CAPNIA, INC. (NASDAQ:CAPN) Files An 8-K Entry into a Material Definitive Agreement

CAPNIA, INC. (NASDAQ:CAPN) Files An 8-K Entry into a Material Definitive Agreement

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ITEM1.01

Entry into a Material Definitive Agreement

Merger Agreement

On December22, 2016, Essentialis, Inc., a Delaware corporation
(Essentialis), Capnia, Inc., a Delaware corporation (Capnia),
Company E Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Capnia (Merger Sub), and Neil Cowen,
in his capacity as stockholders representative, entered into an
Agreement and Plan of Merger (the Merger Agreement) to which, if
the transactions contemplated by the Merger Agreement are
consummated, at the effective time of the Merger (the Effective
Time), Merger Sub will merge with and into Essentialis with
Essentialis surviving the Merger as a wholly owned subsidiary of
Capnia (the Merger).

In consideration of the Merger, Capnia has agreed to issue to the
Essentialis stockholders at closing an aggregate of 17,354,453
shares of Capnia common stock (Capnia Common Stock), subject to
adjustment as described in the Merger Agreement. In addition,
Capnia will hold-back an additional 913,392 shares of Capnia
common stock as partial recourse to satisfy indemnification
claims made by Capnia under the merger agreement, and such shares
of Capnia common stock will be issued to Essentialis stockholders
on the 1 year anniversary of the closing (subject to the
limitations set forth in the Merger Agreement). Furthermore, upon
the achievement of a development milestone associated with
Essentialis product in accordance with the terms of the Merger
Agreement, Capnia will be obligated to issue an additional
4,566,961 shares of Capnia common stock to Essentialis
stockholders and upon the achievement of certain commercial
milestones associated with the sale of Essentialis product in
accordance with the terms of the Merger Agreement, Capnia will be
obligated to make cash earnout payments of a maximum of
$30million to Essentialis stockholders. Assuming that Capnia
issues all of the shares of Capnia Common Stock held back by
Capnia and the development milestone is achieved, Capnia would
issue a total of 22,834,806 shares of Capnia Common Stock to
Essentialis stockholders. The merger consideration described
above will be reduced by any such shares of Capnia Common Stock
issuable, or cash earnout payments payable, to Essentialis
management carve-out plan participants and other service
providers of Essentialis, in each case, in accordance with the
terms of the Merger Agreement.

The Merger and the Merger Agreement have been approved by the
board of directors of Essentialis (upon the recommendation by a
special committee of the board of directors of Essentialis), by a
special committee of the board of directors of Capnia and by the
requisite vote of the Essentialis stockholders. In addition, the
special committee of the board of directors of Capnia has agreed
to recommend that Capnias stockholders approve the issuance of
shares of Capnia Common Stock in the Merger.

Upon consummation of the Merger, the size of the Capnia board of
directors will be increased to 9 members, and Mahendra Shah, Jim
Glasheen and Stuart Collinson will be appointed to the Capnia
board to fill vacancies on the board.

Consummation of the Merger is subject to various closing
conditions, including Capnia consummating a financing of at least
$8million as described below, Capnia having a certain amount of
net cash at closing, the absence of any material adverse effect
with respect to both parties, the approval by the Capnia
stockholders of the issuance of shares of Capnia Common Stock in
the Merger, receipt of joinder agreements by Essentialis
stockholders holding a certain percentage of the outstanding
capital stock, and various other closing conditions. The parties
have also made customary representations, warranties, and
covenants in the Merger Agreement, including covenants regarding
the conduct of their respective businesses prior to the closing
date and provisions regarding indemnification.

