Document:

Exhibit 10.41

 

EXECUTION COPY

 

PHARMATHENE, INC.

 

INVESTOR RIGHTS AGREEMENT

 

THIS
INVESTOR RIGHTS AGREEMENT (the “Agreement”)
is entered into as of October 10, 2008, by and among PHARMATHENE, INC., a
Delaware corporation having its office at One Park Place; Suite #450,
Annapolis, MD 21401 (the “Company”), and
its successors and permitted assigns, and Kelisia Holdings Ltd., a company
limited by shares established under the laws of Cyprus having its office at 29 Theklas Lyssioti Street; Cassandra Centre,
2nd Floor; 3731 Limassol; Cyprus (the “Investor”),
an indirect wholly owned subsidiary of Panacea Biotec Limited, a public limited
company established under the laws of India, having its registered office at
Ambala-Chandigarh Highway, Lalru-140501, Punjab, India and its successors and
permitted assigns.

 

RECITALS

 

WHEREAS, on
the date hereof, the Company has sold and issued (i) 3,733,334 shares of
its Common Stock having par value of US$0.0001 per share, of the Company at a
price of US$3.50 per share (“Common Stock”),
and (ii) a warrant (the “Warrant”) to
purchase up to 2,745,098 shares of its Common Stock at an exercise price of
US$5.10 per share, in each case to the Investor pursuant to the Securities
Purchase Agreement, dated September 30, 2008, between the Company and the
Investor (the “Securities Purchase Agreement”);

 

WHEREAS, as a
condition of purchasing the shares of Common Stock and the Warrant, the
Investor has requested that the Company extend to it registration rights and
pre-emptive rights as set forth below;

 

NOW,
THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement and the
investment of the Investor in the Common Stock and the Warrant, the parties
mutually agree as follows:

 

SECTION 1.  GENERAL

 

1.1                               Definitions.  (a) Capitalized
terms that are not otherwise defined in this Agreement have the meanings given
such terms in the Securities Purchase Agreement, and (b) the following
terms shall have the meanings indicated:

 

“Affiliate” means
with respect to any Person, any Person that directly or indirectly, Controls,
is Controlled by, or is under common Control with, such Person.

 

“Common Stock” means the common
stock, par value $0.0001 per share, of the Company.

 

“Control” (including
with correlative meaning, Controlled by and under common Control with) shall
mean, with respect to any Person, the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by Contract or
otherwise, provided that in all events 

 

 

(and in addition to the above), the direct and indirect ownership of
more than 50% of the paid-up and issued voting capital of a Person shall be
deemed to constitute control over such Person.

 

“Equity Percentage” shall mean, as to
the Investor or a transferee of the Investor, that percentage figure that
expresses the ratio that (a) the number of Shares owned by such Person and
which such Person may acquire upon exercise of the Warrant (subject to the
limitation described in the definition of Shares below) bears to (b) the
aggregate number of shares of issued and outstanding Common Stock on the date
hereof immediately after giving effect to the issuance of the Shares.

 

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

 

“Form S-3” means such form under
the Securities Act as in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC that
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.

 

“Person” means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or
agency or subdivision thereof) or other entity of any kind, whether
incorporated, registered or not.

 

“Piggy-Back Registration Statement”
means a Registration Statement filed with respect to a registration described
in Section 2.3 hereof.

 

“Register,” “registered”
and “registration” refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.

 

“Registrable Securities” means (a) the
Shares and (b) any common stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security that is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such Shares. 
Notwithstanding the foregoing, “Registrable Securities” shall not
include any securities sold by a person or eligible for sale without
restriction to the public pursuant to a registration statement or Rule 144
under the Securities Act or sold in a private transaction in which the
transferor’s rights under Section 2 of this Agreement are not expressly
assigned.

 

“Registrable Securities then outstanding”
shall be the number of shares determined by calculating the total number of
shares of Common Stock that are Registrable Securities and either (a) are
then issued and outstanding or (b) are issuable pursuant to then
exercisable or convertible securities.

 

2

 

“Registration Expenses” shall mean
all expenses incurred by the Company in complying with Sections 2.2
hereof, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue-sky
fees and expenses.

 

“Registration Statement” means the
Shelf Registration Statement or the Piggy-Back Registration Statement, as
applicable.

 

“SEC” or “Commission”
means the U.S. Securities and Exchange Commission.

 

“Securities Act” shall mean the
Securities Act of 1933, as amended.

 

“Selling Expenses” shall mean all
underwriting discounts and selling commissions applicable to the sale.

 

“Shares” shall mean (i) the
shares of Common Stock issued to the Investor pursuant to the Securities
Purchase Agreement, and (ii) the shares of Common Stock issued or issuable
upon exercise of the Warrant to purchase up to 2,745,098 shares of Common
Stock, dated October 10, 2008, issued by the Company to the Investor (the “Warrant”); provided that, for the purposes of calculating
the number of shares issuable upon exercise of the Warrant, consideration is
given, and such amount is limited to, the maximum amount that could be
exercised after consideration of the limitation contained in Section 2(d) of
the Warrant.

 

“Trading Day” means (a) any day
on which the Common Stock is listed or quoted on the Trading Market, or (b) if
the Common Stock is not then listed or quoted on a Trading Market, then any
Business Day.

 

SECTION 2.  REGISTRATION; RESTRICTIONS ON TRANSFER

 

2.1                               Restrictions on Transfer.

 

(a)                                  Investor and each transferee, if
any, agrees not to make any disposition of all or any portion of the Shares or
other Registrable Securities unless and until:

 

(i)                                     There
is then in effect (and not suspended pursuant to Section 2.4(b) hereof)
a registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such registration
statement (including without limitation the method of disposition set forth
therein); or

 

(ii)                                  Such
disposition is made pursuant to and in compliance with (A) Rule 144
or a successor rule thereof (as amended from time to time) or (B) any
other applicable exemption from registration under the Securities Act (in which
case the Investor shall have notified the Company of the disposition and, if
requested by the Company, Investor shall have 

 

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furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the
Securities Act); or

 

(iii)                               (A) Any
proposed transferee has agreed in writing to be bound by the terms of this
Agreement by executing a counterpart signature page hereto (which shall
not be deemed to be an amendment hereto), (B) Investor shall have notified
the Company of the disposition, and (C) if requested by the Company,
Investor shall have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of such shares under the Securities Act.

