Document:

Exhibit 10.1

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase
Agreement (this “Agreement”) is dated as of March 23, 2009, between
Pharmathene, Inc., a Delaware corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively the “Purchasers”).

 

WHEREAS, subject to the
terms and conditions set forth in this Agreement and pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the “Securities
Act”), the Company desires to issue and sell to each Purchaser, and each
Purchaser, severally and not jointly, desires to purchase from the Company,
securities of the Company as more fully described in this Agreement.

 

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

 

ARTICLE I.

DEFINITIONS

 

1.1           Definitions.  In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms have
the meanings set forth in this Section 1.1:

 

“Action”
shall have the meaning ascribed to such term in Section 3.1(j).

 

“Affiliate”
means any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
Person as such terms are used in and construed under Rule 405 under the
Securities Act.

 

“Board of
Directors” means the board of directors of the Company.

 

“Business
Day” means any day except any Saturday, any Sunday, any day which is a
federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or
other governmental action to close.

 

“Closing”
means the closing of the purchase and sale of the  Shares and Warrants pursuant to Section 2.1.

 

“Closing
Date” means the Trading Day on which all of the Transaction Documents have
been executed and delivered by the applicable parties thereto, and all
conditions precedent to (i) the Purchasers’ obligations to pay the
Subscription Amount and (ii) the Company’s obligations to deliver the  Shares and Warrants, in each case, have been
satisfied or waived.

 

“Commission”
means the United States Securities and Exchange Commission.

 

 

“Common
Stock” means the common stock of the Company, no par value per share, and
any other class of securities into which such securities may hereafter be
reclassified or changed.

 

“Common
Stock Equivalents” means any securities of the Company or the Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Company
Counsel” means Sonnenschein Nath & Rosenthal, LLP.

 

“Evaluation
Date” shall have the meaning ascribed to such term in Section 3.1(r).

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

 

“Exempt
Issuance” means the issuance of (a) shares of Common Stock or options
to employees, officers or directors of (or, commencing 45 days after the
Closing Date, consultants to) the Company pursuant to any stock or option plan
duly adopted for such purpose, by a majority of the non-employee members of the
Board of Directors or a majority of the members of a committee of non-employee
directors established for such purpose, including, but not limited to, the
Company’s 2007 Long-Term Incentive Compensation Plan (b) securities upon
the exercise or exchange of or conversion of any Securities issued hereunder
and/or other securities issued and outstanding on the date of this Agreement
that are exercisable or exchangeable for or convertible into shares of Common
Stock, provided that such securities have not been amended since the date of
this Agreement to increase the number of such securities or to decrease the
exercise price, exchange price or conversion price of such securities, and (c) securities
issued pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person (or to the equityholders of a Person) which
is, itself or through its subsidiaries, an operating company or an asset in a
business synergistic with the business of the Company and shall provide to the
Company additional benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities.

 

 “FWS” means Feldman Weinstein &
Smith LLP with offices located at 420 Lexington Avenue, Suite 2620, New
York, New York 10170-0002.

 

“GAAP”
shall have the meaning ascribed to such term in Section 3.1(h).

 

“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(z).

 

“Intellectual
Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

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“Liens”
means a lien, charge, security interest, encumbrance, right of first refusal,
preemptive right or other restriction.

 

“Material
Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

 

“Material
Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

“Per Share
Purchase Price” equals $2.60, subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

 

“Person”
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind, including without limitation, any Trading Market.

 

“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without
limitation, an informal investigation or partial proceeding, such as a
deposition), whether commenced or threatened.

 

“Prospectus”
means the prospectus filed with the Registration Statement.

 

“Prospectus
Supplement” means any preliminary prospectus supplement relating to the
offer and sale of the  Shares, Warrants
(and upon exercise of any Warrant, the Warrant Shares), any free writing
prospectus complying with Rule 433 under the Securities Act that is filed
with the Commission and the final supplement to the Prospectus complying with Rule 424(b) of
the Securities Act that is filed with the Commission and delivered by the Company
to each Purchaser at the Closing.

 

“Purchaser
Party” shall have the meaning ascribed to such term in Section 4.7.

 

“Registration
Statement” means the effective registration statement with Commission file No. 333-156997
which registers the sale of the Shares, the Warrants and the Warrant Shares to
the Purchasers.

 

“Required
Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission having substantially the same
effect as such Rule.

 

“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities
Act, as such Rule may be amended or interpreted from time to time, or any 

 

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similar rule or
regulation hereafter adopted by the Commission having substantially the same
purpose and effect as such Rule.

 

“SEC
Reports” shall have the meaning ascribed to such term in Section 3.1(h).

 

“Securities”
means the Shares, the Warrants and the Warrant Shares.

 

 “Securities Act” means the Securities
Act of 1933, as amended, and the rules and regulations promulgated
thereunder.

 

“Shares”
means the shares of Common Stock issued or issuable to each Purchaser pursuant
to this Agreement.

 

“Short
Sales” means all “short sales” as defined in Rule 200 of Regulation
SHO under the Exchange Act (but shall not be deemed to include the location
and/or reservation of borrowable shares of Common Stock).

 

 “Subscription Amount” means, as to each
Purchaser, the aggregate amount to be paid for Shares and Warrants purchased
hereunder as specified below such Purchaser’s name on the signature page of
this Agreement and next to the heading “Subscription Amount,” in United States
dollars and in immediately available funds.

 

“Time of
Sale Prospectus” means the Prospectus together with any Prospectus
Supplement that is filed with the Commission, and any document incorporated by
reference into the Prospectus and any Prospectus Supplement, used in connection
with the sale of the Shares and Warrants.

 

“Trading
Day” means a day on which the principal Trading Market is open for trading.

 

“Trading
Market” means any of the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: the NYSE Amex,
the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select
Market, the New York Stock Exchange or the OTC Bulletin Board (or any
successors to any of the foregoing).

 

“Transaction
Documents” means this Agreement, the Warrants and any other documents or
agreements executed in connection with the transactions contemplated hereunder.

 

“Transfer
Agent” means Continental Stock Transfer & Trust Company, the
current transfer agent of the Company, with a mailing address of 17 Battery
Place, New York, NY 10004, and any successor transfer agent of the Company.

 

“Warrants”
means, collectively, the Common Stock purchase warrants delivered to the
Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be exercisable beginning six (6) months after the
Closing Date and have a term of exercise equal to five and one-half (5-1/2)
years, in the form of Exhibit A attached hereto.

 

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“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the
Warrants.

 

ARTICLE II.

PURCHASE AND
SALE

 

2.1           Closing.  Upon the terms and subject to the conditions
set forth herein, the Company agrees to sell, and the Purchasers, severally and
not jointly, agree to purchase, on the Closing Date, up to an aggregate of [         ]
Shares and Warrants.  Each Purchaser
shall deliver to the Company, via wire transfer or a certified check,
immediately available funds equal to such Purchaser’s Subscription Amount as
set forth on the signature page hereto executed by such Purchaser and the
Company shall deliver to each Purchaser its respective Shares and a Warrant as determined
pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver
the other items set forth in Section 2.2 deliverable at the Closing.  Upon satisfaction of the covenants and
conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the
offices of FWS or such other location as the parties shall mutually agree.

 

2.2           Deliveries.

 

(a)           On or prior to the
Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:

 

(i)            a legal opinion of Company Counsel,
substantially in the form agreed to by the parties;

 

(ii)           this Agreement duly executed and delivered
by the parties hereto;

 

(iii)          a copy of the irrevocable instructions to the
Company’s transfer agent, duly executed and delivered by the Company,
instructing the transfer agent to deliver via the Depository Trust Company
Deposit Withdrawal Agent Commission System (“DWAC”) Shares equal to such
Purchaser’s Subscription Amount divided by the Per Share Purchase Price,
registered in the name of such Purchaser;

 

(iv)          a Warrant, duly executed by the Company,
registered in the name of such Purchaser to purchase up to a number of shares
of Common Stock equal to one-third (1/3) of the number of Shares purchased by
such Purchaser, with an exercise price equal to $3.00, subject to adjustment
therein (such Warrant certificate may be delivered within three Trading Days of
the Closing Date); and

 

(v)           the final Prospectus Supplement (which may
be delivered in accordance with Rule 172 under the Securities Act) if
required under the Securities Act.

 

(b)           On or prior to the Closing Date, each
Purchaser shall deliver or cause to be delivered to the Company the following:

 

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(i)            such Purchaser’s Subscription Amount (less,
in the case of Empery Asset Master Ltd. (a Purchaser), the amount withheld
pursuant to Section 5.2) by wire transfer to the account as specified in
writing by the Company; and

 

2.3           Closing
Conditions.

 

(a)           The obligations of the
Company hereunder in connection with the Closing are subject to the following
conditions being met:

 

(i)            all obligations, covenants and agreements
of each Purchaser required to be performed at or prior to the Closing Date
shall have been performed; and

 

(ii)           the delivery
by each Purchaser of the items set forth in Section 2.2(b) of this
Agreement.