Neither Essentialis nor Capnia is permitted to solicit, knowingly
support or encourage, engage in discussions or negotiations with,
or provide non-public information to, third parties regarding any
alternative transaction proposals. Notwithstanding this
limitation, prior to Capnias stockholders approving the issuance
of shares of Capnia Common Stock in the Merger, Capnia may under
certain circumstances provide information to and participate in
discussions or negotiations with third parties with respect to an
unsolicited alternative transaction proposal that its board of
directors (or special committee) has determined in good faith
constitutes a superior proposal. Capnias board of directors (or
special committee) may change its recommendation to its
stockholders (subject to Essentialis right to terminate the
Merger Agreement following such change in recommendation) in
response to a superior proposal or an intervening event if
Capnias board of directors (or special committee) determines in
good faith that the failure to take such action would constitute
a breach of its fiduciary duties under Delaware law.

The Merger Agreement contains certain termination rights for both
Essentialis and Capnia and further provides that Capnia must pay
Essentialis a termination fee of $750,000 and/or reimburse
certain expenses of Essentialis in connection with the Merger up
to $500,000, in each case, upon termination of the Merger
Agreement under specified circumstances.

As further described in Item 3.02 below, the shares of Capnia
Common Stock issued in the Merger will not be registered under
the Securities Act of 1933, as amended (the Securities Act), and
will be subject to various restrictions and limitations on
transfer under U.S. Securities laws. Capnia has agreed to grant
stockholders of Essentialis receiving shares of Capnia

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Common Stock in the Merger (and other Essentialis service
providers who are entitled to receive shares of Capnia Common
Stock in the Merger) certain registration rights that will be
substantially similar to the registration rights granted by
Capnia to the investors in the financing transaction described
below.

As noted above, the consummation of the Merger is subject to
Capnia consummating a financing of at least $8million at or
substantially contemporaneous with the closing of the Merger (the
Financing). In connection with the anticipated Financing, Capnia
has received non-binding indications of interest from investors
providing for $8million in financing at $0.96 per share of Capnia
Common Stock.

The representations, warranties and covenants contained in the
Merger Agreement were made solely for the purposes of the Merger
Agreement, were made as of specific dates, were made solely for
the benefit of the parties to the Merger Agreement and may not
have been intended to be statements of fact but, rather, as a
method of allocating risk and governing the contractual rights
and relationships among the parties to the Merger Agreement.The
assertions embodied in those representations and warranties may
be subject to important qualifications and limitations agreed to
by Capnia and Essentialis in connection with negotiating their
respective terms.Moreover, the representations and warranties may
be subject to a contractual standard of materiality that may be
different from what may be viewed as material to stockholders of
Capnia.For the foregoing reasons, none of Capnias stockholders or
any other person should rely on such representations and
warranties, or any characterizations thereof, as statements of
factual information at the time they were made or otherwise.

The foregoing description of the Merger Agreement does not
purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is filed
herewith as Exhibit 2.1 and incorporated by reference herein.

Voting Agreements

In connection with the execution and delivery of the Merger
Agreement, entities affiliated with Vivo Ventures and Ernest
Mario, the chairman of Capnias board of directors, in their
respective capacities as stockholders of Capnia, have entered
into voting agreements with Essentialis (the Voting Agreements),
to which such stockholders have agreed, among other things, to
vote their respective shares of Capnia Common Stock in favor of
the approval of the issuance of shares of Capnia Common Stock in
the Merger and against any alternative proposal.

The stockholders signing the Voting Agreements currently own
approximately 58.2% of the outstanding Capnia Common Stock
calculated in the aggregate.

The foregoing description of the Voting Agreements does not
purport to be complete and is qualified in its entirety by
reference to the form of the Voting Agreement, a copy of which is
filed herewith as Exhibit 10.1 and incorporated by reference
herein.

ITEM3.02. Unregistered Sales of Equity Securities

The shares of Capnia Common Stock issuable in the Merger and the
Financing will not be registered under the Securities Act. Such
shares will be issued in reliance on an exemption from such
registration requirements contained in Section4(a)(2)of the
Securities Act or Regulation D thereunder.

The information contained in Item 1.01 of this Report is
incorporated into this Item 3.02 by reference.

ITEM8.01. Other Events

On December27, 2016, Capnia issued a press release announcing the
execution of the Merger Agreement. A copy of the press release is
filed as Exhibit 99.1 to this Current Report and is incorporated
by reference herein.