 

(b)                                 Each certificate representing
Shares or other Registrable Securities shall (unless otherwise permitted by the
provisions of this Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required
under applicable state securities laws):

 

THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
WITH THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE  SECURITIES ACT OF
1933 (THE “ACT”) AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS.

 

(c)                                  Within fifteen (15) days of
written request, the Company shall be obligated to reissue unlegended
certificates at the request of any holder of Shares or other Registrable
Securities if such holder shall have obtained an opinion of counsel (which
counsel may be counsel to the Company) reasonably acceptable to the Company to
the effect that the applicable securities may lawfully be so disposed of
without registration.

 

(d)                                 Any legend that may be endorsed
on an instrument pursuant to applicable state securities laws and the
stop-transfer instructions with respect to such securities shall be removed
upon receipt by the Company of an order of the appropriate blue-sky authority
authorizing such removal.

 

(e)                                  Notwithstanding the foregoing
provisions of this Section 2.1, the restrictions imposed by this Section 2.1
upon the transferability of any Shares or other Registrable Securities shall
cease and terminate when (i) any such Shares or other Registrable
Securities are sold or otherwise disposed of in accordance with a registration
statement (including without limitation the method of disposition set forth
therein); (ii) the holder of such Shares or other Registrable Securities
has met the applicable requirements for transfer of such 

 

4

 

Shares or other Registrable Securities, as
the case may be, pursuant to subparagraph (b) of Rule 144 under
the Securities Act or a successor rule thereof (as amended from time to
time)(“Rule 144”) or (iii) any
such Shares or other Registrable Securities are sold or otherwise disposed of
by such other method contemplated by this Section 2.1 that does not
require that the securities transferred bear the legend set forth in this Section 2.1.  Whenever the restrictions imposed by this Section 2.1
have terminated, a holder of a certificate for Shares or other Registrable
Securities as to which such restrictions have terminated shall be entitled to
receive from the Company, without expense, a new certificate not bearing the
restrictive legend set forth in this Section 2.1 and not containing any
other reference to the restrictions imposed by this Section 2.1.

 

(f)                                    The Company covenants that, to
the extent it does not qualify as a “reporting issuer” as defined under Rule 144(c) during
the period ending with the termination of the transferability restrictions as
described in Section 2.1(e) above, it will take such action in
connection with the furnishing of information as the Investor may reasonably
request, all to the extent required from time to time to enable the Investor to
sell Registrable Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144.

 

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

 

2.2                               Shelf Registration.  (a)  The
Company shall, within 45 days from the date of this Agreement (the “Filing Date”), file a registration statement (as amended or supplemented from time
to time, the “Shelf
Registration Statement”) under the Securities Act
covering all of the Registrable Securities then outstanding, and shall use its
best efforts to cause the Shelf Registration Statement to become effective as
promptly as practicable thereafter (provided that in the event the Company
receives notice from the SEC that it will not “review” the Shelf Registration
Statement and that the Company can request acceleration of effectiveness, the
Company shall cause the Shelf Registration Statement to become effective within
ten (10) days of receipt of such notice), and shall use its best efforts
to keep such Shelf Registration Statement continuously effective under the
Securities Act until the earlier of (i) the date on which all Registrable
Securities are eligible for sale under Rule 144 without volume, manner of
sale or other restrictions under such rule and (ii) the date on which
all Registrable Securities covered by such Shelf Registration Statement have
been sold (the “Effectiveness
Period”). 
Such Shelf Registration Statement shall be on Form S-3 (except if
the Company is not eligible to register for resale the Shelf Registrable
Securities on Form S-3, then such registration shall be on such other
appropriate form as the Company may reasonably select), and shall contain
(unless otherwise directed by the Investor) the “Plan of Distribution” attached
hereto as Annex A.

 

5

 

(b)                                 The
amount of Registrable Securities required to be included in the initial Shelf
Registration Statement as described in Section 2.2(a) shall be not
less than the maximum amount of Registrable Securities which may be included in
a Registration Statement without exceeding registration limitations imposed by
the SEC pursuant to Rule 415 under the Securities Act (the “Rule 415 Amount”). 
In the event that less than all of the Registrable Securities are
included in the Shelf Registration Statement as a result of the limitation
described in this Section 2.2(b), then the Company will file additional
Shelf Registration Statements each registering the Rule 415 Amount, seriatim,
until all of the Registrable Securities have been registered.

 

2.3                               Piggy-Back Registration.

 

(a)                                  If the Company proposes to
register (including for this purpose a registration effected by the Company for
stockholders other than the Investor) any of its Common Stock under the
Securities Act in connection with the public offering of such securities solely
for cash (other than (i) a registration on Form S-8 (or similar or
successor form) relating solely to the sale of securities to participants in a
Company stock plan or to other compensatory arrangements to the extent
includable on Form S-8 (or similar or successor form), (ii) a
registration on Form S-4 (or similar or successor form), (iii) a
shelf registration statement covering the offer and sale of securities from
time to time in one or more offerings or (iv) unless a Registration
Statement has not already been filed for the Registrable Securities, a
registration in connection with a rights offering to existing securityholders
of the Company), the Company shall, at such time, give the Investor written
notice of such registration.  Upon the
written request of the Investor received by the Company within twenty (20)
Trading Days after mailing of such notice by the Company, the Company shall use
its best efforts to cause to be registered under the Securities Act all of the
Registrable Securities that the Investor has requested to be registered;
provided that the right of the Investor to have such Registrable Securities so
registered shall be subordinated in all respects to the
rights of any other holders of registration rights, whether now existing or to
be granted in the future.  The Company
may grant any registration rights, including registration rights that are
superior in priority to the piggy-back registration rights granted to the
Investor pursuant to this Section 2.3, to third parties, as it deems to be
in its best interest.  Except as otherwise required pursuant to this
Agreement, the Company shall have no obligation under this Section 2.3 to
make any offering of its securities, or to complete an offering of its
securities that it has proposed to make.  
The
Investor may withdraw its written notice of registration at any time, but such
notice may not be reinstated if the twenty (20) day Trading Day period referred
to above has expired.

