proving actual damages.  This Section 27
shall survive any termination of this Agreement.

 

SECTION 28.  Termination.

 

28.1.                        This
Agreement may be terminated and the Transactions contemplated hereby may be
abandoned at any time:

 

(a) By the Investor,
if any of the conditions set forth in Section 6.2 shall, on or prior to
the Closing Date, not have been fulfilled or have become incapable of
fulfillment.

 

(b) By the Company,
if any of the conditions set forth in Section 6.3 shall, on or prior to
the Closing Date, not have been fulfilled or have become incapable of
fulfillment.

 

28.2.                        In the
event of the termination of this Agreement pursuant to Sections 28.1 or 28.2.,
the obligations of the parties under this Agreement shall terminate and there
shall be no liability on the part of any party hereto, except for the
obligations in the confidentiality provisions hereof, and all of the provisions
of this Section 28.2 and Sections 13 and 27; provided, however, that no
party hereto shall be relieved or released from any liabilities or damages
arising out of its wilful breach of any provision of this Agreement.  In the event that this Agreement is
terminated by either party pursuant to this Section 28, in addition to
such other remedies which may be available to such party, such party will be
entitled to specific performance of Sections 2, 3 and 6 hereof and injunctive
relief without the necessity of proving actual damages.

 

[Remainder
of page intentionally left blank; signature page follows]

 

30

 

IN WITNESS WHEREOF,
the parties hereto have executed this Securities Purchase Agreement as of the
date first above written.

 

 

PharmAthene, Inc.

 

 

	
  By:

  	
   /s/ David P. Wright

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   David P. Wright

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   President and CEO

  	
   

  

 

 

[SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT

 

 

Kelisia Holdings Ltd.

 

	
  By:

  	
   /s/ Standguard Limited

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Duly represented by Mr. Petros Livanios

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   Director

  	
   

  

 

 

[SIGNATURE PAGE TO
SECURITIES PURCHASE AGREEMENT]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.

 

2

 

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).

 

3

 

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.

 

4

 

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

  

 

5

 

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]

 

6

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