 

(b)           The
respective obligations of the Purchasers hereunder in connection with the
Closing are subject to the following conditions being met:

 

(i)            all obligations, covenants and agreements
of the Company required to be performed at or prior to the Closing Date shall
have been performed; and

 

(ii)           the delivery
by the Company of the items set forth in Section 2.2(a) of this
Agreement.

 

ARTICLE III.

REPRESENTATIONS
AND WARRANTIES

 

3.1           Representations
and Warranties of the Company. 
Except as set forth in the Registration Statement, the Prospectus, the
Prospectus Supplements or any documents incorporated by reference therein,
which such filings, writings and documents shall qualify such representations
and warranties to the extent of the disclosures contained therein, the Company
hereby makes the following representations and warranties to each Purchaser:

 

(a)           Subsidiaries.  The Company owns, directly or indirectly, all
of the capital stock or other equity interests of each of its direct and
indirect subsidiaries free and clear of any Liens, and all of the issued and
outstanding shares of capital stock of each such subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities, except as set forth on Schedule 3.1(a)
hereto.  If the Company has no
subsidiaries, all other references to subsidiaries in the Transaction Documents
shall be disregarded.

 

(b)           Organization and Qualification.  The Company and each of its subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization, with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently conducted.  Neither the Company nor any subsidiary is in
violation nor default of any of the provisions of its respective certificate or
articles of 

 

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incorporation, bylaws or other organizational or charter
documents.  Each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not have or reasonably be expected to result in: (i) a
material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company’s ability to perform in any material respect on a
timely basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), a “Material Adverse Effect”) and no Proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing or seeking
to revoke, limit or curtail such power and authority or qualification.

 

(c)           Authorization; Enforcement.  The Company has the requisite corporate power
and authority to enter into and to consummate the transactions contemplated by
each of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution
and delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and no
further action is required by the Company, the Board of Directors or the
Company’s stockholders in connection therewith other than in connection with
the Required Approvals.  Each Transaction
Document to which it is a party has been (or upon delivery will have been) duly
executed by the Company and, when delivered in accordance with the terms hereof
and thereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

(d)           No Conflicts.  The execution, delivery and performance by
the Company of the Transaction Documents, the issuance and sale of the  Shares and Warrants and the consummation by
it of the transactions contemplated hereby and thereby to which it is a party
do not and will not (i) conflict with or violate any provision of the
Company’s or any subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, or (ii) result in the
creation of any Lien upon any of the properties or assets of the Company or any
subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of
or conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, any agreement, credit
facility, debt or other instrument (evidencing a Company or subsidiary debt or
otherwise) or other understanding to which the Company or any subsidiary is a
party or by which any property or asset of the Company or any subsidiary is
bound or affected, or (iii) subject to the Required Approvals, conflict
with or result in a violation of any law, rule, regulation, 

 

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order, judgment, injunction, decree or other restriction of any Trading
Market, court or governmental authority to which the Company or a subsidiary is
subject (including federal and state securities laws and regulations and the
regulations of any Trading Market), or by which any property or asset of the
Company or a subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected
to result in a Material Adverse Effect.

 

(e)           Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than: (i) the filings required pursuant to Section 4.3 of this
Agreement, (ii) the filing with the Commission of the Prospectus
Supplement, (iii) application(s) to each applicable Trading Market
for the listing of the Shares for trading thereon in the time and manner
required thereby and (iv) such filings as are required to be made under
applicable state securities laws (collectively, the “Required Approvals”).

 

(f)            Issuance of the Securities; Registration.  The Shares and Warrants are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents (i) the Shares will be duly and validly issued, fully paid and
nonassessable, free and clear of all Liens imposed by the Company and (ii) the
Warrants will be duly and validly issued, free and clear of all Liens imposed
by the Company .  The Warrant Shares, when
issued in accordance with the terms of the Warrants, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the
Company.  The Company has reserved from
its duly authorized capital stock the maximum number of shares of Common Stock
issuable pursuant to this Agreement and the Warrants. The Company has prepared
and filed the Registration Statement in conformity with the requirements of the
Securities Act, which became effective on February 12, 2009 (the “Effective Date”), including the
Prospectus, and such amendments and supplements thereto as may have been
required to the date of this Agreement. 
The Registration Statement is effective under the Securities Act and no
stop order preventing or suspending the effectiveness of the Registration
Statement or suspending or preventing the use of the Prospectus has been issued
by the Commission and no proceedings for that purpose have been instituted or,
to the knowledge of the Company, are threatened by the Commission.  The Company, if required by the rules and
regulations of the Commission, proposes to file the final Prospectus
Supplement, with the Commission pursuant to Rule 424(b).  At the time the Registration Statement and
any amendments thereto became effective, at the date of this Agreement and at
the Closing Date, the Registration Statement and any amendments thereto
conformed and will conform in all material respects to the requirements of the
Securities Act and did not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon information furnished to the Company by the
Purchasers; and the Prospectus and any amendments or supplements thereto, at
time the Prospectus or any amendment or supplement thereto was issued and at
the Closing Date, conformed and 

 

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will conform in all material respects to the requirements of the
Securities Act and did not and will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon information
furnished to the Company by the Purchasers.

 

(g)           Capitalization.  The Company has not issued any capital stock
since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of stock
options under the Company’s stock option plans, the issuance of shares of
Common Stock to employees pursuant to the Company’s employee stock purchase
plans and pursuant to the conversion and/or exercise of Common Stock
Equivalents outstanding as of the date of the most recently filed periodic
report under the Exchange Act.  No Person
has any right of first refusal, preemptive right, right of participation, or
any similar right to participate in the transactions contemplated by the
Transaction Documents.  Except as
described in the Company’s SEC Reports, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into
or exercisable or exchangeable for, or giving any Person any right to subscribe
for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents, other than as a result of the purchase and sale of the  Shares and Warrants.  The issuance and sale of the Shares and
Warrants, and the issuance of Warrant Shares upon exercise of the Warrants, will
not obligate the Company to issue shares of Common Stock or other securities to
any Person (other than the Purchasers) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange or
reset price under any of such securities. All of the outstanding shares of
capital stock of the Company are validly issued, fully paid and
nonassessable.  No further approval or
authorization of any stockholder, the Board of Directors or others is required
for the issuance and sale of the Securities. 
There are no stockholders agreements, voting agreements or other similar
agreements with respect to the Company’s capital stock to which the Company is
a party or, to the knowledge of the Company, between or among any of the
Company’s stockholders that are not described in the SEC Reports.

 

(h)           SEC Reports; Financial Statements.  The Company has filed all reports, schedules,
forms, statements and other documents required to be filed by the Company under
the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, together with the Prospectus and any Prospectus Supplement,
being collectively referred to herein as the “SEC Reports”) on a timely
basis or has received a valid extension of such time of filing and has filed
any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Exchange Act, as
applicable, and none of the SEC Reports, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be

 

9

 

stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon information furnished to the
Company by the Purchasers. The financial statements of the Company included in
the SEC Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing.  Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except to the extent that
unaudited financial statements may not contain all footnotes required by GAAP,
and such statements fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.

 

(i)            Material Changes; Undisclosed Events,
Liabilities or Developments.  Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in a subsequent SEC Report filed
prior to the date hereof, (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued
expenses incurred in the ordinary course of business consistent with past
practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has
not issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans.  The Company does not have pending before the
Commission any request for confidential treatment of information.  Except for the issuance of the  Shares and Warrants contemplated by this
Agreement, no event, liability, fact, circumstance, occurrence or development
has occurred or exists or is reasonably expected to occur or exist with respect
to the Company or its Subsidiaries or their respective business, prospects,
properties, operations, assets or financial condition that would be required to
be disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least 1 Trading Day prior to the date that this representation is made.

 

(j)            Litigation.  There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or 

 

10

 

reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any subsidiary, nor
any director or officer thereof, is or has been the subject of any Action
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
Commission involving the Company or any current or former director or officer
of the Company.

 

(k)           Labor Relations.  No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company that could reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or its
Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or such subsidiary, and neither the Company nor
any of its Subsidiaries is a party to a collective bargaining agreement, and
the Company and its Subsidiaries believe that their relationships with their
employees are good.  No executive
officer, to the knowledge of the Company, is, or is now expected to be, in
violation of any material term of any employment contract, confidentiality,
disclosure or proprietary information agreement or non-competition agreement,
or any other contract or agreement or any restrictive covenant in favor of any
third party, and the continued employment of each such executive officer does
not subject the Company or any of its Subsidiaries to any liability with
respect to any of the foregoing matters. 
The Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and
hours, except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(l)            Compliance.  Neither the Company nor any subsidiary: (i) is
in default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any subsidiary under), nor has the Company or any
subsidiary received notice of a claim that it is in default under or that it is
in violation of, any indenture, loan or credit agreement or any other agreement
or instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived), (ii) is
in violation of any judgment, decree or order of any court, arbitrator or
governmental body or (iii) is or has been in violation of any statute,
rule, ordinance or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each case as
could not reasonably be expected to result in a Material Adverse Effect.