 

(b)                                 Subject
to the provisions of Section 2.3(c) hereof, the amount of Registrable
Securities required to be included in the initial Piggy-Back Registration
Statement as described in Section 2.3(a) shall be not less than the
lesser of (a) the amount of Registrable Securities that the Investor has
requested to be so registered and (b) the maximum amount of Registrable Securities
which may be included in a Registration Statement without exceeding the Rule 415
Amount.

 

6

 

(c)                                  In the event that any
registration pursuant to this Section 2.3 shall be, in whole or in part,
an underwritten public offering of securities of the Company, the number of
shares of Registrable Securities to be included in such underwriting may be
reduced by the managing underwriter if and to the extent that the managing
underwriter shall be of the opinion that such inclusion would adversely affect
the marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Investor in writing of any such
reduction.  Notwithstanding the foregoing
provisions, the Company may withdraw or delay or suffer a delay of any
registration statement referred to in this Section 2.3 without thereby
incurring any liability to the Investor or its Affiliates.

 

2.4                               Expenses of Registration.  Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Sections 2.2 or 2.3 shall be borne by
the Company.  All Selling Expenses
incurred in connection with any registrations hereunder shall be borne by the
holders selling the securities.

 

2.5                               Shelf Registration Procedures.  In connection with the Company’s
registration obligations hereunder with respect to the Shelf Registration
Statement, the Company shall:

 

(a)                                  Not less than ten (10) Trading
Days prior to the filing of the Shelf Registration Statement or any related
prospectus (“Prospectus”) or any
amendment or supplement thereto, the Company shall (i) furnish to the
Investor and its counsel (“Investor Counsel”)
copies of such documents proposed to be filed, which documents will be subject
to the review of Investor and Investor Counsel, and (ii) cause its
officers and directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.  The Company shall
not file such Shelf Registration Statement or any related Prospectus,
amendments or supplements thereto to which the Investor and Investor Counsel
shall reasonably object.

 

(b)                                 (i) Prepare and file with
the SEC such amendments, including post-effective amendments, to the Shelf
Registration Statement and the Prospectus used in connection therewith as may
be necessary to keep such Shelf Registration Statement continuously effective
as to the applicable Registrable Securities for the Effectiveness Period; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
under the Securities Act; (iii) respond as promptly as reasonably
possible, and in any event within twenty (20) Trading Days, to any comments
received from the Commission with respect to the Shelf Registration Statement
or any amendment thereto and promptly thereafter provide copies of such
response to the Investor; and (iv) comply in all material respects with
the provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Shelf Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Investor set forth in the Shelf Registration Statement as
so amended or in such Prospectus as so supplemented.

 

7

 

(c)                                  Notify the Investor within three
(3) Trading Days of receipt, and if requested by the Investor, confirm
such notice in writing within three (3) Trading Days thereafter, of any of
the following events: (i) the Commission notifies the Company of whether
it plans to “review” the Registration Statement; (ii) the Commission
comments in writing on the Registration Statement (in which case the Company
shall deliver to the Investor a true and complete copy of such comments within
three (3) Trading Days of receipt, a timeline relating to the proposed
drafting of responses within six (6) Trading Days of receipt and of all
such written responses); (iii) the Registration Statement or any
post-effective amendment thereto is declared effective; (iv) the
Commission or any other Federal or state governmental authority requests any
amendment or supplement to the Registration Statement or Prospectus or requests
additional information related thereto; (v) the Commission issues any stop
order suspending the effectiveness of the Registration Statement or if the
Company receives notice that the Commission initiates any Proceedings for that
purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for
such purpose; or (vii) the financial statements included in the
Registration Statement become ineligible for inclusion therein or any statement
made in the Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference is untrue in any
material respect or any revision to the Registration Statement, related Prospectus
or other document is required so that it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

(d)                                 Use its best efforts to avoid
the issuance of or, if issued, obtain the withdrawal of (i) any order
suspending the effectiveness of the Registration Statement or (ii) any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.

 

(e)                                  Furnish to the Investor and
Investor Counsel, without charge, copies of the Registration Statement and each
amendment thereto, including financial statements and schedules, and all
exhibits to the extent and in such quantity as requested by such Person
(excluding those previously furnished or incorporated by reference) within
three (3) Trading Days after the filing of such documents with the
Commission.

 

(f)                                    Promptly upon request, deliver
to the Investor and Investor Counsel without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) related to the
Registration Statement and each amendment or supplement thereto as such Persons
may reasonably request.  The Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by the Investor in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.  Furthermore, the Company hereby agrees that the Investor
is permitted to use such Prospectuses including any amendment and each
supplement thereto, if required for the purposes of any report or public announcements
or disclosures to be submitted to, or made pursuant 

 

8

 

to the requirements of, any
governmental or regulatory body in India/Cyprus/Netherlands (as the case may
be) and/or if required to comply with any law applicable to the Investor at the
Investor’s expense and to the extent reasonably practicable.

 

(g)                                 In the time and manner required
by the Trading Market, if at all, prepare and file with such Trading Market an
additional shares listing application covering all of the Registrable
Securities; (ii) take all steps necessary to cause such Registrable
Securities to be approved for listing on the Trading Market as soon as
reasonably practicable thereafter; (iii) to the extent available to the
Company, provide to the Investor evidence of such listing; and (iv) maintain
the listing of such Registrable Securities on each such Trading Market.

