Document:

exv10w1

 

Exhibit 10.1

CONSULTING AGREEMENT

     THIS CONSULTING AGREEMENT (the “Agreement”), dated as of October 25, 2006 (the
“Effective Date”) is entered into by Critical Therapeutics, Inc., a Delaware corporation
with offices at 60 Westview Street, Lexington, MA 02421 (the “Company”), and M. Cory
Zwerling, an individual residing at 21 Hutchins Road, Carlisle, MA 01741 (the
“Consultant”).

INTRODUCTION

     WHEREAS, the Company desires to retain the services of the Consultant and the Consultant
desires to perform certain services for the Company; and

     WHEREAS, the Consultant is in the business of providing such services and has agreed to
provide such services pursuant to the terms and conditions set forth in this Agreement;

     NOW, THEREFORE in consideration of the mutual covenants and promises contained herein and
other good and valuable consideration, the receipt and sufficiency which is hereby acknowledged by
the parties hereto, the parties agree as follows:

     1. Consultant Services. During the Consultation Period (as defined below), the
Consultant shall perform such consulting, advisory and related services for the Company as may be
reasonably requested by the Company from time to time including, but not limited to, services
related to the Company’s commercial sales and marketing, business development initiatives, and
other such related projects as mutually defined by the Company and the Consultant (collectively,
the “Services”).

	 	(a)	 	Performance of Services. The Consultant shall have the right to
control and determine the time, place, methods, manner and means of performing the
Services. In performing the Services, the amount of time devoted by the Consultant on
any given day will be entirely within the Consultant’s control, and the Company will
rely on the Consultant to perform services for the necessary number of hours as are
necessary to fulfill the requirements of this Agreement.

	 	(b)	 	Final Results. In the performance of the Services, the Consultant has
the authority to control and direct the performance of the details of the Services, the
Company being interested only in the results obtained. However, the Services
contemplated by this Agreement must meet the Company’s standards and approval and shall
be subject to the Company’s general right of inspection and supervision to secure their
satisfactory completion.

	 	(c)	 	Scope of Authority. The Consultant is not authorized to assume or
create any obligation or responsibility, express or implied, on behalf of, or in the
name of, the Company or to bind the Company in any manner. The Consultant shall not
use the Company’s trade names, trademarks, service names or service marks without the
prior written approval of the Company. The Consultant is not authorized to transact

 

 

	 	 	 	business, incur obligations, sell goods, receive payments, solicit orders or assign or
create any obligation of any kind, express or implied, on behalf of the Company or any
of the Company’s related or affiliated entities, or to bind in any way whatsoever, or
to make any promise, warranty or representation on behalf of the Company or any of the
Company’s related or affiliated entities with respect to any matter, except as
expressly authorized in this Agreement or in another writing signed by an authorized
representative of the Company.

     2. Term. This Agreement shall commence on the date hereof and shall continue for a
period of twelve (12) months and thereafter shall automatically extend to a month-to-month period
unless either party provides one (1) month prior notice (such period, as it may be extended, being
referred to as the “Consultation Period”), unless sooner terminated in accordance with the
provisions of Section 4. The provisions of Sections 6, 7, 8, 9, 14, 16 and 17 hereof shall survive
the expiration or termination of this Agreement.

     3. Compensation.

          3.1 Consulting Fees. The Company shall pay to the Consultant consulting fees at the
rate of $1,800 per day during the Consultation Period. In addition, the Company shall pay the
Consultant $49,000 for consulting performed prior to the Consultation Period within 30 days after
receiving an invoice for such work and the parties agree such work shall be governed by this
Agreement as if the Agreement was in effect during such period. The Consultant will invoice the
Company for consulting fees and expenses on a monthly basis, in a form reasonably satisfactory to
the Company, and the Company agrees to pay such invoices within thirty (30) days after receipt
thereof.

          3.2 Stock Options. On October 25, 2006 (the “Option Grant Date”), the Company
shall grant the Consultant a stock option to purchase 200,000 shares of the Company’s Common Stock,
which will be in the form of non-qualified stock option. Such stock option (i) will entitle the
Consultant to purchase the Company’s Common Stock at the closing price per share of the Company’s
Common Stock on the Nasdaq Global Market (“NASDAQ”) on the Option Grant Date, in accordance
with the Company’s 2004 Stock Incentive Plan, as amended (the “2004 Plan”), and (ii) shall
vest in thirty-six (36) equal monthly installments beginning one month from the Option Grant Date
for as long Consultant remains an active consultant to the Company, and subject to the terms,
provisions and condition described in the Company’s stock option agreement, which Consultant agrees
to execute and deliver to the Company on or after the Effective Date. Fifty (50) percent of the
Consultant’s outstanding unvested stock options will vest on the earlier of:

	 	(i)	 	a “Change of Control” (as defined in the 2004 Plan) as long as Consultant is an
active Consultant to the Corporation at the time of the Change of Control or the Change
of Control occurs within six (6) months following the termination or expiration of this
Agreement, as the case may be, provided that the counterparty in such Change of Control
was one with whom Consultant assisted the Company in the conduct of discussions or
otherwise provided

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	 	 	 	material advice in respect of such Change of Control, prior to such termination
or expiration of the Agreement; or

	 	(ii)	 	the consummation of a business development or licensing transaction related to
the Company’s program(s), product(s), technology or intellectual property that
satisfies the Company’s strategic objectives as determined by the Company’s Board of
Directors (a “Transaction”) as long as Consultant is an active Consultant to
the Corporation at the time of the Transaction or the Transaction occurs within six (6)
months following the termination or expiration of this Agreement, as the case may be,
provided that the counterparty in such Transaction was one with whom Consultant
assisted the Company in the conduct of discussions or otherwise provided material
advice in respect of such Transaction, prior to such termination or expiration of the
Agreement. The Company’s Board of Directors will assess whether a transaction achieves
the Company’s strategic objectives.