 

(m)          Regulatory Permits.  The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company
nor any subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.

 

11

 

(n)           Title to Assets.  The Company and the Subsidiaries have good
and marketable title in fee simple to all real property owned by them and good
and marketable title to all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and clear
of all Liens, except for Liens as do not materially affect the value of such
property and do not materially interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries and Liens for the
payment of federal, state or other taxes, the payment of which is neither
delinquent nor subject to penalties.  Any
real property and facilities held under lease by the Company and the Subsidiaries
are held by them under valid, subsisting and enforceable leases with which the
Company and the Subsidiaries are in compliance with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and facilities by the Company and its Subsidiaries.

 

(o)           Patents and Trademarks.  Except as set forth on Schedule 3.1(o) hereto, the Company and the Subsidiaries have, or have rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights and similar rights necessary or material for
use in connection with their respective businesses as described in the SEC
Reports and which the failure to so have could reasonably be expected to have a
Material Adverse Effect (collectively, the “Intellectual Property Rights”).  Neither the Company nor any subsidiary has
received a notice (written or otherwise) that any of the Intellectual Property
Rights used by the Company or any subsidiary violates or infringes upon the
rights of any Person.  To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.  The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their intellectual properties, except where
the failure to do so could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

(p)           Insurance.  The Company and the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to the aggregate
Subscription Amount.  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 without a significant increase in cost.

 

(q)           Transactions With Affiliates and
Employees.  Except as set forth in
the SEC Reports, none of the officers or directors of the Company and, to the
knowledge of the Company, none of the employees of the Company is presently a
party to any transaction with the Company or any subsidiary (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to 

 

12

 

or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case in excess of $120,000
other than for (i) payment of salary or consulting fees for services
rendered, (ii) reimbursement for expenses incurred on behalf of the
Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.

 

(r)            Sarbanes-Oxley.  The Company is in material compliance with
all provisions of the Sarbanes-Oxley Act of 2002 that are applicable to it as
of the Closing Date.

 

(s)           Certain Fees.  Except as set forth in the Prospectus
Supplement, no brokerage or finder’s fees or commissions are or will be payable
by the Company to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents.  The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by the Transaction Documents.

 

(t)            Investment Company. The Company is
not, and is not an Affiliate of, and immediately after receipt of payment for
the Shares and Warrants, will not be or be an Affiliate of, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

 

(u)           Registration Rights.  No Person has any right to cause the Company
to effect the registration under the Securities Act of any securities of the
Company as a result of the transactions contemplated by this Agreement.

 

(v)           Listing and Maintenance Requirements.  The Common Stock is registered pursuant to Section 12(b) or
12(g) of the Exchange Act, and the Company has taken no action designed
to, or that to its knowledge is likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the Commission is contemplating terminating such
registration.  The Company has not, in
the 12 months preceding the date hereof, received notice from any Trading
Market on which the Common Stock is or has been listed or quoted to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such Trading Market. The Company is in compliance with all such
listing and maintenance requirements.

 

(w)          Application of Takeover Protections.  The Company and the Board of Directors have
taken all necessary action, if any, in order to render inapplicable any control
share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to
the Purchasers as a result of the 

 

13

 

Purchasers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a
result of the Company’s issuance of the Shares and Warrants and the Purchasers’
ownership of the Shares and Warrants.

 

(x)            Disclosure.  Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company confirms that neither it nor any other Person acting on its behalf has
provided any of the Purchasers or their agents or counsel with any information
that it believes constitutes or might constitute material, non-public
information which is not otherwise disclosed in the Prospectus Supplement.   The Company understands and confirms that
the Purchasers will rely on the foregoing representation in effecting transactions
in securities of the Company. The Company acknowledges and agrees that no
Purchaser makes or has made any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
Section 3.2 hereof.

 

(y)           Tax Status.  Except for matters that would not,
individually or in the aggregate, have or reasonably be expected to result in a
Material Adverse Effect, the Company and each subsidiary has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid or accrued all taxes shown as due thereon, and the Company has no
knowledge of a tax deficiency which has been asserted or threatened against the
Company or any subsidiary.

 

(z)            Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of
the Company, any agent or other person acting on behalf of the Company, has (i) directly
or indirectly, used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses related to foreign or domestic political activity, (ii) made
any unlawful payment to foreign or domestic government officials or employees
or to any foreign or domestic political parties or campaigns from corporate
funds, (iii) failed to disclose fully any contribution made by the Company
(or made by any person acting on its behalf of which the Company is aware)
which is in violation of law, or (iv) violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

(aa)         Accountants.  The Company’s independent registered public
accounting firm is identified in the Prospectus and such accounting firm is a
registered public accounting firm as required by the Exchange Act.

 

(bb)         Acknowledgment Regarding Purchasers’
Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. 
The Company further acknowledges that no Purchaser is acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated thereby
and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and the
transactions contemplated thereby is merely incidental to the Purchasers’
purchase of the Securities.  The Company
further represents to each Purchaser that the Company’s decision to enter 

 

14

 

into this Agreement and the other Transaction Documents has been based
solely on the independent evaluation of the transactions contemplated hereby by
the Company and its representatives.

 

(cc)         Acknowledgement Regarding Purchaser’s
Trading Activity.  Anything in this
Agreement or elsewhere herein to the contrary notwithstanding (except for
Sections 3.2(e) and 4.12 hereof), it is understood and acknowledged by the
Company that: (i) none of the Purchasers have been asked by the Company to
agree, nor has any Purchaser agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or “derivative” securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) past or future open market or other transactions by any
Purchaser, specifically including, without limitation, Short Sales or “derivative”
transactions, before or after the closing of this or future private placement
transactions, may negatively impact the market price of the Company’s publicly-traded
securities; (iii) any Purchaser, and counter-parties in “derivative”
transactions to which any such Purchaser is a party, directly or indirectly,
presently may have a “short” position in the Common Stock, and (iv) each
Purchaser shall not be deemed to have any affiliation with or control over any
arm’s length counter-party in any “derivative” transaction.  The Company further understands and
acknowledges that (y) one or more Purchasers may engage in hedging
activities at various times during the period that the Securities are
outstanding, including, without limitation, during the periods that the value
of the Warrant Shares deliverable with respect to Securities are being
determined, and (z) such hedging activities (if any) could reduce the value
of the existing stockholders’ equity interests in the Company at and after the
time that the hedging activities are being conducted.  The Company acknowledges that such
aforementioned hedging activities do not constitute a breach of any of the
Transaction Documents.

 

(dd)         Regulation M Compliance.  The
Company has not, and to its knowledge no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities, (ii) sold, bid
for, purchased, or, paid any compensation for soliciting purchases of, any of
the Securities, or (iii) paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company’s placement agent in connection with the placement of the
Securities.

 

3.2           Representations
and Warranties of the Purchasers. 
Each Purchaser, for itself and for no other Purchaser, hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as
follows (unless as of a specific date therein):

 

(a)           Organization;
Authority.  Such Purchaser is either
an individual or an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with full
right, corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by this Agreement and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and performance by such Purchaser of the transactions
contemplated by this Agreement 

 

15

 

have been duly authorized by all necessary corporate, partnership,
limited liability company or similar action, as applicable, on the part of such
Purchaser.  Each Transaction Document to
which it is a party has been duly executed by such Purchaser, and when
delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except: (i) as
limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.

 

(b)           Certain
Transactions and Confidentiality. 
Other than consummating the transactions contemplated hereunder, such
Purchaser has not, nor has any Person acting on behalf of or pursuant to any
understanding with such Purchaser, directly or indirectly executed any
purchases or sales, including Short Sales, of the securities of the Company
during the period commencing as of the time that such Purchaser first became
aware of by (written or oral) communication the specific transaction involving
the offer and sale of such Securities and ending immediately prior to the
execution hereof. Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers
manage separate portions of such Purchaser’s assets and the portfolio managers
have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of such Purchaser’s assets, the representation
set forth above shall only apply with respect to the portion of assets managed
by the portfolio manager that made the investment decision to purchase the
Securities covered by this Agreement. 
Other than to other Persons party to this Agreement, such Purchaser has
maintained the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction).  Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
Short Sales or similar transactions in the future.