 

(h)                                 Prior to any public offering of Registrable
Securities pursuant to the
Registration Statement, use its best efforts to register or qualify or
cooperate with the Investor and Investor Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as the Investor
reasonably requests in writing, to keep each such registration or qualification
(or exemption therefrom) effective during the Effectiveness Period, and to do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement.

 

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

 

(j)                                     Upon the occurrence of any event
described in Section 2.5(c)(vii), as promptly as reasonably possible,
prepare a supplement or amendment, including a post-effective amendment, to
such Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, neither the
Registration Statement nor its related Prospectus will contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

(k)                                  Cooperate with any due diligence
investigation undertaken by the Investor in connection with the sale of
Registrable Securities pursuant to the Registration Statement, including
without limitation by making available any documents and information at the
facilities of the Company during normal business hours and upon reasonable
notice.

 

(l)                                     In the event of any underwritten
public offering, enter into and perform its obligations under an underwriting
agreement with the underwriter(s), in usual and customary 

 

9

 

form, including, without limitation, by
providing customary legal opinions, comfort letters and indemnification and
contribution obligations.

 

(m)                             Comply with all applicable rules and
regulations of the Commission.

 

(n)                                 Notwithstanding the above, the
Company may suspend the effectiveness of the Registration Statement, suspend
the use of any Prospectus included therein, and shall not be required to amend
or supplement the Registration Statement, any related Prospectus or any
document incorporated therein by reference for a period of time not to exceed
60 consecutive days and in no event to exceed more than an aggregate of 90 days
during any rolling 12-month period (the “Pending
Event Suspension Period”), if (i) an event or circumstance
occurs and is continuing that has not been publicly disclosed and, if not
disclosed in the Registration Statement, any related Prospectus or any document
incorporated therein by reference as then amended or supplemented, would, in
the Company’s good-faith judgment, after consultation with its outside
securities counsel, result in the Registration Statement, any related
Prospectus or any such document containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein, or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading and (ii) in the
good faith judgment of the board of directors of the Company (the “Board”), after consultation with its
outside securities counsel, the Company has a bona fide
business purpose for not then disclosing the existence of such event or
circumstance (only to the extent such event or circumstance is material
non-public information).

 

In the event
of the occurrence of any Pending Event Suspension Period, the Company shall
promptly upon such occurrence, notify the Investor in writing.  The Company will also provide written notice
to the Investor of the end of each Pending Event Suspension Period.  The Investor agrees to cease all public
disposition efforts under the Registration Statement with respect to the
Registrable Securities then held by the Investor immediately upon receipt of
notice of the beginning of any Pending Event Suspension Period and until the
Investor receives notice of the end of such Pending Event Suspension Period.

 

2.6                              Piggy-Back Registration
Procedures. 
In connection with the Company’s registration obligations hereunder with
respect to a Piggy-Back Registration Statement in which Registrable Securities
held by the Investor are in fact included, the Company shall:

 

(a)                                  Not less than three (3) Trading
Days prior to the filing of each Piggy-Back Registration Statement or any
related Prospectus or any amendment or supplement thereto (i) furnish to
the Investor and Investor Counsel copies of all such documents proposed to be
filed (and thereafter include in the Piggy-Back Registration Statement all
reasonable comments received by the Investor or Investor Counsel on disclosure
relating to the Investor), and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective
counsel or the Investor, as the case may be, to conduct a reasonable
investigation within the meaning of the Securities Act.

 

10

 

(b)                                 (i) Cause the related
Prospectus to be amended or supplemented by any required Prospectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 and (ii) comply
in all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by a Piggy-Back Registration Statement during the offering.

 

(c)                                  Promptly notify the Investor and
Investor Counsel, and (if requested by any such Person) confirm such notice in
writing, of any of the following events: (i) the Commission notifies the
Company whether it intends to “review” any Piggy-Back Registration Statement; (ii) the
Commission comments in writing on any Piggy-Back Registration Statement (in
which case the Company shall deliver to the Investor a copy of such comments
and of all written responses thereto); (iii) any Piggy-Back Registration
Statement or any post-effective amendment thereto is declared effective; (iv) the
Commission or any other Federal or state governmental authority requests any
amendment or supplement to a Piggy-Back Registration Statement or related
Prospectus or requests additional information related thereto; (v) the
Commission issues any stop order suspending the effectiveness of any Piggy-Back
Registration Statement or initiates any Proceedings for that purpose; (vi) the
Company receives notice of any suspension of the qualification or exemption
from qualification of any Registrable Securities for sale in any jurisdiction,
or the initiation or threat of any Proceeding for such purpose; or (vii) the
financial statements included in any Piggy-Back Registration Statement become
ineligible for inclusion therein or any statement made in any Piggy-Back
Registration Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference is untrue in any material
respect or any revision to a Piggy-Back Registration Statement, related
Prospectus or other document is required so that it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

 

(d)                                 Furnish to the Investor and
Investor Counsel, without charge, copies of each Piggy-Back Registration
Statement and each amendment thereto, including financial statements and
schedules, and all exhibits to the extent and in such quantity requested by
such Person (excluding those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.

 

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

 

(f)                                    Cooperate with the Investor to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant 

 

11

 

to a Piggy-Back Registration Statement, which
certificates shall be free, to the extent permitted by this Agreement, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as the Investor may request.

 

(g)                                 Comply with all applicable rules and
regulations of the Commission.

 

2.7                               Furnishing Information.  It shall be a
condition precedent to the obligations of the Company to take any action
pursuant to Section 2.2 or 2.3 that the Investor shall have furnished to
the Company such information regarding itself, the Registrable Securities held
by it and the intended method of disposition of such securities and such other
information as shall be reasonably requested by the Company to effect the
registration of the Registrable Securities.