Notwithstanding any other provision in this Agreement, nothing in this Agreement shall be deemed to
obligate the Company to enter into any transaction that would result in acceleration of vesting.
The stock option shall be subject to, and governed by, the terms, provisions and conditions of the
2004 Plan and the stock option agreement.

          3.3 Reimbursement of Expenses. The Company shall reimburse the Consultant for all
reasonable and necessary expenses incurred or paid by the Consultant in connection with, or related
to, the performance of his services under this Agreement in accordance with the Company’s expense
reimbursement policies; provided, however, the Company shall not be responsible under this
Agreement for any expenses incurred or paid by Consultant in excess of $5,000 without the Company’s
prior written consent (for purposes of clarification, this limit is an aggregate cap on
reimbursement under the Agreement). The Consultant shall submit to the Company itemized monthly
statements with supporting documentation of such expenses incurred in the previous month and the
Company shall make any expense reimbursements to which the Consultant is entitled within 30 days of
the actual receipt of the required documentation.

          3.4 Benefits. The Consultant shall not be entitled to any benefits, coverages or
privileges, including, without limitation, social security, unemployment, medical or pension
payments, made available to employees of the Company.

     4. Termination. The Company may, without prejudice to any right or remedy it may have
due to any failure of the Consultant to perform his obligations under this Agreement or otherwise,
terminate the Consultation Period upon three (3) business days prior written notice to the
Consultant. In the event of such termination, the Consultant shall be entitled to payment for
services performed and expenses paid or incurred prior to the effective date of termination,
subject to the limitation on reimbursement of expenses set forth in Section 3.3. Such payments
shall constitute full settlement of any and all claims of the Consultant of every description
against the Company. Notwithstanding the foregoing, the Company may terminate the Consultation
Period, effective immediately upon receipt of written notice, if the Consultant

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breaches or threatens to breach any provision of Section 6 or 7, or effective upon three (3)
business days prior written notice to the Consultant.

          4.1 Consultant Termination. The Consultant may terminate this agreement upon thirty
(30) days prior written notice to the Company. The Company reserves the right to withhold final
payment to the Consultant for any unpaid invoices until pending work has been satisfactorily
completed for the Company.

     5. Cooperation. The Consultant shall use his best efforts in the performance of his
obligations under this Agreement. The Company shall provide such access to its information and
property as may be reasonably required in order to permit the Consultant to perform his obligations
hereunder. The Consultant shall cooperate with the Company’s personnel, shall not interfere with
the conduct of the Company’s business and shall observe all rules, regulations and security
requirements of the Company concerning the safety of persons and property.

     6. Inventions and Proprietary Information.

          6.1 Inventions.

               (a) All inventions, discoveries, computer programs, data, technology, designs, innovations and
improvements (whether or not patentable and whether or not copyrightable) (“Inventions”)
related to the business of the Company which are made, conceived, reduced to practice, created,
written, designed or developed by the Consultant, solely or jointly with others and whether during
normal business hours or otherwise, during the Consultation Period or thereafter if resulting or
directly derived from Proprietary Information (as defined below), shall be the sole property of the
Company. The Consultant hereby assigns to the Company all Inventions and any and all related
patents, copyrights, trademarks, trade names, and other industrial and intellectual property rights
and applications therefor, in the United States and elsewhere and appoints any officer of the
Company as his duly authorized attorney to execute, file, prosecute and protect the same before any
government agency, court or authority. Upon the request of the Company and at the Company’s
expense, the Consultant shall execute such further assignments, documents and other instruments as
may be necessary or desirable to fully and completely assign all Inventions to the Company and to
assist the Company in applying for, obtaining and enforcing patents or copyrights or other rights
in the United States and in any foreign country with respect to any Invention. The Consultant also
hereby waives all claims to moral rights in any Inventions.

               (b) The Consultant shall promptly disclose to the Company all Inventions and will maintain
adequate and current written records (in the form of notes, sketches, drawings and as may be
specified by the Company) to document the conception and/or first actual reduction to practice of
any Invention. Such written records shall be available to and remain the sole property of the
Company at all times.

          6.2 Proprietary Information.

               (a) The Consultant acknowledges that his relationship with the Company is one of high trust
and confidence and that in the course of his service to the Company he will have access to and
contact with Proprietary Information. The Consultant agrees that he

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will not, during the Consultation Period or at any time thereafter, disclose to others, or use
for his benefit or the benefit of others, any Proprietary Information or Invention.

               (b) For purposes of this Agreement, Proprietary Information shall mean, by way of illustration
and not limitation, all information (whether or not patentable and whether or not copyrightable)
owned, possessed or used by the Company, including, without limitation, any Invention, formula,
vendor information, customer information, apparatus, equipment, trade secret, process, research,
report, technical data, know-how, computer program, software, software documentation, hardware
design, technology, marketing or business plan, forecast, unpublished financial statement, budget,
license, price, cost and employee list that is communicated to, learned of, developed or otherwise
acquired by the Consultant in the course of his service as a consultant to the Company.

               (c) The Consultant’s obligations under this Section 6.2 shall not apply to any information
that (i) is or becomes known to the general public under circumstances involving no breach by the
Consultant or others of the terms of this Section 6.2, or (ii) is approved for release by written
authorization of the Board of Directors of the Company.