 

(c)           Each
Purchaser hereby acknowledges and agrees that, while the Company has submitted
a proposal to the U.S. Department of Health and Human Services (the “DHHS”) in
response to a formal Request for Proposal (RFP-BARDA-08-15) for an “Anthrax
Recombinant Protective Antigen (rPA) Vaccine for the Strategic National
Stockpile,” there are no assurances that the Company will receive an award for
its rPA anthrax vaccine and that, if it fails to receive such award, it could
be forced to abandon or severely curtail its efforts with respect to its lead
product candidate, SparVaxT, which, in turn, could lead to a substantial
decline in its operations.  Each
Purchaser furthermore represents and warrants that neither the Company nor any
other offering participant has provided it with any information inconsistent
with the foregoing.

 

The Company acknowledges and agrees that the
representations contained in Section 3.2 shall not modify, amend or affect
such Purchaser’s right to rely on the Company’s representations and warranties
contained in this Agreement or any representations and warranties contained in
any 

 

16

 

other Transaction Document or any other
document or instrument executed and/or delivered in connection with this
Agreement or the consummation of the transaction contemplated hereby.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1           Warrant Shares.  If all or any portion of a Warrant is exercised
at a time when there is an effective registration statement to cover the
issuance or resale of the Warrant Shares or if the Warrant is exercised via
cashless exercise, the Warrant Shares issued pursuant to any such exercise
shall be issued free of all legends.  If
at any time following the date hereof the Registration Statement (or any
subsequent registration statement registering the sale or resale of the Warrant
Shares) is not effective or is not otherwise available for the sale or resale
of the Warrant Shares, the Company shall immediately notify the holders of the
Warrants in writing that such registration statement is not then effective and
thereafter shall promptly notify such holders when the registration statement
is effective again and available for the sale or resale of the Warrant Shares
(it being understood and agreed that the foregoing shall not limit the ability
of the Company to issue, or any Purchaser to sell, any of the Warrant Shares in
compliance with applicable federal and state securities laws). The Company
shall use its best efforts to keep a registration statement (including the
Registration Statement) registering the issuance or resale of the Warrant
Shares effective during the term of the Warrants. Upon a cashless exercise of a
Warrant, the holding period for purposes of Rule 144 shall tack back to
the original date of issuance of such Warrant, if then permitted by Rule 144
or any successor rule, law, or policy.

 

4.2           Furnishing of
Information.  Until the earliest of
the time that (i) no Purchaser owns Securities, or (ii) the Warrants
have expired, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act even if the Company is not then subject to the reporting
requirements of the Exchange Act.  As
long as any Purchaser owns Securities, if the Company is not required to file
reports pursuant to the Exchange Act, it will prepare and furnish to the
Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Securities, including
without limitation, under Rule 144. The Company further covenants that it
will take such further action as any holder of Securities may reasonably
request, to the extent required from time to time to enable such Person to sell
such Securities without registration under the Securities Act, including
without limitation, within the requirements of the exemption provided by Rule 144.

 

4.3           Integration.  The Company shall not 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 for purposes of the rules and
regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

 

4.4           Securities Laws
Disclosure; Publicity.  The Company
shall (i) by 8:30 a.m. (New York City time) on the Trading Day
immediately following the date hereof, issue a press release disclosing the
material terms of the transactions contemplated hereby, and (ii) within
the time 

 

17

 

prescribed under the Exchange Act
file a current report on Form 8-K disclosing the material terms of the
transaction and including the Transaction Documents as exhibits thereto.  From and after the issuance of such press
release, the Company shall have publicly disclosed all material, non-public
information delivered to any of the Purchasers by the Company or any of its
subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Transaction
Documents.  The Company and each
Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor any Purchaser shall issue any such press release nor otherwise make any
such public statement without the prior consent of the Company, with respect to
any press release of any Purchaser, or without the prior consent of each
Purchaser, with respect to any press release of the Company, which consent
shall not unreasonably be withheld or delayed, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company
shall not publicly disclose the name of any Purchaser, or include the name of
any Purchaser in any filing with the Commission or any regulatory agency or
Trading Market, without the prior written consent of such Purchaser, except (a) as
required by federal securities law in connection with the filing of final
Transaction Documents (including signature pages thereto) with the
Commission and (b) to the extent such disclosure is required by law or
Trading Market regulations, in which case the Company shall provide the
Purchasers with prior notice of such disclosure permitted under this clause
(b).  On or prior to 8:30 am on the
Business Day following the Closing Date, the Company shall file the Prospectus
Supplement with the Commission in accordance with Rule 424 under the 1933
Act.

 

4.5           Shareholder Rights
Plan.  No claim will be made or
enforced by the Company or, with the consent of the Company, any other Person,
that any Purchaser is an “Acquiring Person” under any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or similar anti-takeover plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving  Shares and Warrants under the
Transaction Documents or under any other agreement between the Company and the
Purchasers.

 

4.6           Non-Public
Information.  Except with respect to
the material terms and conditions of the transactions contemplated by the
Transaction Documents, the Company covenants and agrees that neither it, nor
any other Person acting on its behalf will provide any Purchaser or its agents
or counsel with any information that the Company believes constitutes material
non-public information, unless prior thereto such Purchaser shall have executed
a written agreement with the Company regarding the confidentiality and use of
such information.  The Company
understands and confirms that each Purchaser shall be relying on the foregoing
covenant in effecting transactions in securities of the Company.

 

4.7           Use of Proceeds.  The Company shall use the net proceeds from
the sale of the Securities as described in the Prospectus and Prospectus
Supplements.

 

4.8           Indemnification of
Purchasers.   Subject to the
provisions of this Section 4.8, the Company will indemnify and hold each
Purchaser and its directors, officers, shareholders, members, partners,
employees and agents (and any other Persons with a functionally equivalent 

 

18

 

role of a Person holding such
titles notwithstanding a lack of such title or any other title), each Person
who controls such Purchaser (within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act), and the directors, officers,
shareholders, agents, members, partners or employees (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
persons (each, a “Purchaser Party”) harmless from any and all losses,
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in
this Agreement or in the other Transaction Documents or (b) any action
instituted against a Purchaser in any capacity, or any of them or their
respective Affiliates, by any stockholder of the Company who is not an
Affiliate of such Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of such Purchaser’s representations, warranties or covenants under the
Transaction Documents or any agreements or understandings such Purchaser may
have with any such stockholder or any violations by such Purchaser of state or
federal securities laws or any conduct by such Purchaser which constitutes
fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any
Purchaser Party in respect of which indemnity may be sought pursuant to this
Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel
of its own choosing reasonably acceptable to the Purchaser Party.  Any Purchaser Party shall have the right to
employ separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Purchaser Party except to the extent that (i) the employment thereof has been
specifically authorized by the Company in writing, (ii) the Company has failed
after a reasonable period of time to assume such defense and to employ counsel
or (iii) in such action there is, in the reasonable opinion of counsel, a
material conflict on any material issue between the position of the Company and
the position of such Purchaser Party, in which case the Company shall be
responsible for the reasonable fees and expenses of no more than one such
separate counsel.  The Company will not
be liable to any Purchaser Party under this Agreement (y) for any settlement by
a Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (z) to the extent, but only
to the extent that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants
or agreements made by such Purchaser Party in this Agreement or in the other
Transaction Documents.

 

4.9           Reservation of
Common Stock. As of the date hereof, the Company has reserved and the
Company shall continue to reserve and keep available at all times, free of
preemptive rights, a sufficient number of shares of Common Stock for the
purpose of enabling the Company to issue Shares pursuant to this Agreement and
Warrant Shares pursuant to any exercise of the Warrants.

 

4.10         Listing of Common
Stock. The Company hereby agrees to use best efforts to maintain the
listing or quotation of the Common Stock on the Trading Market on which it is
currently listed, and concurrently with the Closing, the Company shall apply to
list or quote all of the Shares and the Warrant Shares on such Trading Market
and promptly secure the listing of all of the Shares and the Warrant Shares on
such Trading Market. The Company further agrees, if 

 

19

 

the Company applies to have the
Common Stock traded on any other Trading Market, it will then include in such
application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause all of the Shares and the Warrant Shares to be
listed or quoted on such other Trading Market as promptly as possible.  The Company will then take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Company’s reporting,
filing and other obligations under the bylaws or rules of the Trading
Market.

 

4.11         Subsequent
Equity Sales.

 

(a)           From the date hereof until 45 days after the
Closing Date, neither the Company nor any Subsidiary shall issue, enter into
any agreement to issue or announce the issuance or proposed issuance of any
shares of Common Stock or Common Stock Equivalents.