 

2.8                               Indemnification.  In the event
any Registrable Securities are included in a Registration Statement:

 

(a)                                  To the extent permitted by law,
the Company will indemnify and hold harmless the Investor and its Affiliates
and each of the directors, officers, employees and agents of the Investor and
its Affiliates (all of the foregoing, the “Investor
Indemnified Parties”), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other U.S. federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (any of the foregoing, a “Violation”)
by the Company or its officers, directors, employees or agents:  (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, and the Company will
pay as incurred to each such Investor Indemnified Party for any legal or other
expenses reasonably incurred by such Investor Indemnified Party in connection with
investigating or defending any such loss, claim, damage, liability or action
(subject to recoupment if this indemnification is judicially determined to be
inapplicable by a final, non-appealable order or finding of any Court of
competent jurisdiction sitting in the United States); provided,
however, that the indemnity agreement
contained in this Section 2.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished specifically for use in
connection with such Registration Statement by the Investor Indemnified Party
or, if the Company has fulfilled its obligations set forth in Section 2.5(f),
results from the failure to deliver a Prospectus as required by the Securities
Act.

 

12

 

(b)                                 To the extent permitted by law,
the Investor will, if Registrable Securities held by the Investor are included
in the securities as to which such registration, qualification or compliance is
being effected, indemnify and hold harmless the Company, its Affiliates and
each of the directors, officers, employees and agents of the Company and its
Affiliates (all of the foregoing, the “Company
Indemnified Parties”), against any losses, claims, damages or
liabilities (or actions in respect thereto) to which any one or more of the
Company Indemnified Parties may become subject under the Securities Act, the
Exchange Act or other U.S. federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by the Investor or any other Investor Indemnified
Party under an instrument duly executed by such Investor Indemnified Party and
stated to be specifically for use in connection with such registration or, if
the Company has fulfilled its obligations set forth in Section 2.4,
including without limitation Section 2.4(e), results from the failure to
deliver a prospectus as required by the Securities Act; and each such Investor
will pay as incurred any legal or other expenses reasonably incurred by the
Company Indemnified Parties in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined by
a final, non-appealable Order or finding of any Court of competent jurisdiction
sitting in the United States that there was such a Violation; provided, however, that the indemnity agreement contained in
this Section 2.8(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Investor, which consent shall not be
unreasonably withheld.

 

(c)                                  Within five (5) Trading
Days, after receipt by an indemnified party under this Section 2.8 of
notice of the commencement of any action (including any governmental action),
such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel satisfactory to
the Company; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the commencement
of any such action, if the indemnifying party is otherwise unaware of such
action and such failure is materially prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.8.

 

13

 

(d)                                 The obligations of the Company
and Investor under this Section 2.8 shall survive completion of any
offering of Registrable Securities in a Registration Statement and the
termination of this Agreement.  No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.

 

2.9                               Assignment of Registration
Rights.  The rights to
cause the Company to register Registrable Securities pursuant to this Section 2
may be assigned by the Investor; provided that the Investor may not assign its
registration rights under this Section 2 in whole or in part to (a) any
individuals or entities whose business is competitive, in whole or in
substantial part, with the business of the Company (except to the extent such
transfer is to PBL or any of its direct or indirect wholly-owned subsidiaries),
(b) individuals, entities or organizations
(including governments or governmental agencies or organizations) then
appearing on the list of Specially Designated National and Blocked Persons
maintained by the U.S. Office of Foreign Assets Control (“OFAC”) or entities or individuals, transfer of
such rights to whom might reasonably be expected to have an adverse effect on
the ability of the Company to bid for and receive grants or contracts from the
United States government, and (c) entities or
organizations then controlled by such individuals or having their registered
office, headquarters or primary place of business located in a nation that is
then subject to an OFAC sanctions program; provided that assignment of
registration rights in connection with non-negotiated bona fide sales of Shares on the
Trading Market (“Non-Negotiated
Bona Fide Sales”), which, for the sake of
clarity, shall not include negotiated block sales, are excluded from this
restriction on assignment.  In the
event of any  assignment (except in
connection with Non-Negotiated Bona Fide Sales), the assignee shall agree to be
bound by all of the terms and conditions imposed on the Investor under Section 2
of this Agreement and Section 27 of the Securities Purchase Agreement and
under the Warrant.

 

2.10                        Amendment of Registration
Rights.  Any provision
of this Section 2 may be amended, and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Investor.  Any amendment or waiver
effected in accordance with this Section 2.10 shall be binding upon the
Investor and the Company.

 

SECTION 3.  PRE-EMPTIVE RIGHTS

 

3.1                               Subsequent Offerings.  For a period of
three (3) years from the date of this Agreement, the Investor shall have
the pre-emptive right to purchase its Equity Percentage of all Equity
Securities that the Company may, from time to time, propose to sell and issue
in any sale that is exempt from registration under the Securities Act after the
date of this Agreement, other than the Equity Securities excluded by Section 3.5
hereof.  The term “Equity Securities” shall mean (i) any Common Stock or preferred stock of the Company
(“Preferred Stock”), (ii) any security convertible, with or without consideration,
into any Common Stock or Preferred Stock 

 

14

 

(including any option to purchase such a convertible
security) or (iii) any option, warrant or right to acquire an Equity
Security.

 

3.2                               Exercise of Rights.  If the Company
proposes to issue any Equity Securities in any sale that is exempt from
registration under the Securities Act, it shall give the Investor written
notice of its intention, describing the Equity Securities, the price and the
terms and conditions upon which the Company proposes to issue the same.  The Investor shall have twenty (20) days from
the giving of such written notice to agree to purchase up to its Equity
Percentage of the Equity Securities for the price and upon the terms and
conditions specified in the Company’s notice by giving notice to the Company
and stating therein the quantity of Equity Securities (up to an amount not to
exceed Investor’s Equity Percentage) it agrees to purchase.  If the Investor decides to waive its
pre-emptive rights with respect to any such transaction, and the Company does
not enter into an agreement for the sale of the Equity Securities within ninety
(90) days of such waiver, or if such agreement is not consummated within sixty
(60) days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Equity Shares shall not be offered unless first
reoffered to the Investor in accordance herewith.

