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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 001-38546
NEURONETICS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
33-1051425
(I.R.S. Employer Identification No.)
3222 Phoenixville Pike, Malvern, Pennsylvania 19355
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (610) 640-4202
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
STIM
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
☐
Smaller reporting company☒
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or
the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2023) was
approximately $56.5 million.
The number of shares of Registrant’s Common Stock outstanding as of February 29, 2024 was 29,756,053.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the 2024 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission
within 120 days after the end of the Registrant’s fiscal year ended December 31, 2023, are incorporated by reference into Part III of this Report.
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NEURONETICS, INC.
Annual Report on Form 10-K for the year ended December 31, 2023
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
PART I
Business.
Item 1.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 1C. Cybersecurity
Item 2.
Item 3.
Item 4. Mine Safety Disclosures.
Properties.
Legal Proceedings.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.
[Reserved]
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Financial Statements and Supplementary Data.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.
Item 15. Exhibits, Financial Statement Schedules.
Item 16. Form 10-K Summary
PART IV
EXHIBIT INDEX
SIGNATURES
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained
herein, including statements regarding our future results of operations and financial position, business strategy,
current and prospective products, product approvals, research and development costs, current and prospective
collaborations, timing and likelihood of success, plans and objectives of management for future operations and
future results of current and anticipated products, are forward-looking statements. These statements involve
known and unknown risks, uncertainties and other important factors that may cause our actual results,
performance or achievements to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “would,” “should,”
“expect,” “plan,” “design,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,”
“predict,” “potential” “outlook” or “continue” or the negative of these terms or other similar expressions. The
forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these
forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our business, financial condition and results of operations. These forward-
looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to a number
of risks, uncertainties and assumptions described under the sections entitled “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere herein. These risks
and uncertainties include, without limitation, risks and uncertainties related to: the impact of public health crises
on the Company’s operations, manufacturing and supply chain interruptions or delays; the Company’s ability to
execute its business strategy; the Company’s ability to achieve or sustain profitable operations due to its history
of losses; the Company’s reliance on the sale and use of its NeuroStar Advanced Therapy system to generate
revenues; the scale and efficacy of the Company’s salesforce; the Company’s ability to retain talent; availability
of coverage and reimbursement from third-party payors for treatments using the Company’s products; physician
and patient demand for treatments using the Company’s products; developments in competing technologies
and therapies for the indications that the Company’s products treat; product defects; the Company’s ability to
obtain and maintain intellectual property protection for its technology; developments in clinical trials or
regulatory review of NeuroStar Advanced Therapy system for additional indications; developments in regulation
in the U.S. and other applicable jurisdictions; our ability to successfully roll-out our Better Me Guarantee
Provider Program on the planned timeline; our self-sustainability and existing cash balances; and our ability to
achieve cash flow break-even in the fourth quarter of 2024 and on a full-year basis in 2025. The events and
circumstances reflected in our forward-looking statements may not be achieved or occur and actual results
could differ materially from those projected in the forward-looking statements. The Company cautions investors
not to place undue reliance on these forward-looking statements. Moreover, we operate in an evolving
environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to
predict all risk factors and uncertainties. Except as required by applicable law, we do not plan to publicly update
or revise any forward-looking statements contained in this Annual Report on Form 10-K, whether as a result of
any new information, future events, changed circumstances or otherwise.
Disclosure Channels to Disseminate Information
The Company announces material information to the public about the Company, its products and services and
other matters through a variety of means, including filings with the United States Securities and Exchange
Commission (the “SEC”), press releases, public conference calls, the Company’s website
(https://neurostar.com/neuronetics/), including the Investors section thereof, and/or social media, including its
Facebook page (https://www.facebook.com/NeuroStarAdvancedTMS/), X (formerly Twitter) account
(@TMSTherapy), Instagram account (@NeurostarAdvancedTMS), YouTube account
(https://www.youtube.com/user/NeuroStarTMSTherapy) and/or LinkedIn account
(https://www.linkedin.com/company/neuronetics-inc./), in order to achieve broad, non-exclusionary distribution
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of information to the public. The Company encourages investors and others to review the information it makes
public in these locations, as such information could be deemed to be material information. Please note that this
list may be updated from time to time. Our website, Facebook page, X account, Instagram account, YouTube
account and LinkedIn account, and the information contained therein or connected thereto, shall not be and is
not intended to be incorporated by reference into this Annual Report on Form 10-K or our other filings with the
SEC unless otherwise expressly provided.