 

(b)           From the date hereof until three (3) years
from the Closing Date, the Company shall be prohibited from effecting or
entering into an agreement to effect any issuance by the Company or any of its
Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration
(or a combination of units hereof) involving a Variable Rate Transaction.  “Variable Rate Transaction” means a
transaction in which the Company (i) issues or sells any debt or equity
securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at
a conversion price, exercise price or exchange rate or other price that is
based upon and/or varies with the trading prices of or quotations for the
shares of Common Stock at any time after the initial issuance of such debt or
equity securities, or (B) with a conversion, exercise or exchange price
that is subject to being reset at some future date after the initial issuance
of such debt or equity security or upon the occurrence of specified or
contingent events directly or indirectly related to the business of the Company
or the market for the Common Stock (but not including any routine anti-dilution
protections in any warrant or convertible security) or (ii) enters into
any agreement, including, but not limited to, an equity line of credit, whereby
the Company may sell securities at a future determined price.  Any Purchaser shall be entitled to obtain
injunctive relief against the Company to preclude any such issuance, which
remedy shall be in addition to any right to collect damages.

 

(c)           Notwithstanding the foregoing, Section 4.11(a) shall
not apply in respect of an Exempt Issuance and no Variable Rate Transaction
shall be an Exempt Issuance.

 

4.12         Equal Treatment of
Purchasers.  No consideration
(including any modification of any Transaction Document) shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of the Transaction Documents unless the same consideration is
also offered to all of the parties to the Transaction Documents.  For clarification purposes, this provision
constitutes a separate right granted to each Purchaser by the Company and
negotiated separately by each Purchaser, and is intended for the Company to
treat the Purchasers as a class and shall not in any way be construed as the
Purchasers acting in concert or as a group with respect to the purchase,
disposition or voting of Shares or otherwise.

 

20

 

4.13         Certain
Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers,
covenants that neither it nor any Affiliate acting on its behalf or pursuant to
any understanding with it will execute any purchases or sales, including Short
Sales of any of the Company’s securities during the period commencing with the
execution of this Agreement and ending at such time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.3.  Each Purchaser,
severally and not jointly with the other Purchasers, covenants that until such
time as the transactions contemplated by this Agreement are publicly disclosed
by the Company pursuant to the initial press release as described in
Section 4.3, such Purchaser will maintain the confidentiality of the
existence and terms of this transaction and the information included in the
Disclosure Schedules.  Notwithstanding the foregoing, and notwithstanding
anything contained in this Agreement to the contrary, the Company expressly
acknowledges and agrees that (i) no Purchaser makes any representation,
warranty or covenant hereby that it will not engage in effecting transactions
in any securities of the Company after the time that the transactions
contemplated by this Agreement are first publicly announced pursuant to the
initial press release as described in Section 4.3, (ii) no Purchaser
shall be restricted or prohibited from effecting any transactions in any securities
of the Company in accordance with applicable securities laws from and after the
time that the transactions contemplated by this Agreement are first publicly
announced pursuant to the initial press release as described in
Section 4.3 and (iii) no Purchaser shall have any duty of
confidentiality to the Company or its Subsidiaries after the issuance of the
initial press release as described in Section 4.3.  Notwithstanding
the foregoing, in the case of a Purchaser that is a multi-managed investment
vehicle whereby separate portfolio managers manage separate portions of such
Purchaser’s assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such Purchaser’s assets, the covenant set forth above shall only apply with
respect to the portion of assets managed by the portfolio manager that made the
investment decision to purchase the Securities covered by this Agreement.

 

ARTICLE V.

MISCELLANEOUS

 

5.1           Termination.  This Agreement may be terminated by
any Purchaser, as to such Purchaser’s obligations hereunder only and without
any effect whatsoever on the obligations between the Company and the other
Purchasers, by written notice to the other parties, if the Closing has not been
consummated on or before March 31, 2009; provided, however,
that no such termination will affect the right of any party to sue for any
breach by the other party (or parties).

 

5.2           Fees and Expenses. 
Except as expressly set forth in the Transaction Documents to the
contrary, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.  The
Company shall pay all Transfer Agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchasers.  The Company shall reimburse
Empery Asset Master Ltd. (a Purchaser) or its designee(s) for all
reasonable costs and expenses, incurred in connection with the transactions
contemplated by the Transaction Documents (including all reasonable legal fees
and disbursements in connection therewith, documentation and 

 

21

 

implementation
of the transactions contemplated by the Transaction Documents and due diligence
in connection therewith) up to a maximum reimbursement of $10,000, which amount
may be withheld by such Purchaser from its Subscription Amount at the Closing.

 

5.3           Entire Agreement.  The
Transaction Documents, together with the exhibits and schedules thereto, the
Prospectus and the Prospectus Supplement, contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters,
which the parties acknowledge have been merged into such documents, exhibits
and schedules.

 

5.4           Notices.  Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earliest of:
(a) the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile number set forth on the signature
pages attached hereto prior to 5:30 p.m. (New York City time) on a
Trading Day, (b) the next Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto on a day that is not a
Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the second (2nd)Trading Day following the date of mailing,
if sent by U.S. nationally recognized overnight courier service or
(d) upon actual receipt by the party to whom such notice is required to be
given.  The address for such notices and
communications shall be as set forth on the signature pages attached
hereto.

 

5.5           Amendments; Waivers.  No
provision of this Agreement may be waived, modified, supplemented or amended
except in a written instrument signed, in the case of an amendment, by the
Company and the Purchasers holding at least 67% in interest of the Shares then
outstanding or, in the case of a waiver, by the party against whom enforcement
of any such waived provision is sought. 
No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right.

 

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

 

5.7           Successors and Assigns.  This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. 
The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of each Purchaser (other than by
merger).  Any Purchaser may assign any or
all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, in which event such assignee shall be
deemed to be a Purchaser hereunder with respect to such assigned rights.

 

5.8           No Third-Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, except as otherwise
set forth in Section 4.7.

 

22

 

5.9           Governing Law.  All
questions concerning the construction, validity, enforcement and interpretation
of the Transaction Documents shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. 
Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits
to the exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper or is an inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit,
action or proceeding by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof.  Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law.  If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then, in addition to the obligations of the Company under
Section 4.7, the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution
of such action or proceeding.

 

5.10         Survival.  The representations and
warranties contained herein shall survive the Closing and the delivery of
the  Shares and Warrants.

 

5.11         Execution.  This Agreement may be executed
in two or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party,
it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered
by facsimile transmission or by e-mail delivery of a “.pdf” format data file,
such signature shall create a valid and binding obligation of the party executing
(or on whose behalf such signature is executed) with the same force and effect
as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12         Severability.  If
any term, provision, covenant or restriction of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

 

23

 

5.13         Rescission and Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) any of the other Transaction Documents,
whenever any Purchaser exercises a right, election, demand or option under a
Transaction Document and the Company does not timely perform its related
obligations within the periods therein provided, then such Purchaser may
rescind or withdraw, in its sole discretion from time to time upon written
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.

 

5.14         Replacement of Securities.  If
any certificate or instrument evidencing any Securities is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation thereof (in the case of mutilation),
or in lieu of and substitution therefor, a new certificate or instrument, but
only upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction.  The
applicant for a new certificate or instrument under such circumstances shall
also pay any reasonable third-party costs (including customary indemnity)
associated with the issuance of such replacement Securities.

 

5.15         Remedies.  In addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, each of the Purchasers and the Company will be entitled to specific
performance under the Transaction Documents. 
The parties agree that monetary damages may not be adequate compensation
for any loss incurred by reason of any breach of obligations contained in the
Transaction Documents and hereby agree to waive and not to assert in any action
for specific performance of any such obligation the defense that a remedy at
law would be adequate.

 

5.16         Payment Set Aside.  To
the extent that the Company makes a payment or payments to any Purchaser
pursuant to any Transaction Document or a Purchaser enforces or exercises its
rights thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

 

5.17         Independent Nature of Purchasers’ Obligations
and Rights.  The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance or non-performance of the obligations of any other Purchaser under
any Transaction Document.  Nothing
contained herein or in any other Transaction Document, and no action taken by
any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser
shall be entitled to independently protect and enforce its rights including,
without limitation, the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any 

 

24

 

other
Purchaser to be joined as an additional party in any proceeding for such
purpose.  Each Purchaser has been
represented by its own separate legal counsel in their review and negotiation
of the Transaction Documents.  For
reasons of administrative convenience only, each Purchaser and its respective
counsel have chosen to communicate with the Company through FWS.  FWS does not represent any of the Purchasers
and only represents Rodman & Renshaw, LLC, as placement agent.  The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by any of the
Purchasers.

 

5.18         Liquidated Damages.  The
Company’s obligations to pay any partial liquidated damages or other amounts
owing under the Transaction Documents is a continuing obligation of the Company
and shall not terminate until all unpaid partial liquidated damages and other
amounts have been paid notwithstanding the fact that the instrument or security
pursuant to which such partial liquidated damages or other amounts are due and
payable shall have been canceled.