 

3.3                               No Termination Upon Waiver of
Pre-Emptive Rights.  The pre-emptive rights established by this Section 3 shall not
terminate nor be deemed to be waived with respect to any subsequent private
placement transactions if the Investor or its assignees do not exercise their
rights as provided in Section 3.2 to purchase Equity Securities offered to
them pursuant to Section 3.1.  The
provisions of this Section 3 may be amended or waived only by the
agreement of the Company and the Investor.

 

3.4                               Transfer of Pre-Emptive
Rights.  The Investor
may assign its pre-emptive rights under this Section 3 in whole or in part
provided that (i) each such assignment shall be in connection with a
transfer to one individual or entity of a minimum of 500,000 Shares issued
pursuant to the Securities Purchase Agreement and (ii) the Investor may
not assign its pre-emptive rights under this Section 3 in whole or in part
to (a) any individuals or entities whose business is competitive, in whole
or in substantial part, with the business of the Company (except to the extent
such transfer is to PBL or any of its direct or indirect wholly-owned
subsidiaries), (b) individuals, entities
or organizations (including governments or governmental agencies or organizations)
then appearing on the list of Specially Designated National and Blocked Persons
maintained by the U.S. Office of Foreign Assets Control (“OFAC”) or entities or individuals, transfer of
such rights to whom might reasonably be expected to have an adverse effect on
the ability of the Company to bid for and receive grants or contracts from the
United States government, and (c) entities or
organizations then controlled by such individuals or having their registered
office, headquarters or primary place of business located in a nation that is
then subject to an OFAC sanctions program. 
In the event of any such assignment, the assignee shall agree to be bound
by all of the terms and conditions imposed on the Investor under Section 3
of this Agreement, Section 27 of the Securities Purchase Agreement and
under the Warrant.

 

15

 

3.5                               Excluded Securities.  The pre-emptive
rights established by this Section 3 shall have no application to any of
the following Equity Securities:

 

(a)                                  shares of Common Stock, options,
warrants or other Common Stock purchase rights issued or to be issued pursuant
to the 2007 Long-Term Incentive Compensation Plan of the Company, as amended
from time to time.

 

(b)                                 stock issued pursuant to rights
or agreements after the date of this Agreement; provided
that the pre-emptive rights established by this Section 3 applied with
respect to the initial sale or grant by the Company of such rights or
agreements;

 

(c)                                  any Equity Securities issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination;

 

(d)                                 shares of Common Stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company;

 

(e)                                  any Equity Securities issued
upon the exercise or conversion of any instrument, security, note, warrant,
option or other right outstanding on the date of this Agreement;

 

(f)                                    any Equity Securities issued
pursuant to or in connection with any equipment-leasing or other capital or
operating lease arrangement, or debt financing from a bank, similar financial
institution or other lender, in which the issuance of the Equity Securities was
secondary to such transaction;

 

(g)                                 any Equity Securities issued in
connection with strategic alliances involving the Company or any of its
subsidiaries; and

 

(h)                                 any Equity Securities issued in
a public offering.

 

SECTION 4.  MISCELLANEOUS

 

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

 

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

 

16

 

4.3                               Successors and Assigns.  Except as otherwise expressly
provided herein, this Agreement shall bind and inure to the benefit of the
Company and the Investor and their respective permitted successors and assigns;
provided, however, that, any
proposed transfers of Investor’s rights under this Agreement shall be subject
to the other provisions of Sections 2.7 and 3.4 of this Agreement and prior to
the receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such
Registrable Securities in its records as the absolute owner and holder of such
Registrable Securities for all purposes, including the payment of dividends or
any redemption price.

 

4.4                               Entire Agreement.  This Agreement
and any schedules hereto, the Securities Purchase Agreement and the other
documents delivered pursuant thereto, constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof, including without limitation that certain Letter of Intent entered into
by the Company and Panacea Biotec Ltd. and dated July 28, 2008.

 

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

 

4.6                               Changes.

 

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

 

(b)                                 Except as otherwise expressly
provided, no amendment or modification of this Agreement may be made without
the written consent of the Company and the Investor.

 

4.7                               Notices and Consents.  All notices and
consents required or permitted hereunder must be in writing and shall be deemed
effectively given in the manner specified in the Securities Purchase Agreement.

 

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

 

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

 

17

 

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

 

18

 

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

 

 

	
  PHARMATHENE, INC.

  	
   

  	
  KELISIA HOLDINGS LTD.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
     /s/ David P. Wright

  	
   

  	
  By:

  	
     /s/ Standguard Limited

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
    David
  P. Wright

  	
   

  	
  Name:

  	
    Duly
  represented by Mr. Paulos Paulou

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
      President and CEO

  	
   

  	
  Title:
  

  	
      Director

  
										

 

 

[SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT]

 

 

Annex A

 

Plan of Distribution

 

The selling stockholders may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading facility
on which the shares are traded or in private transactions.  These sales may be at fixed or negotiated
prices.  The selling stockholders may use
any one or more of the following methods when selling shares:

 

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

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

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

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

·                  privately negotiated transactions;

·                  short sales;

·                  broker-dealers may agree with the
selling stockholders to sell a specified number of such shares at a stipulated
price per share;

·                  a combination of any such methods of
sale; and

·                  any other method permitted pursuant
to applicable law.

 

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

 

The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.

 

Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. 
Broker-dealers may receive commissions or discounts from the selling
stockholders (or, if any broker-dealer acts as agent for the purchaser of
shares, from the purchaser) in amounts to be negotiated.  The selling stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.  Any profits on
the resale of shares of common stock by a broker-dealer acting as principal
might be deemed to be underwriting discounts or commissions under the
Securities Act.  Discounts, concessions,
commissions and similar selling expenses, if any, attributable to the sale of
shares will be borne by a selling stockholder. 
The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.

 

A-1

 

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

 

The selling stockholders also may transfer the shares of common stock
in other circumstances, in which case the transferees, pledgees or other
successors in interest will be the selling beneficial owners for purposes of
the prospectus and may sell the shares of common stock from time to time under
the prospectus after the Company has filed an amendment to the registration
statement or supplement to the prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933 amending the list of
selling stockholders to include the pledgee, transferee or other successors in
interest as selling stockholders under the prospectus.

