MERGER PARTNER
NOTEHOLDER AGREEMENT
THIS MERGER
PARTNER NOTEHOLDER AGREEMENT (this “ Agreement
”), dated as of May 1, 2008, is by and among Critical
Therapeutics, Inc., a Delaware corporation (“ Public
Company ”), Cornerstone BioPharma Holdings, Inc., a
Delaware corporation (“ Merger Partner ”),
Cornerstone BioPharma, Inc., a Nevada corporation and a wholly
owned subsidiary of Merger Partner (“ Operating
Company ”), and Carolina Pharmaceuticals Ltd., a Bermuda
Exempted Company (“ Noteholder ”).
WHEREAS,
concurrently with the execution and delivery of this Agreement,
Public Company, Neptune Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Public Company (the “
Transitory Subsidiary ”), and Merger Partner have
entered into an Agreement and Plan of Merger, dated as of the date
hereof (as it may be amended or supplemented from time to time
pursuant to the terms thereof, the “ Merger Agreement
”), which provides for the merger (the “ Merger
”) of the Transitory Subsidiary into Merger Partner in
accordance with the terms of the Merger Agreement;
WHEREAS, the
Noteholder is the holder of that certain Promissory Note, dated
April 19, 2004, with Operating Company, as amended by that
certain Promissory Note Amendment and Waiver Agreement, dated
June 6, 2006 (as amended, the “ Carolina Note
”);
WHEREAS, as a
condition and inducement to Public Company’s willingness to
enter into the Merger Agreement, Public Company requires that
Noteholder enter into this Agreement, (i) to covenant that
Noteholder will exchange or convert the Carolina Note into the
common stock, $0.0001 par value per share, of Merger Partner (the
“ Merger Partner Common Stock ”) prior to the
Effective Time in accordance with the terms hereof, (ii) to
give Public Company a proxy to vote all of the shares of capital
stock of Merger Partner that Noteholder owns and (iii) not to
transfer or otherwise dispose of any shares of Merger Partner
Common Stock that Noteholder owns or, for 180 days after the
Effective Time, any Public Company Common Stock received in
exchange therefor pursuant to the Merger; and
WHEREAS, in
consideration of the execution and delivery of the Merger Agreement
by Public Company and the Transitory Subsidiary, Noteholder is
willing to take such actions to facilitate the consummation of the
Merger;
NOW, THEREFORE, in
consideration of the foregoing, intending to be legally bound, the
parties hereto hereby agree as follows:
(a) Capitalized
terms used but not otherwise defined herein shall have the meanings
ascribed thereto in the Merger Agreement. For purposes of this
Agreement, the following terms shall have the following
meanings:
“
Constructive Sale ” means with respect to any
security, a short sale with respect to such security, entering into
or acquiring an offsetting derivative contract with respect to such
security, entering into or acquiring a futures or forward contract
to deliver such security or entering into any other hedging or
other derivative transaction that has the effect of either directly
or indirectly materially changing the economic benefits or risks of
ownership.
“
Shares ” means (i) all shares of capital stock of
Merger Partner owned, beneficially or of record, by Noteholder as
of the date hereof, and (ii) all additional shares
of
capital stock
of Merger Partner acquired by Noteholder, beneficially or of
record, during the period commencing with the execution and
delivery of this Agreement and expiring on the Expiration Date (as
such term is defined in Section 11 below), including shares of
Merger Partner Common Stock issued to Noteholder pursuant to
Section 2 hereof.
“
Transfer ” means, with respect to any security, the
direct or indirect assignment, sale, transfer, tender, exchange,
pledge, hypothecation, or the grant, creation or suffrage of a
lien, security interest or encumbrance in or upon, or the gift,
placement in trust, or the Constructive Sale or other disposition
of such security (including transfers by testamentary or intestate
succession or otherwise by operation of law) or any right, title or
interest therein (including, but not limited to, any right or power
to vote to which the holder thereof may be entitled, whether such
right or power is granted by proxy or otherwise), or the record or
beneficial ownership thereof, the offer to make such a sale,
transfer, Constructive Sale or other disposition, and each
agreement, arrangement or understanding, whether or not in writing,
to effect any of the foregoing.