               (d) Upon termination of this Agreement or at any other time upon request by the Company, the
Consultant shall promptly deliver to the Company all Company property and equipment in Consultant’s
possession or control, including but not limited to, all documents, records, files, memoranda,
notes, designs, data, reports, price lists, customer lists, physician lists, employee lists,
drawings, plans, computer programs, computer files, software, software documentation, sketches,
laboratory and research notebooks and other documents (and all copies or reproductions of such
materials) relating to the business of the Company.

               (e) The Consultant represents that his retention as a consultant with the Company and his
performance under this Agreement does not, and shall not, breach any agreement that obligates him
to keep in confidence any trade secrets or confidential or proprietary information of his or of any
other party or to refrain from competing, directly or indirectly, with the business of any other
party. The Consultant shall not disclose to the Company any trade secrets or confidential or
proprietary information of any other party.

               (f) The Consultant acknowledges that the Company from time to time may have agreements with
other persons or with the United States Government, or agencies thereof, that impose obligations or
restrictions on the Company regarding inventions made during the course of work under such
agreements or regarding the confidential nature of such work. The Consultant agrees to be bound by
all such obligations and restrictions that are known to him and to take all action necessary to
discharge the obligations of the Company under such agreements.

     7. Non-Competition and Non-Solicitation.

          7.1 While the Consultant is employed by the Company, the Consultant will not directly or
indirectly: engage in any business or enterprise (whether as owner, partner, officer, director,
employee, consultant, investor, lender or otherwise, except as the holder of not more than 1% of
the outstanding stock of a publicly-held company) that is competitive with the

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Company’s asthma business, including but not limited to any business or enterprise that
develops, manufactures, markets, or sells any patient-level product or service that competes with
any patient-level related product or service developed, manufactured, marketed or sold, or planned
to be developed, manufactured, marketed or sold, by the Company or any of its subsidiaries while
the Consultant was employed by the Company; or

          7.2 While the Consultant is employed by the Company and for a period of twelve months after
the termination or cessation of such employment for any reason, the Consultant will not directly or
indirectly: either alone or in association with others (i) solicit, or permit any organization
directly or indirectly controlled by the Consultant to solicit, any employee of the Company to
leave the employ of the Company, or (ii) solicit for employment, hire or engage as an independent
contractor, or permit any organization directly or indirectly controlled by the Consultant to
solicit for employment, hire or engage as an independent contractor, any person who is then
employed by the Company or was during the one-year period prior to the termination or cessation of
the Consultant’s employment with the Company an employee of the Company; or

          7.3 While the Consultant is employed by the Company, the Consultant will not directly or
indirectly: either alone or in association with others, solicit, divert or take away, or attempt to
divert or take away, the business or patronage of any of the clients, customers, investors or
accounts, or prospective clients, customers, investors or accounts, of the Company.

     8. Remedies. The Consultant acknowledges and agrees that the agreements and
restrictions contained in Sections 6 and 7 are necessary for the protection of the business and
goodwill of the Company and are reasonable for such purpose. The Consultant acknowledges that any
breach of the provisions of this Sections 6 and 7 shall result in serious and irreparable injury to
the Company for which the Company cannot be adequately compensated by monetary damages alone. The
Consultant agrees, therefore, that, in addition to any other remedy it may have, the Company shall
be entitled to enforce the specific performance of this Agreement by the Consultant and to seek
both temporary and permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.

     9. Independent Contractor Status. The Consultant shall perform all services under
this Agreement as an “independent contractor” and not as an employee or agent of the Company. The
Consultant is not authorized to assume or create any obligation or responsibility, express or
implied, on behalf of, or in the name of, the Company or to bind the Company in any manner.

     10. Notices. All notices required or permitted under this Agreement shall be in
writing and shall be deemed effective upon personal delivery or upon deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the
address shown above, or at such other address or addresses as either party shall designate to the
other in accordance with this Section 10.

     11. Pronouns. Whenever the context may require, any pronouns used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the singular forms of
nouns and pronouns shall include the plural, and vice versa.

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     12. Entire Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether written or oral, relating
to the subject matter of this Agreement.

     13. Amendment. This Agreement may be amended or modified only by a written instrument
executed by both the Company and the Consultant.

     14. Governing Law. This Agreement shall be construed, interpreted and enforced in
accordance with the laws of the Commonwealth of Massachusetts.

     15. Successors and Assigns. This Agreement shall be binding upon, and inure to the
benefit of, both parties and their respective successors and assigns, including any corporation
with which, or into which, the Company may be merged or which may succeed to its assets or
business, provided, however, that the obligations of the Consultant are personal and shall not be
assigned by him.

     16. Miscellaneous.

          16.1 No delay or omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Company on any
one occasion shall be effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.

          16.2 The captions of the sections of this Agreement are for convenience of reference only and
in no way define, limit or affect the scope or substance of any section of this Agreement.

          16.3 In the event that any provision of this Agreement shall be invalid, illegal or otherwise
unenforceable, the validity, legality and enforceability of the remaining provisions shall in no
way be affected or impaired thereby and said illegal or invalid part, term or provision shall be
deemed not to be a part of this Agreement. The language of all parts of this Agreement shall in
all cases be construed as a whole, according to its fair meaning, and not strictly for or against
any of the parties.

     17. Trading in Securities. The Consultant acknowledges and agrees that the Company is
a publicly-held company and the Consultant is aware that applicable securities laws prohibit any
person who is aware of material, non-public information about a company obtained directly or
indirectly from that company from purchasing or selling securities of such company or from
communicating such information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.