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Item 1. Business.
Overview
PART I
We are a commercial stage medical technology company focused on designing, developing and marketing
products that improve the quality of life for patients who suffer from neurohealth disorders. Our first commercial
product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment
that uses transcranial magnetic stimulation (“TMS”) to create a pulsed, MRI-strength magnetic field that induces
electrical currents designed to stimulate specific areas of the brain associated with mood. The system is cleared
by the United States Food and Drug Administration (the “FDA”) to treat adult patients with major depressive
disorder (“MDD”) who have failed to achieve satisfactory improvement from at least one prior antidepressant
medication in the current MDD episode. It is also cleared by the FDA as an adjunct for adults with obsessive-
compulsive disorder (“OCD”), and to decrease anxiety symptoms in adult patients with MDD that may exhibit
comorbid anxiety symptoms (anxious depression). NeuroStar Advanced Therapy System is safe, clinically
effective, reproducible and precise and we believe is supported by the largest clinical data set of any competing
TMS system. We believe we are the market leader in TMS therapy based on the estimated 169,068 global
patients treated with over 6.1 million of our treatment sessions through December 31, 2023. We generated
revenues of $71.3 million for the year ended December 31, 2023.
MDD is a mood disorder characterized by the presence of one or both of two major diagnostic criteria: a
depressed mood or loss of interest in pleasure that continues for at least two weeks. The presence of at least
one of these diagnostic symptoms must be accompanied by several of the following additional symptoms: sleep
disturbance, changes in appetite, sexual dysfunction, anxiety, fatigue, difficulty concentrating and suicidal
thinking. MDD is a recurrent disease and follows a fluctuating course over an individual’s lifetime. It can be
characterized by periods of remission and relapse.
The World Health Organization (the “WHO”) ranks MDD as the largest contributor to global disability and a
major contributor to suicide worldwide. According to a study published in the Journal of PharmacoEconomics in
2021, the economic burden of MDD was estimated to be $326.2 billion, an increase of 37.9% relative to 2010.
The WHO estimates indicate the proportion of the global population with depression to be 4.4% and that there
are over 300 million people in the world living with depression. Based on U.S. Census Bureau data and a study
published in the Journal of the American Medical Association, we estimate that approximately 21 million people
between the ages of 22 and 70 years in the United States suffer from MDD annually, of whom an estimated
13.9 million, based on data from the Journal of the American Medical Association, are being treated by a
psychiatrist. We estimate, based on data from the Sequenced Treatment Alternatives to Relieve Depression
study (the “STAR*D Study”) that approximately 6.4 million of these patients have failed to achieve remission of
their MDD from their prior antidepressant medication therapy and that approximately 3.8 million of those
patients have commercial insurance or federal healthcare programs coverage for NeuroStar Advanced Therapy
System. As a result, based on our expected revenues for a standard course of treatment, we believe our total
annual addressable market opportunity for treatment sessions in the United States is approximately $8.9 billion.
Initial treatment options for MDD often consist of antidepressant medication prescribed by a primary care
physician. Although a variety of antidepressant medications are available, drug therapy has at least two primary
limitations: limited effectiveness and treatment-emergent side effects. These limitations were demonstrated in
the STAR*D Study, a large clinical trial funded by the U.S. National Institute of Mental Health that enrolled more
than 4,000 adult MDD patients at 41 clinical sites to examine the outcomes to a sequenced series of
antidepressant medication attempts that mimicked best practices. In the STAR*D Study, only approximately
28% and 21% of patients achieved remission in their first and second medication attempts, respectively. Many
patients taking antidepressant medications experience intolerable or troubling side effects that contribute to a
delay or failure in attaining an effective or optimal antidepressant dose, poor patient
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treatment adherence or discontinuation of treatment therapy. The likelihood of achieving remission is limited
and declines with each successive medication attempt.
TMS is considered an appropriate therapy for the treatment of MDD patients who have failed to achieve
satisfactory improvement from at least one prior antidepressant medication. TMS is typically performed as an
office-based procedure using a capital equipment system designed to deliver the magnetic pulses necessary to
stimulate the areas of the brain associated with mood. A course of treatment typically requires treatment
sessions five times per week for up to six weeks and can last from as short as three to as long as forty-five
minutes per session. We believe the effectiveness of TMS depends on the healthcare provider’s ability to
deliver a precise amount of magnetic pulses to a specific area of the brain in a manner that can be consistently
repeated during each treatment session.
