Note 9 - Commitments and Contingencies

Leases

We lease our offices in the United States under a 10 year operating lease, which commenced on May 1, 2007. We also lease offices in North Carolina with the lease term expiring in December 2012. Remaining annual minimum payments for these two leases are as follows:

2012	$	797,500
2013	$	774,400
2014	$	797,700
2015	$	821,600
2016	$	846,200
2017	$	356,900

For each of the years ended December 31, 2011 and 2010 total rent expense under operating lease agreements approximated $0.8 million and $1.0 million, respectively.

License Agreements

In connection with an acquisition in March 2005, we acquired a license agreement for the rights to certain technologies. This agreement included an option to license product processing technology necessary to perform development of Protexia® as required under our government contract with the DoD. We executed a new licensing agreement with a development company in 2007 which resulted in a license to all technology provided under the original agreement including the necessary purification technology previously included in an option and access to additional information and technology deemed to be essential for development of Protexia® and performance under the DoD contract.

In 2006 we licensed certain patent rights from a research company. The license agreement required a $50,000 up-front payment, provides for a sublicense fee of 20% and provides for milestone payments of $25,000 upon the granting of a U.S. patent, $200,000 upon the initiation of certain studies or trials, and $250,000 upon Biologic License Application approval. Upon commercialization, the license agreement requires royalty payments equal to a specified percentage of future sales of products for both government procurement and commercial market sales subject to the license through the expiration of the licensed patents. No sublicense fee or milestone payments were incurred in 2011 or 2010.

In 2006 we entered into a research and licensing agreement allowing for the licensing of certain patent rights from a research company. The agreement includes research expense reimbursement payments and certain development milestone payments. Upon commercialization, the license agreement requires royalty payments equal to a specified percentage of future sales of products for both government procurement and commercial market sales subject to the license through the expiration of the licensed patents. No research expense reimbursement payments or milestone payments were incurred in 2011 or 2010.

In connection with an acquisition in 2008, we acquired license agreements with The Defence Science and Technology Laboratory of the United Kingdom Ministry of Defence (“DSTL”) for the rights to certain technologies. These agreements allow for the licensing of certain patents and technology necessary to perform development of the rPA and plague vaccine programs as required under the Company’s government contracts with the NIAID. Upon commercialization, the license agreements require that PharmAthene make royalty payments equal to a specified percentage of future sales of products for both government procurement and commercial markets. No royalty payments on these licenses have been incurred.

SIGA Litigation

In December 2006, we filed a complaint against SIGA Technologies, Inc. (“SIGA”) in the Delaware Court of Chancery. The complaint alleged, among other things, that we have the right to license exclusively development and marketing rights for SIGA’s drug candidate, ST-246, pursuant to a merger agreement between the parties that was terminated in 2006. The complaint also alleged that SIGA failed to negotiate in good faith the terms of such a license pursuant to the terminated merger agreement.

In September 2011, the Court issued an opinion in the case finding that SIGA had breached certain contractual obligations to us and upholding our claims of promissory estoppel. The Court awarded us the right to receive 50% of all net profits related to the sale of ST-246 and related products for 10 years following initial commercial sale of the drug once SIGA earns $40 million in net profits from the sale of ST-246 and related products. The Court also awarded us one-third of our reasonable attorney's fees and expert witness fees.

SIGA has stated it intends to appeal this decision to the Delaware Supreme Court. We can provide no assurances that SIGA will not prevail on its appeal and that the Delaware Supreme Court will not overturn the trial court’s decision awarding us a 10 year 50% net profit in sales of ST-246 and related products.

Government Contracting

Payments to the Company on cost-plus-fee contracts are provisional and are subject to adjustment upon audit by the Defense Contract Audit Agency. In our opinion, adjustments that may result from audits are not expected to have a material effect on the our financial position, results of operations, or cash flows.

Registration Rights Agreements

We entered into a Registration Rights Agreement with the investors who participated in the July 2009 private placement of Convertible Notes and related warrants. We subsequently filed two registration statements on Form S-3 with the Securities and Exchange Commission to register the shares underlying the Convertible Notes and related warrants, which registration statements have been declared effective. We are obligated to maintain the registration statements effective until the date when all shares underlying the Convertible Notes and related warrants (and any other securities issued or issuable with respect to in exchange for such shares) have been sold.

We have separate registration rights agreements with investors, under which we have obligations to keep the corresponding registration statements effective until the registrable securities (as defined in each agreement) have been sold, and under which we may have separate obligations to file registration statements in the future on either a demand or “piggy-back” basis or both.

Under the terms of the Convertible Notes, if after the 2nd consecutive business day (other than during an allowable blackout period) on which sales of all of the securities required to be included on the registration statement cannot be made pursuant to the registration statement (a “Maintenance Failure”), we will be required to pay to each selling stockholder a one-time payment of 1.0% of the aggregate principal amount of the Convertible Notes relating to the affected shares on the initial day of a Maintenance Failure. Our total maximum obligation under this provision would be approximately $0.2 million.

Following a Maintenance Failure, we will also be required to make to each selling stockholder monthly payments of 1.0% of the aggregate principal amount of the Convertible Notes relating to the affected shares on every 30th day after the initial day of a Maintenance Failure, in each case prorated for shorter periods and until the failure is cured. Our total maximum obligation under this provision would be approximate $0.2 million for each month until the failure is cured.