     18. Indemnification. The Company agrees to indemnify and hold the Consultant harmless
from and against any and all claims, demands, liabilities, damages, costs, or expenses (including
without limitation reasonable attorney’s fees) made against Consultant resulting from Consultant’s
duties hereunder, except where such claims, demands, liabilities, damages, costs, or expenses
result from Consultant’s gross negligence, reckless actions or willful or intentional misconduct.
The Consultant agrees to notify the Company of a claim or action subject to this paragraph promptly
after it learns of it and to cooperate with and to authorize the Company to

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carry out the sole management and defense of such claim or action, all at the Company’s
expense. The Consultant shall not compromise or settle any claim or action with respect to his
liability for which Consultant would seek indemnification under this Agreement without the prior
written approval of the Company.

[Remainder of this page is intentionally left blank]

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SIGNATURE PAGE TO CONSULTING AGREEMENT

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the day
and year set forth above.

	 	 	 	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 	 	 
	 	 	 	 	CRITICAL THERAPEUTICS, INC.
	 
	 	 	 	 	 	 
	 	 	 	 	/s/ Nicholas Galakatos
	 	 	 	 	 
	 

	 	 	 	By:
	 	Nicholas Galakatos
	 

	 	 	 	Title:
	 	Director
	 
	 	 	 	 	 	 
	 	 	CONSULTANT
	 
	 	 	 	 	 	 
	 	 	 	 	/s/ M. Cory Zwerling 10/25/06
	 	 	 	 	 
	 	 	 	 	M. Cory Zwerling

9exv10w2

 

Exhibit 10.2

60 Westview Street

Lexington, MA 02421

Phone: (781) 402-5700

Fax: (781) 862-5691

                   October 25, 2006

Walter Newman, Ph.D.

160 West Newton

Boston, MA 02118

RE:     Confidential Separation Letter Agreement and General Release

Dear Walter:

     This Confidential Separation Letter Agreement and General Release (the “Agreement”)
sets forth and confirms the terms of the separation package that Critical Therapeutics, Inc. (the
“Company”) is willing to offer you (“you” or the “Employee”) as a result of
your voluntary resignation to establish an amicable arrangement for ending your employment
relationship, to release the Company from any claims, and to permit you to receive severance pay
and related benefits. Please read this Agreement carefully. If you are willing to agree to its
terms, please sign and date in the space provided on the signature page and return it to Scott
Townsend, the Company’s Vice President of Legal Affairs and General Counsel, so that your
separation benefits can begin.

     1. Whether or not you choose to sign this Agreement, your employment with the Company will end
as of October 31, 2006 (the “Termination Date”), provided that you satisfactorily perform
your job and comply with Company policies and practices as determined in good faith by the Company
through the Termination Date. Whether or not you choose to sign this Agreement, you will be paid
on or about the Termination Date the following:

	 	(a)	 	any of your unpaid base salary at the rate of $11,229.17 per
semi-monthly pay period, through the Termination Date, less lawful deductions;
and
	 
	 	(b)	 	your unused and accrued vacation as of the Termination Date in
the amount of $14,257.59, less lawful deductions, which amount will be offset
by any additional accrued vacation time you use prior to the Termination Date.

     2. After the Termination Date, except as provided below, you will not be entitled to receive
any benefits paid by, or participate in any benefit programs offered by the Company to its
employees, including, but not limited to, the Company’s 401(k) plan, stock option plans, employee
stock purchase plans, bonus plans, commission plans, sales incentive plans, severance, life
insurance or disability insurance programs, except as required by federal or state law or as

 

 

otherwise described to you. You will receive, under separate cover, information concerning
your right to continue your health insurance and dental insurance benefits after that date in
accordance with COBRA. You must complete the COBRA enrollment documents within the required period
in order to continue this coverage. You will also receive, under separate cover, an information
statement regarding the vesting of your stock options agreements as of the Termination Date. Under
the terms of the Company’s stock option plans, you cease further vesting of stock options upon the
Termination Date.

     3. In consideration for timely signing of this Agreement and in compliance with the promises
made herein, the Company agrees to provide you with the monies and benefits set forth in
Attachment A (attached hereto) provided that you do not revoke your acceptance of this
Agreement pursuant to Paragraph No. 21 below.

     4. You also understand and agree that you would not receive the monies and/or benefits
specified in Paragraph No. 3 above, except for your execution of this Agreement and the fulfillment
of the promises contained herein. You acknowledge and agree that such payments shall be provided
in lieu of any severance plan of the Company, any benefits under your Employment Agreement dated
December 21, 2004 and any benefits under your employment offer letter. You acknowledge and agree
that you are solely responsible for the following:

	 	(i)	 	properly electing to continue health and dental insurance
coverage under COBRA; and
	 
	 	(ii)	 	delivering to the Company, to the attention of Jill Wund, Human
Resources Coordinator, on or before the first of each month or when otherwise
required by law, a check payable to “Critical Therapeutics, Inc.” for such
COBRA coverage (such amount to be for the portion of such COBRA premiums as the
Employee’s current portion of health and dental premiums until the COBRA End
Date (as defined in Attachment A) and then 100% of such COBRA premiums
thereafter for as long as such coverage is continued by you); and
	 
	 	(iii)	 	you hereby authorize that the Company may, if it so chooses,
make a deduction from any payments due under this Agreement pay in lieu of you
delivering a check to the Company for the Employee’s portion of COBRA premiums
pursuant to Paragraph No. 3 of this Agreement.