2.
Conversion or Exchange of Carolina Note .
(a) Prior
to the date Public Company first files the Registration Statement
with the SEC, Noteholder shall surrender for cancellation the
Carolina Note to Operating Company along with written instructions
to Operating Company and Merger Partner to cancel the Carolina Note
and issue shares of Merger Partner Common Stock in exchange for, at
Noteholder’s option, all or a portion of the Carolina Note
(but in an amount not less than the principal amount outstanding
under the Carolina Note on the date of exchange) (such amount to be
converted or exchanged, the “ Purchase Amount
”). Upon receipt of the surrendered Carolina Note by
Operating Company, Noteholder will be deemed to be the holder of
record of the shares of Merger Partner Common Stock issuable with
respect to the Purchase Amount (as calculated under
Section 2(b)) as of the close of business on the date the
Carolina Note is surrendered to Operating Company, and Merger
Partner will promptly execute or cause to be executed and delivered
to Noteholder a certificate or certificates representing such
number of shares. If Noteholder chooses not to convert or exchange
the entire amount of principal and accrued interest then
outstanding under the Carolina Note, Operating Company will,
concurrently with Merger Partner’s delivery of said stock
certificate or certificates, deliver to Noteholder a new promissory
note of like tenor evidencing the remaining outstanding amount of
the Carolina Note not so converted or exchanged for shares of
Merger Partner Common Stock. Upon surrender of the Carolina Note to
Operating Company by Noteholder, all shares of Merger Partner
Common Stock deliverable and issued hereunder will be duly
authorized, duly and validly issued and outstanding, fully paid and
nonassessable, and free from taxes, liens or charges.
(b) Upon
receipt of the written instructions from Noteholder pursuant to
Section 2(a), Merger Partner shall issue to Noteholder in
respect of the Purchase Amount a number of shares of Merger Partner
Common Stock equal to (i) the quotient of (A) the
Purchase Amount, divided by (B) the fair market value of
Merger Partner on the conversion or exchange date as determined in
good faith by the Merger Partner Board, multiplied by (ii) the
sum of (A) the number of shares of Merger Partner Common Stock
outstanding immediately prior to the conversion or exchange plus
(B) the number of shares of Merger Partner Common Stock
issuable upon exercise of Merger Partner Stock Options and Merger
Partner Warrants outstanding immediately prior to the conversion or
exchange.
3.
Transfer and Voting Restrictions With Respect to the Shares
.
(a) At
all times during the period commencing with the execution and
delivery of this Agreement and expiring on the Expiration Date,
Noteholder shall not, except in connection with the Merger or as
the result of the death of Noteholder, Transfer any of the Shares,
or discuss, negotiate, make
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an offer or
enter into an agreement, commitment or other arrangement with
respect thereto, unless the person to which such Shares are being
Transferred shall have executed and delivered a counterpart of this
Agreement and agreed pursuant thereto, for the benefit of Public
Company and Transitory Subsidiary, to hold such Shares subject to
all terms and conditions of this Agreement.
(b) Noteholder
understands and agrees that if Noteholder attempts to Transfer,
vote or provide any other person with the authority to vote any of
the Shares other than in compliance with this Agreement, Merger
Partner shall not, and Noteholder hereby unconditionally and
irrevocably instructs Merger Partner to not, (i) permit any
such Transfer on its books and records, (ii) issue a new
certificate representing any of the Shares or (iii) record
such vote, in each case, unless and until Noteholder shall have
complied with the terms of this Agreement.
