CRITICAL THERAPEUTICS, INC.
June 20, 2005
Prospect Venture Partners III, L.P.
000 Xxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, XX 00000
Re: Management Rights
This letter (the "Letter") will confirm our agreement that pursuant to,
and effective upon, the purchase of a minimum of 2,250,000 shares of common
stock of Critical Therapeutics, Inc., a Delaware corporation (the "Company"), by
Prospect Venture Partners III, L.P. ("Investor"), pursuant to the Securities
Purchase Agreement, dated as of June 6, 2005, by and between the Company and
Investor (the "Purchase Agreement"), Investor will be entitled to the following
contractual management rights, in addition to any other rights specifically
provided to Investor in the Purchase Agreement:
1) If an individual affiliated with or designated by Investor is
not represented on the Company's Board of Directors (the
"Board"), the Company shall permit Investor to meet with the
executive officers of the Company to consult with and advise
on significant business issues relating to the operation of
the Company, including the Company's proposed annual operating
plans, at mutually agreeable times during normal business
hours at the Company's facilities following reasonable written
notice from Investor and as often as may be reasonably
requested;
2) If an individual affiliated with or designated by Investor is
not represented on the Board, the Company shall permit
Investor to visit and inspect the properties of the Company,
including its corporate and financial records, at mutually
agreeable times during normal business hours following
reasonable written notice from Investor and as often as may be
reasonably requested; provided that access to confidential or
proprietary facilities or records need not be provided; and
3) If an individual affiliated with or designated by Investor is
not represented on the Board, the Company shall provide
Investor copies of all written notices, minutes and consents
of the Board that the Company provides to the full Board and
the Company shall invite a representative of the Investor (the
"Observer") to address the Board with respect to Investor's
concerns regarding significant business issues facing the
Company at mutually agreeable times following reasonable
written notice from the Investor; provided, however, that the
Company shall have the right to withhold any such written
material and to exclude the Observer from any such meeting or
portion thereof if the Company believes in good faith that
access to such written material or attendance at such meeting
would (i) involve a conflict of interest regarding Investor,
(ii) violate any fiduciary obligations of the Board of
Directors, (iii) adversely affect the confidentiality or
attorney-client privilege
1.
between the Company and its counsel, (iv) result in disclosure
of trade secrets or other confidential or proprietary
information to Investor or (v) for other similar reasons.
The aforementioned rights are intended to satisfy the requirement of
management rights for purposes of qualifying Investor's ownership of stock in
the Company as a "venture capital investment" for purposes of the Department of
Labor "plan asset" regulations, 29 C.F.R. Section 2510.3-101.
Investor agrees, and any representative of Investor will agree, to hold
in confidence and trust and not use or disclose any confidential information
provided to or learned by it in connection with its rights under this Letter
pursuant to the terms of the Confidentiality Agreement by and between the
Company and the Investor dated as of May 25, 2005.
The rights described herein shall terminate and be of no further
force or effect upon the earliest of (1) June 30, 2006, (2) the date upon which
Investor ceases to hold a minimum of 1,000,000 shares of the Company's common
stock (such number to be proportionately adjusted in the event of any stock
splits, stock dividends, recapitalizations or similar events occurring on or
after the date of this Letter) or (3) the effective date of the consummation of
a merger or consolidation of the Company in which the holders of the Company's
outstanding voting stock immediately prior to such transaction own, immediately
after such transaction, securities representing less than fifty percent (50%) of
the voting power of the corporation or other entity surviving such transaction
that is effected (i) for independent business reasons unrelated to extinguishing
such rights and (ii) for purposes other than (A) the reincorporation of the
Company in a different state or (B) the formation of a holding company that will
be owned exclusively by the Company's stockholders and will hold all of the
outstanding shares of capital stock of the Company's successor. The
confidentiality provisions hereof will survive any such termination of this
Letter for a period of two (2) years.
COMPANY:
CRITICAL THERAPEUTICS, INC.
By: /s/ Xxxx X. Xxxxx
--------------------------
Name: Xxxx X. Xxxxx, M.D.
Title: President and Chief Executive Officer
INVESTOR:
PROSPECT VENTURE PARTNERS III, L.P.
By: Prospect Management Co. III, L.L.C., its General Partner
By: /s/ Xxx Xxxxxxxxx
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Xxx Xxxxxxxxx, Managing Member
2.