5. Therefore, in consideration of the payments to be made by the Company to you as set forth in
Paragraph No. 3 above and the promises contained in this Agreement, you voluntarily and of your own
free will agree to release, forever discharge and hold harmless Critical Therapeutics, Inc., its
subsidiaries, divisions and affiliates, its present or former officers, directors, trustees,
employees, agents or successors or assigns from any and all claims, demands, rules or regulations,
or any other causes of action of whatever nature, whether known or unknown, including, but not
limited to, (1) The National Labor Relations Act, as amended; (2) Title VII of the Civil Rights Act
of 1964, as amended; (3) Sections 1981 through 1988 of Title 42 of the United States Code, as
amended; (4) the Age Discrimination in Employment Act of 1967, as amended; (5) the Older Workers
Benefit Protection Act; (6) the Immigration Reform Control Act, as amended; (7) the

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Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq., except
for any claims for benefits vested, due and owing; (8) the Occupational Safety and Health Act, as
amended; (9) the Civil Rights Act of 1866, 29 U.S.C. § 1981, et seq; (10) the
Rehabilitation Act of 1973, 29 U.S.C. § 701, et seq.; (11) the Americans With
Disabilities Act of 1990, as amended; (12) the Civil Rights Act of 1991; (13) the Workers
Adjustment and Retraining Notification Act, as amended; (14) the Massachusetts Law Against
Discrimination, G.L. c. 151B; (15) the Massachusetts Wage and Hour Laws, G.L. c. 151; (16) the
Massachusetts Privacy Statute, G.L. c. 214, § 1B; (17) the Massachusetts Wage Payment Statute, G.L.
c. 149, § 148 et seq.; (18) the Massachusetts Sexual Harassment Statute, G.L. c.
214 § 1C; (19) the Massachusetts Civil Rights Act, G.L. c. 12, § 11H; (20) the Massachusetts Equal
Rights Act, G.L. c. 93, § 102; (21) Section 806 of the Corporate Fraud Accountability Act of 2002,
18 U.S.C. § 1514(A); (22) Fair Credit Reporting Act, 15 U.S.C. §1681 et. seq.; (23) any other
federal or state law, regulation, or ordinance; (24) any public policy, contract, tort, or common
law; (25) all claims to any non-vested ownership interest in the Company, contractual or otherwise,
including but not limited to claims to stock or stock options; and (26) any allegation for costs,
fees, or other expenses including attorneys’ fees incurred in these matters. You agree that
neither this Agreement, nor the furnishing of consideration for this Agreement, shall be deemed or
construed at anytime for any purpose as an admission by the Company of any liability or unlawful
conduct of any kind.

     6. You agree and reaffirm your post-employment obligations under Section 8 (proprietary
information and developments) of the Employment Agreement by and between you and the Company dated
December 21, 2004; provided, however, you agree that your post-employment non-competition
obligations shall be as follows: Employee agrees that while Employee is employed by the Company
and during the twelve (12) months immediately following the Termination Date, Employee shall not,
directly or indirectly, render services to, work for or on behalf of, or serve as a consultant or
an advisor to, or assist in any manner, any business within the Geographic Territory (as defined
below) which is competitive with the endeavors at the Company at the time of termination
(“Company Endeavors”); provided, however, the foregoing shall not prevent the Employee from
the following:

	 	(a)	 	after the six (6) months immediately following the Termination Date, working as
employee or a consultant to such a business if Employee’s position and scope of
responsibilities at such business were completely and entirely unrelated, directly or
indirectly, to endeavors competitive with the Company Endeavors;
	 
	 	(b)	 	after the six (6) months immediately following the Termination Date, working
for or on behalf of, or serving as a consultant or an advisor to, a non-profit academic
organization; or
	 
	 	(c)	 	owning up to one percent (1%) of the outstanding securities of a publicly-held
corporation which may compete with the Company.
	 
	 	(d)	 	As of the date of this Agreement, the term “Company Endeavors” includes the
following programs and/or targets: (i) 5-lipoxygenase (“5-LO”), (ii)
5-lipoxygenase activating protein (“FLAP”), (iii) high mobility group protein
B1 and its receptors (“HMGB1”), (iv) the alpha-7 nicotinic receptor
(“a-7”) in inflammation, and (v)

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	 	 	 	ethyl pyruvate (“CTI-01”). For purposes of this Paragraph No. 6, “Geographic
Territory” shall mean any state or locality in the United States. The parties agree
and acknowledge that the geographic scope of this provision is reasonable in light of
the geographically broad scope of the Company’s business.
	 
	 	(e)	 	The Employee agrees that he will give notice to the Company (such notice to be
in the manner set forth in Paragraph No. 23) of each new business activity he plans to
undertake during the non-competition period, at least ten (10) business days prior to
beginning any such activity. The notice shall state the name and address of the
individual, corporation, association or other entity or organization (each, an
“Entity”) for whom such activity is undertaken and the name of the Employee’s
business relationship or position with the entity. The Employee further agrees to
provide the Company with other pertinent information concerning such business activity
as the Company may reasonably request in order to determine the Employee’s continued
compliance with his obligations under this Agreement. The Employee agrees that he will
provide a copy of Paragraph No. 6 of this Agreement and Section 8 of the Employment
Agreement by and between Employee and the Company dated December 21, 2004 to
all persons and Entities with whom he seeks to be hired or do business before accepting
employment or engagement with any of them.
	 
	 	(f)	 	If any restriction set forth in this Paragraph No. 6 is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic area, it
shall be interpreted to extend only over the maximum period of time, range of
activities or geographic area as to which it may be enforceable.
	 
	 	(g)	 	The Employee acknowledges that the restrictions contained in this Paragraph No.
6 and Section 8 of the Employment Agreement by and between Employee and the Company
dated December 21, 2004 are necessary for the protection of the business and
goodwill of the Company and in light of, among other things, the highly competitive
market in which the Company operates. The Employee agrees that any breach of this
Paragraph No. 6 or Section 8 of the Employment Agreement by and between Employee and
the Company dated December 21, 2004 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition to such
other remedies which may be available, the Company shall have the right to seek
specific performance and injunctive relief without posting a bond.
	 