 

5.19         Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall not be a Business Day,
then such action may be taken or such right may be exercised on the next
succeeding Business Day.

 

5.20         Construction. The parties agree that each of them and/or
their respective counsel has reviewed and had an opportunity to revise the
Transaction Documents and, therefore, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of the Transaction Documents or any
amendments hereto. In addition, each and every reference to share prices and
shares of Common Stock in any Transaction Document shall be subject to
adjustment for reverse and forward stock splits, stock dividends, stock
combinations and other similar transactions of the Common Stock that occur
after the date of this Agreement.

 

5.21         WAIVER OF JURY TRIAL.  IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE
LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES
FOREVER TRIAL BY JURY.

 

(Signature Pages Follow)

 

25

 

IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

	
  PHARMATHENE, INC.

  	
   

  	
  Address
  for Notice:

  	 

	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Fax:

  	 

	
   

  	
  Name:
  

  	
   

  	
   

  	 

	
   

  	
  Title:
  

  	
   

  	
   

  	 

	
  With
  a copy to (which shall not constitute notice):

  	
   

  	
   

  	 

								

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

26

 

[PURCHASER SIGNATURE PAGES TO PIP SECURITIES PURCHASE AGREEMENT]

 

IN
WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement
to be duly executed by their respective authorized signatories as of the date
first indicated above.

 

	
  Name of Purchaser:

  	
   

  
	
   

  	
   

  
	
  Signature of Authorized Signatory of Purchaser:

  	
   

  
	
   

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
   

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  
	
   

  	
   

  
	
  Email Address of Authorized Signatory:

  	
   

  
	
   

  	
   

  
	
  Facsimile Number of Authorized Signatory:

  	
   

  
	
   

  	
   

  
	
  Address for Notice of Purchaser:

  	
   

  
								

 

Address
for Delivery of Securities for Purchaser (if not same as address for notice):

 

	
  Subscription Amount:

  	
  $

  	
   

  

 

	
  Shares:

  	
   

  	
   

  

 

	
  Warrants:

  	
   

  	
   

  

 

EIN
Number:  [PROVIDE THIS UNDER SEPARATE COVER]

 

[SIGNATURE PAGES CONTINUE]

 

27Exhibit 10.2

 

EXHIBIT A

 

COMMON STOCK PURCHASE WARRANT

 

PHARMATHENE, INC.

 

	
  Warrant Shares:
  [              ]

  	
   

  	
  Initial Exercise Date:
  [              ],
  2009

  
	
   

  	
   

  	
  Issue Date:
  [              ],
  2009

  

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”)
certifies that, for value received,                           
(the “Holder”) is entitled, upon the terms and subject to the
limitations on exercise and the conditions hereinafter set forth, at any time
on or after the six-month anniversary of the Issue Date (the “Initial
Exercise Date”) and on or prior to the close of business on the five-year
anniversary of the Initial Exercise Date (the “Termination Date”) but
not thereafter, to subscribe for and purchase from Pharmathene, Inc., a
Delaware corporation (the “Company”), up to             
shares (the “Warrant Shares”) of Common Stock. The purchase price of one
share of Common Stock under this Warrant shall be equal to the Exercise Price,
as defined in Section 2(b).

 

Section 1.               Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth
in that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated March 23, 2009 (the “Subscription
Date”), among the Company and the purchasers signatory thereto.

 

Section 2.               Exercise.

 

a)             Exercise of Warrant.  Exercise of the purchase rights represented
by this Warrant may be made, in whole or in part, at any time or times on or
after the Initial Exercise Date and on or before the Termination Date by
delivery to the Company (or such other office or agency of the Company as it
may designate by notice in writing to the registered Holder at the address of
the Holder appearing on the books of the Company) of a duly executed facsimile
copy of the Notice of Exercise Form annexed hereto; and, within three (3) Trading
Days of the date said Notice of Exercise is delivered to the Company, the
Company shall have received payment of the aggregate Exercise Price of the
shares thereby purchased by wire transfer or cashier’s check drawn on a United
States bank or, if available, pursuant to the cashless exercise procedure
specified in Section 2(c) below. 
Notwithstanding anything herein to the contrary, the Holder shall not be
required to physically surrender this Warrant to the Company until the Holder
has purchased all of the Warrant Shares available hereunder and the Warrant has
been exercised in full, in which case, the Holder shall surrender this Warrant
to the Company for cancellation within three (3) Trading Days of the date
the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting
in purchases of a portion of the total number of Warrant Shares available
hereunder shall have the effect of lowering the outstanding number of Warrant
Shares purchasable hereunder in an amount equal to the applicable number of
Warrant Shares purchased.  The Holder and
the 

 

1

 

Company shall maintain
records showing the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any
objection to any Notice of Exercise Form within 1 Business Day of receipt
of such notice.  The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.

 

b)            Exercise Price.  The exercise price per share of the Common
Stock under this Warrant shall be $3.00, subject to adjustment hereunder (the “Exercise
Price”).

 

c)             Cashless Exercise.  If at the time of exercise hereof there is no
effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Sares to the Holder
and all of the Warrant Shares are not then registered for resale by Holder into
the market at market prices from time to time on an effective registration
statement for use on a continuous basis (or the prospectus contained therein is
not available for use), then this Warrant may also be exercised, in whole or in
part, at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

(A) = the VWAP on the Trading Day immediately
preceding the date on which Holder elects to exercise this Warrant by means of
a “cashless exercise,” as set forth in the applicable Notice of Exercise;

 

(B) = the Exercise Price of this Warrant, as
adjusted hereunder; and

 

(X) = the number of Warrant Shares that would be
issuable upon exercise of this Warrant in accordance with the terms of this
Warrant if such exercise were by means of a cash exercise rather than a
cashless exercise.

 

“VWAP”
means, for any date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the Common Stock for
such date (or the nearest preceding date) on the Trading Market on which the
Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a
Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New
York City time), (b)  if the OTC Bulletin Board is not a Trading Market,
the volume weighted average price of the Common Stock for such date (or the
nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock
is not then listed or quoted for trading on the OTC Bulletin Board and if
prices for the Common Stock are then reported in the “Pink Sheets” published by
Pink OTC Markets, Inc. (or a similar organization or agency succeeding to
its functions of reporting prices), the most recent bid price per share of the
Common Stock so reported, or (d) in all other cases, the fair market value
of a share of Common Stock as determined by an independent appraiser selected
in good faith by the Holders of a majority in interest of the Securities then
outstanding and reasonably acceptable to the Company, the fees and expenses of
which shall be paid by the Company.

 

2

 

d)            Mechanics of Exercise.

 

i.      Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company
is then a participant in such system and either (A) there is an effective
Registration Statement permitting the issuance of the Warrant Shares to or
resale of the Warrant Shares by Holder or (B) this Warrant is being
exercised via cashless exercise, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise by the date that is
three (3) Trading Days after the latest of (A) the delivery to the
Company of the Notice of Exercise Form, (B) surrender of this Warrant (if
required) and (C) payment of the aggregate Exercise Price as set forth
above (including by cashless exercise, if permitted) (such date, the “Warrant
Share Delivery Date”).  This Warrant
shall be deemed to have been exercised on the first date on which all of the
foregoing have been delivered to the Company. 
The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised, with payment to the Company of the Exercise Price
(or by cashless exercise, if permitted) and all taxes required to be paid by
the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance
of such shares, having been paid. If the Company fails for any reason to
deliver to the Holder certificates evidencing the Warrant Shares subject to a
Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to
the Holder, in cash, as liquidated damages and not as a penalty, for each
$1,000 of Warrant Shares subject to such exercise (based on the VWAP of the
Common Stock on the date of the applicable Notice of Exercise), $10 per Trading
Day (increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such certificates are delivered or Holder rescinds
such exercise.

 

ii.     Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

 

iii.    Rescission Rights.  If the Company fails to cause the Transfer
Agent to transmit to the Holder a certificate or the certificates representing 

 

3

 

the Warrant Shares
pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then,
the Holder will have the right to rescind such exercise.

 

iv.    Compensation for Buy-In on Failure to
Timely Deliver Certificates Upon Exercise. 
In addition to any other rights available to the Holder, if the Company
fails to cause the Transfer Agent to transmit to the Holder a certificate or
the certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the
Holder anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall, within three (3) Trading Days after the Holder’s request
and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point
the Company’s obligation to deliver such certificate (and to issue such Warrant
Shares or credit such Holder’s balance account with DTC) shall terminate, or (ii) promptly
honor its obligation to deliver to the Holder a certificate or certificates
representing such Warrant Shares or credit such Holder’s balance account with
DTC and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the VWAP on the date of exercise.