Participants in the Solicitation

Capnia and its executive officers and directors may be deemed to
be participants in the solicitation of proxies from its
stockholders with respect to the transactions contemplated by the
Merger Agreement. Information regarding the persons who may,
under the rules of the Securities and Exchange Commission (the
SEC), be deemed participants in the solicitation of Capnia
stockholders in connection with the proposed issuance of shares
of Capnia Common Stock under the Merger and the Financing will be
set forth in the proxy statement when filed with the SEC.
Information regarding Capnias executive officers and directors is
included in Capnias Proxy Statement for its 2016 Annual Meeting
of Stockholders, filed with the SEC on July18, 2016. Copies of
the foregoing documents may be obtained as provided above.
Additional information regarding the persons

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who may, under the rules of the SEC, be deemed participants in
the solicitation of proxies in connection with the proposed
issuance of shares of Capnia Common Stock under the Merger and
the Financing, and a description of their direct and indirect
interests in the proposed merger, which may differ from the
interests of Capnia stockholders generally, will be set forth in
the proxy statement when it is filed with the SEC.

Forward-Looking Statements

This Current Report on Form 8-K contains forward-looking
statements within the meaning of applicable federal securities
laws. Forward-looking statements contained in this Current Report
on Form 8-K or in
the exhibits attached hereto include, among others, statements
concerning Capnias proposed acquisition of Essentialis; and the
availability of the financing that is anticipated to be
consummated at or substantially contemporaneous with the closing
of the merger transaction. These forward-looking statements
involve known and unknown risks, uncertainties, and other factors
that may cause actual results to be materially different from any
future results expressed or implied by the forward-looking
statements. The merger is also subject to inherent risks and
uncertainties, including, among others, the following: failure of
Capnias stockholders to approve the issuance of the shares of
Capnia Common Stock in the Merger and the Financing; the
challenges and costs of closing, and the availability of the
financing that is anticipated to be consummated at or
substantially contemporaneous with the closing of the merger
transaction, and other factors generally affecting the business,
operations, and financial condition of Capnia, including the
information contained in Capnias Annual Report on Form10-K for
the year ended December31, 2015, subsequent Quarterly Reports on
Form 10-Q, and other reports and filings with theSEC. Additional
risks, uncertainties, and other factors affecting Capnias
business will be contained in its Annual Report on Form10-K for
the year ending December31, 2016.

Item9.01 Financial Statements and Exhibits.

(d)
Exhibits

Exhibit

No.

Description

2.1 Agreement and Plan of Merger and Reorganization, dated as of
December22, 2016, by and among Capnia, Inc., a Delaware
corporation, Essentialis, Inc., a Delaware corporation,
Company E Merger Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of Capnia, and Neil Cowen as the
stockholders representative.
10.1 Form of Capnia Voting Agreement.
99.1 Press Release issued by Capnia, Inc. dated December27, 2016.

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About CAPNIA, INC. (NASDAQ:CAPN)

Capnia, Inc. is a healthcare company that develops and commercializes diagnostics, devices and therapeutics addressing unmet medical needs. The Company also has a therapeutics platform based on its technology for precision metering of gas flow. Its first commercial product, CoSense End-Tidal Carbon Monoxide (ETCO) Monitor, aids in the detection of excessive hemolysis, a condition in which red blood cells degrade rapidly. It also develops and markets pulmonary resuscitation solutions for the inpatient and ambulatory neonatal markets. The Company, through its subsidiary NeoForce, Inc., offers NeoPip T-piece resuscitator and related consumable, which delivers pre-set inspiratory pressure and positive end-expiratory pressures. Its other products include temperature probes, scales, surgical tables and patient surfaces. The Company’s therapeutic technology involves the use of metered nasal carbon dioxide (CO2) for the relief of symptoms related to various diseases.

CAPNIA, INC. (NASDAQ:CAPN) Recent Trading Information

CAPNIA, INC. (NASDAQ:CAPN) closed its last trading session up +0.049 at 0.799 with 3,905,758 shares trading hands.

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