Related Party Transactions and Outside Related Director Information

Somaxon Pharmaceuticals, Inc. (SOMX)

4/28/2006 Proxy Information

Series C Preferred Stock Financing

In June and September 2005, we issued in a private placement an aggregate of 48,148,455 shares of Series C preferred stock at a per share price of $1.35, for an aggregate consideration of $65,000,415 and net proceeds of $64,847,703 after deducting offering costs of $152,712. In December 2005, upon completion of our initial public offering, these Series C preferred shares converted into 8,024,721 shares of common stock. The price for the preferred stock in the financing was determined through negotiations between our board of directors and the investors in the financing based on a variety of factors such as the stage of our development, comparable valuations for similar companies and general market conditions.

The following table sets forth the aggregate number of these securities acquired by the listed directors, executive officers or holders of more than 5% of our common stock, or their affiliates: (See page 24 of proxy for table).

In connection with our Series C preferred stock financing, we entered into an agreement with purchasers of our preferred stock that provides for certain rights relating to the registration of their shares of common stock which were issued upon conversion of their preferred stock upon completion of our initial public offering. These rights terminate December 20, 2012, or for any particular holder with registration rights, at such time when all securities held by that stockholder subject to registration rights may be sold pursuant to Rule 144 under the Securities Act. All holders of our preferred stock, including the directors, executive officers or holders of 5% of our capital stock listed in the above table, are parties to this agreement.

Initial Public Offering

In December 2005, we completed our initial public offering of 5,000,000 shares of common stock at $11.00 per share for aggregate consideration of $55.0 million and net proceeds of approximately $49.8 million after deducting issuance costs. The price for the common stock in the initial public offering was determined through negotiations between us and the representatives of the underwriters for the offering. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general; sales, earnings and other financial and operating information in recent periods; and the price-earnings ratios, price-sales ratios and market prices of securities and certain financial and operating information of companies engaged in activities similar to ours.

A portion of the shares offered in our initial public offering were purchased by holders of more than 5% of our common stock, or their affiliates, as summarized in the following table:

Investor Number of Shares

Funds affiliated with MPM Capital, L.P.(1) 500,000 Funds affiliated with Montreux Equity Partners LLC(2) 75,000

(1) Includes 265,074 shares owned by MPM BioVentures III-QP, LP, 180,800 shares owned by MPM BioEquities Master Fund, LP, 22,400 shares owned by MPM BioVentures III GMBH & Co. Beteiligungs KG, 17,824 shares owned by MPM BioVentures III, LP, 8,007 shares owned by MPM BioVentures III Parallel Fund, LP, 4,695 shares owned by MPM Asset Management Investors 2005 BVIII LLC, and 1,200 shares owned by MPM BioEquities Investors Fund LLC. Mr. von Emster is a portfolio manager of MPM BioEquities Funds and Mr. Wheeler is a general partner of the MPM Capital BioVentures II and III funds.

(2) Includes 39,750 shares owned by Montreux Equity Partners III SBIC, L.P., and 35,250 shares owned by Montreux Equity Partners II SBIC, L.P. Mr. Turner is a general partner of Montreux Equity Partners.

Employment Agreements and Change of Control Arrangements

We have entered into employment agreements with Kenneth M. Cohen, our President and Chief Executive Officer, Susan E. Dubé, our Senior Vice President, Corporate and Business Development, Dr. Philip Jochelson, our Senior Vice President and Chief Medical Officer, Jeffrey W. Raser, our Senior Vice President, Sales and Marketing, and Meg M. McGilley, our Vice President, Chief Financial Officer, Treasurer and Secretary. For further information, see “Executive Compensation and Other Information — Employment Arrangements and Change of Control Arrangements” above.

Indemnification of Officers and Directors

Our restated certificate of incorporation and our bylaws provide that we will indemnify each of our directors and officers to the fullest extent permitted by the Delaware General Corporation Law. Further, we have entered into indemnification agreements with each of our directors and officers, and we have purchased a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment under certain circumstances.

Other Transactions

In January 2005, we paid $500,000 to ProCom One, which was accrued in December 2004 upon the completion of a Phase II clinical trial for SILENORtm pursuant to the terms of our August 2003 license agreement with ProCom One relating to the development and commercialization of low-dose doxepin for the treatment of insomnia. Mr. Cobb, co-founder and President of ProCom One, is a member of our board of directors.

During 2005, we paid an aggregate of $105,445 to Mr. Cobb pursuant to our August 2003 consulting agreement with him. The consulting agreement, as amended, currently provides for monthly payments to Mr. Cobb of $10,000 as compensation for consulting services. In addition, in November 2005, our board of directors approved the grant to Mr. Cobb of options to purchase an aggregate of 13,333 shares of our common stock, which have an exercise price of $13.62 per share and vest monthly over a period of two years from September 2005.