	 	(h)	 	If the Employee violates the provisions of this Paragraph No. 6, he shall
continue to be held by the restrictions set forth in this Paragraph No. 6, until a
period equal to the period of restriction has expired without any violation.

     7. You will be afforded ten (10) calendar days after the Termination Date to submit to Jill
Wund, Human Resources Coordinator at the Company, any and all documentation for any

4

 

expense reimbursements you claim are owed to you in conjunction with your employment with the
Company. You will be reimbursed for any reasonable business expenses incurred and approved through
the Termination Date consistent with Company policy, subject to the submission of the properly
documented business expense reports.

     8. You are afforded up to forty-five (45) calendar days from receipt of this Agreement and the
information specified in Paragraph No. 20 below to consider the meaning and effect of this
Agreement and general release and you acknowledge that you have been given 45 calendar days to
consider it. You agree that any modifications, material or otherwise, do not restart or affect in
any manner the original consideration period for the separation proposal made to you. You are
advised to consult with an attorney regarding this Agreement and you acknowledge that you have had
the opportunity to do so.

     9. You agree to return to the Company by the Termination Date all Company property and
equipment in your possession or control, including but not limited to, all documents, samples of
ZYFLO® (zileuton tablets), tapes, notes, computer files, equipment, physician lists, employee
lists, lab notebooks, files, computer equipment, security badges, telephone calling cards, credit
cards, and other information or materials (and all copies) which contain confidential, proprietary
or non-public information of the Company. You further agree to leave intact all electronic Company
documents on the Company’s servers or computers, including those which you developed or helped
develop during your employment.

     10. You agree not to disclose to anyone, either directly or indirectly, any information
whatsoever regarding the existence, terms or contents of this Agreement, except your immediate
family, attorneys, financial advisors, accountants, and tax preparation professionals, provided
that they agree to keep such information strictly confidential, until such time as this agreement
is filed as an exhibit to the Company’s filings with the U.S. Securities and Exchange Commission.
This includes, but is not limited to, present or former employees of the Company and other members
of the public. Violation of this paragraph shall be deemed a material breach of this Agreement.

     11. Nothing herein limits either party’s right, where applicable, to file or participate in an
investigative proceeding of any federal, state or local governmental agency, provided however, that
by signing this Agreement, you waive the right to seek or receive any money damages from the
Company based upon any claim that might be asserted arising out of your employment at the Company.
You further affirm that you have been paid and have received all leave (paid or unpaid),
compensation, wages, bonuses, commissions, severance and/or benefits to which you may be entitled
and that no other leave (paid or unpaid), compensation, wages, bonuses, commissions, severance
and/or benefits are due to you, except as provided in this Agreement. You furthermore affirm that
you have no known workplace injuries or occupational diseases and have been provided and/or have
not been denied any leave requested under the Family and Medical Leave Act.

     12. This Agreement, which includes a general release, represents the complete agreement
between you and the Company, and fully supersedes any prior agreements or understandings between
the parties (including, without limitation, your Employment Agreement dated December 21, 2004,
except that your post-employment obligations thereunder shall survive in full force and effect as
modified in Paragraph No. 6 above). You acknowledge that you have not

5

 

relied on any representations, promises, or agreements of any kind made to you in connection
with your decision to sign this Agreement, except those set forth herein.

     13. You agree that any claim or controversy arising out of or relating to this Agreement, or
any breach thereof, or otherwise arising out of or relating to your employment, compensation and
benefits with the Company or the termination thereof including any claim for discrimination under
any local, state or federal employment discrimination law, except as specifically excluded herein,
shall be settled by arbitration in The Commonwealth of Massachusetts, administered by the American
Arbitration Association under its National Rules for the Resolution of Employment Disputes. Any
claim or controversy not submitted to arbitration in accordance with this Section shall be waived,
and thereafter, no arbitration panel or tribunal or court shall have the power to rule or make any
award on any such claim or controversy. The award rendered in any arbitration proceeding held
under this paragraph shall be final and binding, and judgment upon the award may be entered in any
court having jurisdiction thereof. Claims for workers’ compensation or unemployment compensation
benefits are not covered by this Section. Also not covered by this Section are claims by the
Company or by you for temporary restraining orders or preliminary injunctions (“temporary
equitable relief”) in cases in which such temporary equitable relief would be otherwise
authorized by law, including but not limited to claims for equitable relief arising out of a breach
of this Agreement or the post-employment obligations under Section 8 (proprietary information and
developments) of the Employment Agreement by and between you and the Company dated December 21,
2004. Both the Company and you expressly waive any right that any party either has or may have
to a jury trial of any dispute arising out of or in any way related to your employment with or
separation from the Company.

     14. This Agreement, which shall be construed under Massachusetts law, shall be binding upon
the parties and may not be abandoned, supplemented, changed or modified in any manner, orally or
otherwise, except by an instrument in writing of concurrent or subsequent date signed by a duly
authorized representative of the parties hereto. This Agreement is binding upon and shall inure to
the benefit of the parties and their respective agents, assigns, heirs, executors, successors and
administrators.

     15. Should any provision of this Agreement be declared or be determined by any court of
competent jurisdiction to be illegal or invalid, the validity of the remaining parts, terms, or
provisions shall not be affected thereby and said illegal and invalid part, term or provision shall
be deemed not to be a part of this Agreement. The language of all parts of this Agreement shall in
all cases be construed as a whole, according to its fair meaning, and not strictly for or against
any of the parties.