 

v.     No Fractional Shares or Scrip.  No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which the
Holder would otherwise be entitled to purchase upon such exercise, the Company
shall, at its election, either pay a cash adjustment in respect of such final
fraction in an amount equal to such fraction multiplied by the Exercise Price
or round up to the next whole share.

 

vi.    Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares
shall be made without charge to the Holder for any issue or transfer tax or
other incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; provided, however, that in the event
certificates for Warrant Shares are to be issued in a name other than the name
of the Holder, this Warrant when surrendered for exercise shall be accompanied
by the Assignment Form attached hereto duly executed by the Holder and the
Company may require, as a condition thereto, the payment of a sum sufficient to
reimburse it for any transfer tax incidental thereto.

 

4

 

vii.   Closing of Books.  The Company will not close its stockholder
books or records in any manner which prevents the timely exercise of this
Warrant, pursuant to the terms hereof.

 

e)             Holder’s Exercise Limitations.  The Company shall not effect any exercise of
this Warrant, and a Holder shall not have the right to exercise any portion of
this Warrant, pursuant to Section 2 or otherwise, to the extent that after
giving effect to such issuance after exercise as set forth on the applicable
Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any
other Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below).  For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon exercise
of this Warrant with respect to which such determination is being made, but
shall exclude the number of shares of Common Stock which would be issuable upon
(i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise
or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Common
Stock Equivalents) subject to a limitation on conversion or exercise analogous
to the limitation contained herein beneficially owned by the Holder or any of
its Affiliates.  Except as set forth in the preceding sentence, for
purposes of this Section 2(e), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder, it being acknowledged by the Holder that
the Company is not representing to the Holder that such calculation is in
compliance with Section 13(d) of the Exchange Act and the Holder is
solely responsible for any schedules required to be filed in accordance
therewith.  To the extent that the
limitation contained in this Section 2(e) applies, the determination
of whether this Warrant is exercisable (in relation to other securities owned
by the Holder together with any Affiliates) and of which portion of this
Warrant is exercisable shall be in the sole discretion of the Holder, and the
submission of a Notice of Exercise shall be deemed to be the Holder’s
determination of whether this Warrant is exercisable (in relation to other
securities owned by the Holder together with any Affiliates) and of which
portion of this Warrant is exercisable, in each case subject to the Beneficial
Ownership Limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. 
In addition, a determination as to any group status as contemplated
above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 2(e), in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as reflected in (A) the
Company’s most recent periodic or annual report filed with the Commission, as
the case may be, (B) a more recent public announcement by the Company or (C) a
more recent written notice by the Company or the Transfer Agent setting forth
the number of shares of Common Stock outstanding.  Upon the written or
oral request of a Holder, the Company shall within two Trading Days confirm
orally and in writing to the Holder the number of shares of Common Stock then
outstanding.  In any case, the number of outstanding shares of Common
Stock shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the 

 

5

 

Holder or its Affiliates
since the date as of which such number of outstanding shares of Common Stock
was reported.  The “Beneficial
Ownership Limitation” shall be 4.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock issuable upon exercise of this Warrant.  The Holder, upon not less than 61 days’ prior
notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 2(e), provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of this Warrant held by the Holder and the
provisions of this Section 2(e) shall continue to apply.  Any such increase or decrease will not be
effective until the 61st day after such notice is delivered to the
Company.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make
changes or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

 

Section 3.               Certain
Adjustments.

 

a)             Stock Dividends and Splits. If the Company, at
any time while this Warrant is outstanding: (i) pays a stock dividend or
otherwise makes a distribution or distributions on shares of its Common Stock
or any other equity or equity equivalent securities payable in shares of Common
Stock (which, for avoidance of doubt, shall not include any shares of Common
Stock issued by the Company upon exercise of this Warrant), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii) combines
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (iv) issues by reclassification of
shares of the Common Stock any shares of capital stock of the Company, then in
each case the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event, and the number of shares issuable upon exercise
of this Warrant shall be proportionately adjusted such that the aggregate
Exercise Price of this Warrant shall remain unchanged.  Any adjustment made pursuant to this Section 3(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.

 

b)            Intentionally Omitted.

 

c)             Subsequent Rights Offerings.  If the Company, at any time while the Warrant
is outstanding, shall issue rights, options or warrants to all holders of
Common Stock (and not to the Holders) entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the VWAP on the
record date mentioned 

 

6

 

below, then, the Exercise
Price shall be multiplied by a fraction, of which the denominator shall be the
number of shares of the Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the numerator shall be
the number of shares of the Common Stock outstanding on the date of issuance of
such rights, options or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered (assuming receipt by
the Company in full of all consideration payable upon exercise of such rights,
options or warrants) would purchase at such VWAP.  Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants.

 

d)            Pro Rata Distributions.  If the Company, at any time while this
Warrant is outstanding, shall distribute to all holders of Common Stock (and
not to the Holders) evidences of its indebtedness or assets (including cash and
cash dividends) or rights or warrants to subscribe for or purchase any security
other than the Common Stock (which shall be subject to Section 3(b)), then
in each such case the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the VWAP determined as of the record
date mentioned above, and of which the numerator shall be such VWAP on such
record date less the then per share fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors in good faith.  In
either case the adjustments shall be described in a statement provided to the
Holder of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the
record date mentioned above.

 

e)             Fundamental Transaction.
If, at any time while this Warrant is outstanding, (i) the Company,
directly or indirectly, in one or more related transactions effects any
merger or consolidation of the Company with or into another Person, (ii) the
Company,
directly or indirectly, effects any sale, lease, license, assignment,
transfer, conveyance or other disposition of all or substantially all of
its assets in one or a series of related transactions, (iii) any, direct
or indirect, purchase offer, tender offer or exchange offer (whether by the
Company or another Person) is completed pursuant to which holders of Common
Stock are permitted to sell, tender or exchange their shares for other securities,
cash or property and has been accepted by the holders of 50% or more of the
outstanding Common Stock, (iv) the Company, directly or indirectly, in one or
more related transactions effects any reclassification, reorganization
or recapitalization of the Common Stock or any compulsory share exchange
pursuant to which the Common Stock is effectively converted into or exchanged
for other securities, cash or property, (v) the Company,
directly or indirectly, in one or more related transactions consummates
a stock or share purchase agreement or other business combination (including, without limitation, a
reorganization, recapitalization, spin-off or scheme of arrangement) with another
Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or 

 

7

 

other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or
other business combination) (each a “Fundamental
Transaction”), then, upon any
subsequent exercise of this Warrant, the Holder
shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction
by a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without
regard to any limitation in Section 2(e) on the exercise of this
Warrant). 
For purposes of any such exercise, the determination of the
Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in
respect of one share of Common Stock in such Fundamental Transaction, and the
Company shall apportion the Exercise Price among the Alternate Consideration in
a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration.  If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction.  Notwithstanding anything to the contrary, in the
event of a Fundamental Transaction other than one in which a Successor Entity
(as defined below) that is a publicly traded corporation whose stock is quoted
or listed for trading on an Eligible Market assumes this Warrant such that the
Warrant shall be exercisable for the publicly traded Common Stock of such
Successor Entity, the Company or
any Successor Entity shall, at the Holder’s option, exercisable at any time
concurrently with, or within 30 days after, the consummation of the Fundamental
Transaction, purchase this Warrant from the Holder by paying to the Holder an
amount of cash equal to the Black Scholes Value of the remaining unexercised
portion of this Warrant on the date of the consummation of such Fundamental
Transaction.  As used herein (w) “Black Scholes Value” means the
value of this Warrant based on the Black and Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest
rate corresponding to the U.S. Treasury rate for a period equal to the time
between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (B) an expected volatility equal to
the greater of 100% and the 100 day volatility obtained from the HVT function
on Bloomberg as of the Trading Day immediately following the public
announcement of the applicable Fundamental Transaction, (C) the underlying
price per share used in such calculation shall be the sum of the price per
share being offered in cash, if any, plus the value of any non-cash
consideration, if any, being offered in such Fundamental Transaction and (D) a
remaining option time equal to the time between the date of the public
announcement of the applicable Fundamental Transaction and the Termination
Date, (x) “Successor Entity” means the Person (as defined in the Purchase Agreement) (or, if so
elected by the Holder, the Parent Entity (as defined below)) formed by,
resulting 

 

8

 

from or surviving any Fundamental Transaction or the Person (or,
if so elected by the Holder, the Parent Entity) with which such Fundamental
Transaction shall have been entered into, (y) “Eligible Market”
means the NYSE Amex, The NASDAQ Capital
Market, The NASDAQ Global Market, The NASDAQ Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board (or any successors to any of the
foregoing) and (z) “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such
Person or Parent Entity, the Person or Parent Entity with the largest public
market capitalization as of the date of consummation of the Fundamental
Transaction.  The terms of any agreement pursuant to which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section 3(e) and
insuring that this Warrant (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental
Transaction.