(c) Except
as otherwise permitted by this Agreement or by order of a court of
competent jurisdiction, Noteholder will not commit any act that
could restrict or affect Noteholder’s legal power, authority
and right to vote all of the Shares then owned of record or
beneficially by Noteholder or otherwise prevent or disable
Noteholder from performing any of his, her or its obligations under
this Agreement. Without limiting the generality of the foregoing,
except for this Agreement and as otherwise permitted by this
Agreement, Noteholder will not enter into any voting agreement with
any person or entity with respect to any of the Shares, grant any
person or entity any proxy (revocable or irrevocable) or power of
attorney with respect to any of the Shares, deposit any of the
Shares in a voting trust or otherwise enter into any agreement or
arrangement with any person or entity limiting or affecting
Noteholder’s legal power, authority or right to vote the
Shares in favor of the approval of the Proposed
Transaction.
4.
Agreement to Vote Shares .
(a) Prior
to the Expiration Date, at every meeting of the stockholders of
Merger Partner called, and at every adjournment or postponement
thereof, and on every action or approval by written consent of the
stockholders of Merger Partner, Noteholder (in Noteholder’s
capacity as such) shall appear at the meeting or otherwise cause
the Shares to be present thereat for purposes of establishing a
quorum and, to the extent not voted by the persons appointed as
proxies pursuant to this Agreement, vote (i) in favor of
adoption of the Merger Agreement and approval of the transactions
contemplated thereby (collectively, the “ Proposed
Transaction ”), (ii) against the approval or
adoption of any proposal made in opposition to, or in competition
with, the Proposed Transaction, and (iii) against any of the
following (to the extent unrelated to the Proposed Transaction):
(A) any merger, consolidation or business combination
involving Merger Partner or any of its subsidiaries other than the
Proposed Transaction; (B) any sale, lease or transfer of all
or substantially all of the assets of Merger Partner or any of its
subsidiaries; (C) any reorganization, recapitalization,
dissolution, liquidation or winding up of Merger Partner or any of
its subsidiaries; or (D) any other action that is intended, or
could reasonably be expected, to result in a breach of any
covenant, representation or warranty or any other obligation or
agreement of Merger Partner under the Merger Agreement or of
Noteholder under this Agreement or otherwise impede, interfere
with, delay, postpone, discourage or adversely affect the
consummation of the Proposed Transaction (each of (ii) and
(iii), a “ Competing Transaction ”).
(b) If
Noteholder is the beneficial owner, but not the record holder, of
the Shares, Noteholder agrees to take all actions necessary to
cause the record holder and any nominees to vote all of the Shares
in accordance with Section 4(a).
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5. Grant
of Irrevocable Proxy .
(a) Noteholder
hereby irrevocably (to the fullest extent permitted by law) grants
to, and appoints, Public Company and each of its executive officers
and any of them, in their capacities as officers of Public Company
(the “ Grantees ”), as Noteholder’s proxy
and attorney-in-fact (with full power of substitution and
re-substitution), for and in the name, place and stead of
Noteholder, to vote the Shares, to instruct nominees or record
holders to vote the Shares, or grant a consent or approval in
respect of such Shares in accordance with Section 4 hereof
and, in the discretion of the Grantees with respect to any proposed
adjournments or postponements of any meeting of Noteholders at
which any of the matters described in Section 4 hereof is to
be considered.
(b) Noteholder
represents that any proxies heretofore given in respect of the
Shares that may still be in effect are not irrevocable, and such
proxies are hereby revoked.
(c) Noteholder
hereby affirms that the irrevocable proxy set forth in this
Section 5 is given in connection with the execution of the
Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of Noteholder under this
Agreement. Noteholder hereby further affirms that the irrevocable
proxy is coupled with an interest and may under no circumstances be
revoked. Noteholder hereby ratifies and confirms all that such
irrevocable proxy may lawfully do or cause to be done by virtue
hereof. Such irrevocable proxy is executed and intended to be
irrevocable in accordance with the provisions of Section 212
of the Delaware General Corporation Law.
(d) The
Grantees may not exercise this irrevocable proxy on any other
matter except as provided above. Noteholder may vote the Shares on
all other matters.
(e) Public
Company may terminate this proxy with respect to Noteholder at any
time at its sole election by written notice provided to
Noteholder.
6. No
Solicitation . Noteholder, in his, her or its capacity as a
Noteholder, shall not directly or indirectly, (a) solicit,
initiate, encourage, induce or facilitate the
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