     16. You understand and agree that as a condition for payment to you of the monetary
consideration herein, you shall not make any false, disparaging or derogatory statements in public
or private to any person or media outlet regarding the Company or any of its current, past or
future directors, officers, employees, agents, or representatives or the Company’s business affairs
and financial condition, except if testifying truthfully under oath pursuant to a lawful court
order or subpoena. If you receive such a court order or subpoena, to the extent allowed by law,
you or your attorney shall provide the Company with a copy of such court order or subpoena within
two (2) business days of your receipt of it and shall notify the Company of the content of any
testimony or

6

 

information to be provided and shall provide the Company with copies of all documents to be
produced.

     17. No delay or admission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Company on any
one occasion shall be effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.

     18. You agree to provide up to five (5) days of such consulting, advisory and related services
for the Company as may be reasonably requested by the Company or its employees, representatives or
agents during the period from the Termination Date through December 31, 2006, including, but not
limited to preparing to-do lists, answering questions, preparing memos, and updating or completing
projects. You agree that the salary continuation provided to you in Paragraph No. 3 above
constitutes full and appropriate compensation for any services you may provide to the Company under
this paragraph. The Company acknowledges and agrees that the Employee’s ability to travel at the
request of the Company will be limited if the Employee accepts part-time or full-time employment
with a third party. If the Employee is required to travel at the request of the Company after the
Termination Date, the Company agrees to pay any reasonable business expenses incurred in connection
with such travel provided that the travel is approved by the Company and such reimbursement shall
be made consistent with Company policy, subject to the submission of the properly documented
business expense reports.

     19. You acknowledge and agree that (i) neither the Company nor the Company’s legal counsel
makes any representation or warranty if any provisions of this Agreement or any payments made
pursuant to this Agreement are, or may be determined to constitute, “nonqualified deferred
compensation” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended,
and guidance issued thereunder (“Section 409A”) and (ii) the Company shall have no
liability to you or any other person if any payments pursuant to the provisions of this Agreement
are determined to constitute nonqualified deferred compensation subject to Section 409A and do not
satisfy the requirements of Section 409A. Notwithstanding any other provision of this Agreement,
the Company has the right to and the Company intends to comply with all withholding and reporting
obligations under Section 409A. You acknowledge and agree that each of (i) Wilmer Cutler Pickering
Hale and Dorr LLP, (ii) Jackson Lewis LLP and (iii) Scott Townsend, Esq. are the legal counsel of
the Company and as such represent the Company and not you. You are advised to consult
with an attorney regarding this Agreement and you acknowledge that you have had the opportunity to
do so.

     20. You acknowledge that you left your employment with the Company voluntarily and that your
employment did not end as part of the recent group severance program, but that the Company has
nevertheless provided you with certain information relating to the restructuring. In particular,
you acknowledge that you have received under separate cover information regarding (i) the
individuals selected and offered consideration for a release and (ii) individuals not selected for
the Fall 2006 Severance Program. You further acknowledge that you were informed that (i)
the decisional unit for the Fall 2006 Severance Program was all employees employed by the Company;
(ii) that all persons employed by the Company were eligible for the Fall 2006 Severance Program and
(iii) that factors used in selecting eligible individuals included business need, skill set and job
performance.

7

 

     21. You may revoke this Agreement for a period of seven (7) calendar days following the day
you execute this Agreement. Any revocation within this period must be submitted, in writing, to
Scott B. Townsend, Esq. at the Company, and state, “I hereby revoke my acceptance of the
Confidential Separation Letter Agreement and General Release.” The revocation must (i) be
personally delivered to the following address:

Critical Therapeutics, Inc.

Attention: Scott B. Townsend

Vice President of Legal Affairs and General Counsel

60 Westview Street

Lexington, MA 02421

or (ii) sent by certified mail, return receipt requested, postmarked within fifteen (15)
calendar days of execution of this Agreement. This Agreement shall not become effective or
enforceable until the revocation period has expired. If the last day of the revocation period is a
Saturday, Sunday, or legal holiday in Massachusetts or the state in which you primarily reside,
then the revocation period shall not expire until the next following day which is not a Saturday,
Sunday, or legal holiday.

     22. For the convenience of the parties, this Agreement may be executed by facsimile and in
counterparts, each of which shall be deemed to be an original, and both of which taken together,
shall constitute one agreement binding on both parties.

     23. All notices required or permitted under this Agreement shall be in writing and shall be
deemed effective upon personal delivery or upon the day that is three (3) days after deposit in the
United States Post Office, by registered or certified mail, postage prepaid, addressed to the other
party at the address shown below (or at such other address or addresses as either party shall
designate to the other in accordance with this Paragraph No. 23):

(a) If to the Company:

Critical Therapeutics, Inc.

Attention: President

With a Copy to: General Counsel

60 Westview Street

Lexington, MA 02421

(b) If to the Employee:

Walter Newman, Ph.D.

160 West Newton

Boston, MA 02118

[Remainder of this page is intentionally left blank]

8

 

     Critical Therapeutics, Inc. would like to extend its appreciation to you for your past
service, and its sincere hope for success in your future endeavors.

	 	 	 	 	 
	 	Very truly yours,

/s/ Frank E. Thomas

Frank E. Thomas

President

 	 
	 	 	 
	 	 	 
	 	 	 
	 

ACCEPTED AND AGREED:

You have been advised in writing that you have up to forty-five (45) calendar days to consider
this Confidential Separation Letter Agreement and General Release (the “Agreement”) and to consult
with an attorney prior to the execution of the Agreement.