 

f)             Calculations. All calculations under this Section 3
shall be made to the nearest cent or the nearest 1/100th of a share, as the
case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date shall be
the sum of the number of shares of Common Stock (excluding treasury shares, if
any) issued and outstanding.

 

g)            Notice to Holder.

 

i.      Adjustment to Exercise Price. Whenever the Exercise
Price is adjusted pursuant to any provision of this Section 3, the Company
shall promptly mail to the Holder a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.

 

ii.     Notice to Allow Exercise by Holder.
After the Initial Exercise Date, if (A) the Company shall declare a dividend
(or any other distribution in whatever form) on the Common Stock, (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption
of the Common Stock, (C) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights, (D) the approval of
any stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property, or (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of the Company, then, in each case, the Company
shall cause to be mailed to the Holder at its last address as it shall appear
upon the Warrant Register of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date 

 

9

 

on which a record is to
be taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders
of the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on
which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.  To the extent that any notice provided
hereunder constitutes, or contains, material, non-public information regarding
the Company or any of the Subsidiaries, the Company shall simultaneously file
such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to exercise
this Warrant during the period commencing on the date of such notice to the
effective date of the event triggering such notice except as may otherwise be
expressly set forth herein.

 

Section 4.               Transfer
of Warrant.

 

a)             Transferability. 
Subject to compliance with any applicable securities laws, this Warrant
and all rights hereunder (including, without limitation, any registration
rights) are transferable, in whole or in part, upon surrender of this Warrant
at the principal office of the Company or its designated agent, together with a
written assignment of this Warrant substantially in the form attached hereto
duly executed by the Holder or its agent or attorney and funds sufficient to
pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such
payment, the Company shall execute and deliver a new Warrant or Warrants in the
name of the assignee or assignees, as applicable, and in the denomination or
denominations specified in such instrument of assignment, and shall issue to
the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled.  The Warrant, if properly assigned in
accordance herewith, may be exercised by a new holder for the purchase of
Warrant Shares without having a new Warrant issued.

 

b)            New Warrants. This Warrant may be divided or
combined with other Warrants upon presentation hereof at the aforesaid office
of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or
its agent or attorney.  Subject to
compliance with Section 4(a), as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new
Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
combined in accordance with such notice. All Warrants issued on transfers or
exchanges shall be dated the initial issuance date set forth 

 

10

 

on the first page of
this Warrant and shall be identical with this Warrant except as to the number
of Warrant Shares issuable pursuant thereto.

 

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

 

d)            Representation by the
Holder.  The Holder, by the
acceptance hereof, represents and warrants that it is acquiring this Warrant
and, upon any exercise hereof, will acquire the Warrant Shares issuable upon
such exercise, for its own account and not with a view to or for distributing
or reselling such Warrant Shares or any part thereof in violation of the
Securities Act or any applicable state securities law, except pursuant to sales
registered or exempted under the
Securities Act.

 

Section 5.               Miscellaneous.

 

a)             No Rights as Stockholder Until Exercise.  This Warrant does not entitle the Holder to
any voting rights, dividends or other rights as a stockholder of the Company
prior to the exercise hereof as set forth in Section 2(d)(i).

 

b)            Loss, Theft, Destruction or Mutilation of Warrant.
The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant or any stock certificate relating to the Warrant Shares, and in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it (which, in the case of the Warrant, shall not include the posting of any
bond), and upon surrender and cancellation of such Warrant or stock
certificate, if mutilated, the Company will make and deliver a new Warrant or
stock certificate of like tenor and dated as of such cancellation, in lieu of
such Warrant or stock certificate.

 

c)             Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall
not be a Business Day, then, such action may be taken or such right may be
exercised on the next succeeding Business Day.

 

d)            Authorized Shares.

 

The Company covenants that, during the period the Warrant is
outstanding, it will reserve from its authorized and unissued Common Stock a
sufficient number of shares to provide for the issuance of the Warrant Shares
upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant.  The
Company will take all 

 

11

 

such reasonable action as may be necessary to assure
that such Warrant Shares may be issued as provided herein without violation of
any applicable law or regulation, or of any requirements of the Trading Market
upon which the Common Stock may be listed. 
The Company covenants that all Warrant Shares which may be issued upon
the exercise of the purchase rights represented by this Warrant will, upon exercise
of the purchase rights represented by this Warrant and payment for such Warrant
Shares in accordance herewith, be duly authorized, validly issued, fully paid
and nonassessable and free from all taxes, liens and charges created by the
Company in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously with such issue).

 

Except and to the extent as waived or consented to by
the Holder, the Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such actions as may be necessary or appropriate to protect the rights of
Holder as set forth in this Warrant against impairment.  Without limiting the generality of the
foregoing, the Company will (i) not increase the par value of any Warrant
Shares above the amount payable therefor upon such exercise immediately prior
to such increase in par value, (ii) take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use
commercially reasonable efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof, as may
be, necessary to enable the Company to perform its obligations under this
Warrant.

 

Before taking any action which would result in an
adjustment in the number of Warrant Shares for which this Warrant is
exercisable or in the Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

 

e)             Jurisdiction. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement.

 

f)             Restrictions. 
The Holder acknowledges that the Warrant Shares acquired upon the
exercise of this Warrant, if not registered, and the Holder does not utilize
cashless exercise, will have restrictions upon resale imposed by state and
federal securities laws.

 

g)            Nonwaiver and Expenses.  No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder’s rights, powers or remedies.  Without limiting any other 

 

12

 

provision of this Warrant
or the Purchase Agreement, if the Company willfully and knowingly fails to
comply with any provision of this Warrant, which results in any material
damages to the Holder, the Company shall pay to Holder such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys’ fees, including those of appellate proceedings, incurred
by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.

 

h)            Notices. 
Any notice, request or other document required or permitted to be given
or delivered to the Holder by the Company shall be delivered in accordance with
the notice provisions of the Purchase Agreement.

 

i)              Limitation of Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

 

j)              Remedies. 
The Holder, in addition to being entitled to exercise all rights granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under this Warrant.  The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for specific
performance that a remedy at law would be adequate.

 

k)             Successors and Assigns.  Subject to applicable securities laws, this
Warrant and the rights and obligations evidenced hereby shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
Company and the successors and permitted assigns of Holder.  The provisions of this Warrant are intended
to be for the benefit of any Holder from time to time of this Warrant and shall
be enforceable by the Holder or holder of Warrant Shares.

 

l)              Amendment. 
This Warrant may be modified or amended or the provisions hereof waived
with the written consent of the Company and the Holder.

 

m)            Severability. 
Wherever possible, each provision of this Warrant shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Warrant.

 

n)            Headings. 
The headings used in this Warrant are for the convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.

 

********************

 

(Signature
Pages Follow)

 

13

 

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

 

 

	
   

  	
  PHARMATHENE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  

 

14

 

NOTICE OF EXERCISE

 

TO:         PHARMATHENE, INC.

 

(1)   The undersigned hereby elects to purchase                 
Warrant Shares of the Company pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

 

(2)   Payment shall take the form of (check
applicable box):

 

o in
lawful money of the United States; or

 

o [if
permitted] the cancellation of such number of Warrant Shares as is necessary,
in accordance with the formula set forth in subsection 2(c), to exercise this
Warrant with respect to the maximum number of Warrant Shares purchasable
pursuant to the cashless exercise procedure set forth in subsection 2(c).

 

(3)   Please issue a certificate or certificates
representing said Warrant Shares in the name of the undersigned or in such
other name as is specified below:

 

	
   

  	
   

  	
   

  

 

The Warrant Shares shall be delivered to the following DWAC Account
Number or by physical delivery of a certificate to:

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

	
  [SIGNATURE OF
  HOLDER]

  
	
   

  
	
  Name of Investing Entity:

  	
   

  
	
  Signature of Authorized Signatory of Investing
  Entity:

  	
   

  
	
  Name of Authorized Signatory:

  	
   

  
	
  Title of Authorized Signatory:

  	
   

  
	
  Date:

  	
   

  
						

 

 

ASSIGNMENT FORM

 

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

 

FOR VALUE RECEIVED, [___]
all of or [______] shares of the foregoing Warrant and all rights evidenced
thereby are hereby assigned to

 

	
   

  	
  whose address is

  
	
   

  	
  .

  
	
   

  
	
   

  	
   

  
	
   

  
	
   

  	
   

  	
  Dated:

  	
   

  	
  ,

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Holder’s
  Signature:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Holder’s
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature
  Guaranteed:

  	
   

  	
   

  
													

 

NOTE:  The signature to this
Assignment Form must correspond with the name as it appears on the face of
the Warrant, without alteration or enlargement or any change whatsoever, and
must be guaranteed by a bank or trust company. 
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign the
foregoing Warrant.

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