 

The selling stockholders and any broker-dealers or agents that are
involved in selling the shares of common stock may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by
such broker-dealers or agents and any profit on the resale of the shares of
common stock purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.

 

The Company is required to pay all fees and expenses incident to the
registration of the shares of common stock, including the fees and
disbursements of counsel to the selling stockholders.  The Company has agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.

 

The selling stockholders have advised the Company that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their shares of common
stock, nor is there an underwriter or coordinating broker acting in connection
with a proposed sale of shares of common stock by any selling stockholder.  If the Company is notified by any selling
stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, the Company
will file a supplement to the prospectus. 
If the selling stockholders use the prospectus for any sale of the
shares of common stock, they will be subject to the prospectus delivery
requirements of the Securities Act.

 

The anti-manipulation rules of Regulation M under the Securities
Exchange Act of 1934 may apply to sales of the Company’s common stock and
activities of the selling stockholders.

 

A-2Exhibit 10.42

 

 

THESE SECURITIES
HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

 

COMMON STOCK PURCHASE WARRANT

 

To
Purchase up to 2,745,098 Shares of Common Stock of

 

PHARMATHENE,
INC.

 

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, Kelisia
Holdings Ltd., a company limited by shares established under the laws of
Cyprus, having its office at 29 Theklas
Lyssioti Street; Cassandra Centre, 2nd Floor; 3731 Limassol; Cyprus (together
with any permitted transferee, the “Holder”), an
indirect wholly owned subsidiary of Panacea Biotec Limited, a public limited
company established under the laws of India, having its registered office at
Ambala-Chandigarh Highway, Lalru-140501, Punjab, India (“PBL”),
is entitled, upon the terms and subject to the limitations on exercise and the
conditions hereinafter set forth, at any time after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m.
U.S. Eastern Time on the first anniversary following 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 2,745,098 shares (the “Warrant Shares”) of common stock, par value US$0.0001 per
share, of the Company (the “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.

 

“Affiliate”
means with respect to any Person, any Person that
directly or indirectly, Controls, is Controlled by, or is under common Control
with, such Person.

 

“Business Day”
means a day other than a Saturday or Sunday or a day on which banks in Delaware
are authorized or required by law to close.

 

“Control”
(including with correlative meaning, Controlled by and
under common Control with) shall mean, with respect to any Person, the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by Contract or otherwise, provided that in all
events (and in addition to the above), the direct or indirect ownership of more
than 50% of the paid-up and issued voting share capital of a Person shall be deemed
to constitute control over such Person.

 

 

“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, whether incorporated, registered or not.

 

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 (i) delivery
to the Company of a duly executed facsimile copy of the Notice of Exercise
annexed hereto (the “Notice of Exercise”)
(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 such Holder appearing on the
books of the Company); (ii) surrendering this Warrant to the Company; and (iii) making
payment to the Company of the aggregate Exercise Price (as defined below) for
the shares thereby purchased by wire transfer to an account designated by the
Company of same-day funds or cashier’s check drawn on a United States
bank.  The Company shall deliver any
objection to any Notice of Exercise within three Business Days of receipt of
such notice.  In the event of any dispute
or discrepancy, the records of the Company shall be controlling and
determinative in the absence of manifest error.

 

(b)                                 Exercise Price.  The per share exercise price for the Warrant
Shares shall be US$5.10, subject to adjustment hereunder (the “Exercise Price”).

 

(c)                                  Mechanics of Exercise.

 

(i)                                     Authorization of Warrant Shares.  The Company covenants that all Warrant Shares
that 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,
be duly authorized, validly issued, fully paid and nonassessable and free from
all taxes, liens and charges or any encumbrance of any nature whatsoever  in respect of the issue thereof.

 

(ii)                                  Delivery of Certificates Upon
Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the transfer agent of the Company to the Holder by
physical delivery to the address specified by the Holder in the Notice of Exercise
within five (5) Business Days following receipt by the Company of a duly
executed Notice of Exercise, this Warrant and the aggregate Exercise Price as
set forth above (“Warrant Share Delivery Date”).  This Warrant shall be deemed to have been
exercised, the Warrant Shares shall be deemed to have been issued, and the
Holder shall be deemed to have become a holder of record of such shares for all
purposes, on the date the Exercise Price is received by the Company (the “Exercise Date”).

 

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

 

2

 

(iv)                              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 that the Holder
would otherwise be entitled to purchase upon such exercise, the Company shall
pay a cash adjustment in respect of such final fraction in an amount equal to
such fraction multiplied by the Exercise Price.

 

(v)                                 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.

 

(vi)                              Closing of Books.  The Company will not close its stockholder
books or records in any manner that prevents the timely exercise of this
Warrant pursuant to the terms hereof.

 

(d)                                 Maximum Exercise.  The Holder shall not be entitled to exercise
the Warrant for any amount of Warrant Shares that, if issued, would result on
any such Exercise Date in the aggregate number of shares that the Holder would
otherwise receive pursuant to the exercise of the Warrant, together with the
3,733,334 shares of Common Stock the Holder purchased pursuant to the
Securities Purchase Agreement, dated September 30, 2008, between the
Company and the Holder (the “Securities
Purchase Agreement”), and any other shares beneficially owned by
PBL, Kelisia Holdings Ltd. and any holder of Warrant Shares or shares of Common
Stock issued pursuant to the Securities Purchase Agreement, and of their
respective officers, directors and Affiliates, equaling or exceeding twenty
percent (20%) of the number of shares of Common Stock outstanding on the date
of the Securities Purchase Agreement or on such Exercise Date.

 

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 pursuant to 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 adjusted by multiplying the Exercise Price
immediately prior to such adjustment by a fraction the numerator of which shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding immediately before such event and the denominator of which 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.  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 reclassification.

 

3

 

(b)                                 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.