Having elected to execute this Agreement, to fulfill the promises set forth herein, and to
receive thereby the sums and benefits set forth in Paragraph No. 3 of the Agreement, you freely and
knowingly, and after due consideration, enter into this Agreement intending to waive, settle, and
release all claims you have or might have against Critical Therapeutics, Inc. You have carefully
read this Agreement and understand the contents herein.

	 	 	 	 	 	 	 
	 	 	 	 	/s/ Walter Newman
	 	 
	Date: Oct. 25, 2006

	 	Name:
	 	 

Walter Newman, Ph.D.
	 	 

9

 

ATTACHMENT A

DESCRIPTION OF SEVERANCE BENEFITS

	1.	 	Severance Payments. The Company will pay to you the following lump sum amounts,
less lawful deductions, pursuant to the Employment Agreement: (a) $269,500 (which equals one
times your annualized base salary); and (b) $67,375 (which equals 10/12 of the Maximum Cash
Bonus (as defined in your Employment Agreement dated December 21, 2004) for 2006)), such
payments shall be made on the first payroll-cycle after the expiration of the revocation
period provided in Paragraph No. 21 of the Confidential Separation Letter Agreement
and General Release (the “Agreement”) to which this Attachment A is attached.
	 
	2.	 	Continuation of Benefits. The Company will pay on a monthly basis an amount equal
to:

	 	(a)	 	eighty (80) percent of your monthly health and dental COBRA
premiums for you and your dependents, if any, if you properly elect to continue
health and dental insurance under COBRA; and
	 
	 	(b)	 	$168.33 (which represents one hundred (100) percent of the cost of the
monthly premiums paid by the Company for life insurance and disability
insurance for you in the month preceding the end of your employment;

such payments under Subsections 2(a) and 2(b) of this Attachment A to continue until
the COBRA End Date (defined for purposes of this Agreement as the date that is the earlier
of (i) twelve (12) months after the Termination Date or (ii) the last day of the first month
that you are eligible for other employer-sponsored health coverage).

	3.	 	Stock Options. You will have until ninety (90) days after your Termination Date to
exercise any vested stock rights you may have. On the Termination Date, 50% of all unvested
options shall become exercisable if you sign and do not revoke the Agreement as set forth in
Paragraph No. 21 of the Agreement. All unvested stock rights will be cancelled on the
Termination Date. A schedule which lists all of your vested and unvested stock option grants
(including the 50% acceleration provided in the forgoing sentence) is attached hereto as
Attachment A-1.

10

 

ATTACHMENT A-1

OPTION SCHEDULE

STOCK OPTIONS

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Total	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Options
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Options	 	 	 	 	 	 	 	 	 	 	 	 	 	50%	 	Exercisable with
	Number	 	Date	 	Plan	 	Type	 	Granted	 	Price	 	Exercised	 	Vested	 	Unvested	 	Outstanding	 	Exercisable	 	Acceleration	 	Acceleration
	 
	83
	 	 	12/19/2003	 	 	 	2003	 	 	ISO	 	 	197,389	 	 	$	1.05	 	 	 	0	 	 	 	127,479	 	 	 	69,910	 	 	 	197,389	 	 	 	127,479	 	 	 	34,955	 	 	 	162,434	 
	115
	 	 	12/19/2001	 	 	 	2000	 	 	RSP	 	 	2,666	 	 	$	0.38	 	 	 	2,666	 	 	 	2,666	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 	 	 	0	 
	116
	 	 	5/1/2002	 	 	 	2000	 	 	RSP	 	 	82,666	 	 	$	0.38	 	 	 	0	 	 	 	82,666	 	 	 	0	 	 	 	82,666	 	 	 	82,666	 	 	 	0	 	 	 	82,666	 
	117
	 	 	10/9/2002	 	 	 	2000	 	 	RSP	 	 	66,666	 	 	$	0.38	 	 	 	0	 	 	 	66,666	 	 	 	0	 	 	 	66,666	 	 	 	66,666	 	 	 	0	 	 	 	66,666	 
	130
	 	 	5/1/2002	 	 	 	2000	 	 	RSP	 	 	22,666	 	 	$	0.38	 	 	 	0	 	 	 	18,133	 	 	 	4,533	 	 	 	22,666	 	 	 	18,133	 	 	 	2,266	 	 	 	20,399	 
	179
	 	 	9/8/2004	 	 	 	2004	 	 	ISO	 	 	80,268	 	 	$	5.99	 	 	 	0	 	 	 	19,360	 	 	 	60,908	 	 	 	80,268	 	 	 	19,360	 	 	 	30,454	 	 	 	49,814	 
	180
	 	 	9/8/2004	 	 	 	2004	 	 	NQ	 	 	119,732	 	 	$	5.99	 	 	 	0	 	 	 	50,136	 	 	 	69,596	 	 	 	119,732	 	 	 	50,136	 	 	 	34,798	 	 	 	84,934	 
	535
	 	 	1/3/2006	 	 	 	2004	 	 	NQ	 	 	90,000	 	 	$	7.12	 	 	 	0	 	 	 	0	 	 	 	90,000	 	 	 	90,000	 	 	 	0	 	 	 	45,000	 	 	 	45,000	 
	603
	 	 	6/25/2006	 	 	 	2004	 	 	NQ	 	 	50,000	 	 	$	3.80	 	 	 	0	 	 	 	0	 	 	 	50,000	 	 	 	50,000	 	 	 	0	 	 	 	25,000	 	 	 	25,000	 
	 
	Total
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	712,053	 	 	 	 	 	 	 	2,666	 	 	 	367,106	 	 	 	344,947	 	 	 	709,387	 	 	 	364,440	 	 	 	172,473	 	 	 	536,913	 
	 

11

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