 

(c)                                  Voluntary Adjustment by Company.  The Company may, at any time during the term
of this Warrant and with the prior written approval by the Holder, reduce the
then-current Exercise Price to any amount and for any period of time deemed
appropriate by the board of directors of the Company.

 

(d)                                 Notice to Holder.

 

(i)                                     Adjustment to Exercise Price.  Whenever the Exercise Price is adjusted
pursuant to this Section 3, the Company shall within five (5) Business
Days 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.  If any of the events specified in Section 3(a)(i),
(ii), (iii) or (iv) occurs, 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 a notice setting forth the record date or
the effective date for such event.

 

(e)                                  Further
Negotiations.  If at any time
beginning thirty (30) trading days after the Closing Date, the weighted average
closing price of the common stock of the Company on the American Stock Exchange
or any successor exchange during the preceding twenty (20) consecutive trading
days was below US$3.50 per share, the Holder may request that the Company
attend a meeting to discuss an amendment to this Warrant that could result in
an adjustment to the Exercise Price. 
Representatives of the Company shall agree to meet with the Holder and
will have such meeting at a time that is mutually convenient, but in no event
more than twenty (20) days after such request is made in writing by the
Holder.  The Company is under no
obligation to agree to any such adjustment and this provision does not modify
or limit the restrictions provided for in Section 2(d) of this
Warrant.

 

Section 4.                                            Transfer of Warrant.

 

(a)                                  Transferability.  This Warrant and all rights hereunder may be
transferred to third parties; provided that this Warrant and any rights
hereunder may not be transferred, directly or indirectly, through Affiliates or
otherwise, to (a) any individuals or entities whose business purpose is
competitive, in whole or in substantial part, with the business of the Company
(except to the extent such transfer is to PBL or any of its direct or indirect
wholly-owned subsidiaries), (b) individuals,
entities or organizations (including governments or governmental agencies or
organizations) then appearing on the list of Specially Designated National and
Blocked Persons maintained by the U.S. Office of Foreign Assets Control (“OFAC”) or entities or individuals, transfer
of such rights to whom might reasonably be expected to have an adverse effect
on the ability of the Company to bid for and receive grants or contracts from
the United States government, and (c) entities or organizations
then controlled by 

 

4

 

such individuals or having their registered office, headquarters or
primary place of business located in a nation that is then subject to an OFAC
sanctions program.  In the event of any such transfer, the transferee
shall agree to be bound by all of the terms and conditions imposed on the
Investor under this Warrant, the Investor Rights Agreement of even date
herewith, between the Company and Kelisia Holdings Ltd. (to the extent
applicable to holders of Warrant Shares) and Section 27 of the Securities
Purchase Agreement.

 

(b)                                 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
Holder hereof and upon receipt of written notice from Holder of any permitted
transfer, the Company shall update the Warrant Register to reflect the current
registered holder.  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.

 

Section 5.                                            Miscellaneous.

 

(a)                                  No Rights as Shareholder Until
Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a shareholder of the Company prior to the
exercise hereof.  Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant
Shares so purchased shall be, and be deemed to be, issued to such Holder as the
record owner of such shares as of the close of business on the later of the
date of such surrender or payment.

 

(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, in lieu
of such Warrant or stock certificate, make and deliver a new Warrant or stock
certificate of like tenor and dated as of such cancellation.

 

(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
be a Saturday, Sunday or a legal holiday, then such action may be taken or such
right may be exercised on the next succeeding day not a Saturday, Sunday or legal
holiday.

 

(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 will take all 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.

 

Except and to the extent as
waived or consented to by the Holder in writing, the Company shall not by any
action, including, without limitation, amending its certificate of 

 

5

 

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 the Holder as set forth in this Warrant
against impairment.  Without limiting the
generality of the foregoing, the Company will (a) 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, (b) take all
such action as may be reasonably 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 (c) 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.

 

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

 

(f)                                    Restrictions.  The Holder acknowledges that the Warrant
Shares acquired upon the exercise of this Warrant will have restrictions upon
resale imposed by state and federal securities laws and that the certificate(s) representing
such Warrant Shares will contain a legend stating that the Warrant Shares have
not been registered under the Securities Act and, therefore, cannot be offered,
sold or transferred unless registered under the Securities Act or an exemption
from such registration is available in the opinion of counsel satisfactory to
the Company or unless registered in accordance with the Investor Right
Agreement executed by and between the Holder and the Company as of the date
hereof.

 

(g)                                 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 Securities
Purchase Agreement.

 

(h)                                 Limitation of Liability.  No provision hereof, in the absence of any
affirmative action by the Holder to exercise this Warrant or purchase Warrant
Shares, and no enumeration herein of the rights or privileges of the Holder,
shall give rise to any liability of the 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.

 

(i)                                     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 of the Company and the
successors and permitted assigns of the Holder. 
The provisions of this Warrant are intended to be for the benefit of all
holders from time to time of this Warrant and shall be enforceable by any such
holder or holder of Warrant Shares.

 

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

 

6

 

(k)                                  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.

 

(l)                                     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.

 

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

 

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

 

IN WITNESS WHEREOF, the Company
has caused this Warrant to be executed by its officer thereunto duly
authorized.

 

Dated:  October 10, 2008

 

	
   

  	
  PHARMATHENE,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
       /s/ David P.
  Wright

  
	
   

  	
   

  	
  Name:  David P. Wright

  
	
   

  	
   

  	
  Title: President and CEO

  

 

7

 

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, and tenders herewith payment of the exercise
price in full, not including transfer taxes, if any.

 

Following the proposed exercise of this
Warrant, the total beneficial ownership of Common Stock held by the Holder and
its officers, directors and Affiliates will be: _______ shares of Common Stock.

 

(2)                                  Payment shall be made
by (check applicable box):

 

o wire transfer to an account designated by the
Company

 

o cashier’s check drawn on a United States bank

 

in lawful money of the United
States.

 

(3)                                  Please
issue a certificate or certificates representing said Warrant Shares in the
name of the undersigned.

 

The Warrant Shares shall be
delivered to the following address:

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