We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat
patients who suffer from MDD and to address many of the key limitations of existing treatment options. We
believe our NeuroStar Advanced Therapy System provides our psychiatrist customers and their patients with
several benefits, including clinically demonstrated response and remission with durable results, a demonstrated
safety profile with limited treatment-emergent side effects and high patient adherence. Additionally, NeuroStar
Advanced Therapy System was designed to provide a precise and reproducible office-based therapy that is
efficient and convenient. Our therapy is delivered without general anesthesia or sedation, enabling the patient to
drive and resume normal activities immediately following each treatment session. We couple our product’s
clinical benefits with significant practice development resources, on-site clinical training and reimbursement and
service support to help our psychiatrist customers develop a successful NeuroStar Advanced Therapy System
practice. We also provide cloud-based practice management solutions that enhance convenience for both
psychiatrists and patients. Based on our commercial data, we believe psychiatrists can recoup their initial
capital investment in our system by providing a standard course of treatment to approximately 12 patients,
assuming these patients receive reimbursement from federal healthcare programs or commercial insurance at
rates that are similar to what our customers have observed for existing and prior patients. We believe
psychiatrists can generate approximately $8,500 of average revenue per patient for a standard course of
treatment, which may provide meaningful incremental income to their practices. We believe that the NeuroStar
Advanced Therapy System coupled with these advantages offer significant improvement over competing TMS,
which lack the ability to reproduce consistent treatments, significant clinical data from randomized outcome
trials, practice development resources, and a cloud-based practice management system.
The safety, effectiveness and durability of NeuroStar Advanced Therapy System is supported by a large clinical
data set published in 31 articles in peer-reviewed medical journals, including from 15 clinical studies that have
collectively enrolled more than 1,000 adult patients suffering from MDD. Dunner, et. al. published results of a
naturalistic, prospective, observational trial conducted at 42 U.S. clinical sites in 257 patients who had tried and
failed to receive relief from one or more medication trials in their current MDD episode who were treated with an
acute course of NeuroStar Advanced Therapy. Response and remission rates at 12 months were 68% and 45%
respectively as measured by CGI-S.
Our growth strategy includes expanding our commercialization efforts in the United States, expanding
international opportunities and pursuing pipeline development of our therapy for additional indications. Outside
the United States, our products have received marketing authorizations in the European Union and Japan. Our
initial international commercial focus is Japan, which has the third largest healthcare spend globally. We have
entered into an exclusive distribution agreement with Teijin Pharma Limited (“Teijin”) a leading Japanese
healthcare company, to further expand our commercialization efforts in this market. We are also evaluating the
use of enhancements to our NeuroStar Advanced Therapy System to treat additional indications.
As of December 31, 2023, we had 1,145 active sites utilizing our NeuroStar Advanced Therapy Systems in the
United States. We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in
the United States with the collaborative support of our 203 employees as of December 31, 2023.
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We generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and
service and repair and extended warranty contracts. We derive the majority of our revenues from recurring
treatment sessions. For the year ended December 31, 2023, we generated revenues of $71.3 million and had a
net loss of $30.2 million. Our revenues increased 9% during the year ended December 31, 2023 compared to
the year ended December 31, 2022. For the year ended December 31, 2023, our U.S. revenues were $69.3
million, compared to $63.4 million for the year ended December 31, 2022, which represented an increase of 9%
compared to the prior period. Revenues from treatment sessions represented 73% of our U.S. revenues for
the year ended December 31, 2023 compared to 71% of our U.S. revenues for the prior year.
Our Strategy
Our goal is to maintain and extend our leadership position in TMS therapy for patients with neurohealth
disorders. The key elements of our strategy include:
● Improve customer targeting and expand our direct sales and customer support team to
accelerate growth. To capture new psychiatrist customers, we plan to expand our specialized, direct
sales organization that targets MDD treating psychiatric practices that accept reimbursement from
private insurance and Medicare. Symphony Health estimates that there are approximately 26,300
group and solo practice sites in the United States with psychiatrists that prescribe antidepressant
medications. Our direct sales force primarily targets 53,000 psychiatrists at 26,000 psychiatric practices
that treat approximately 13.9 million patients based on data from the Journal of the American Medical
Association. We estimate, based on data from the Sequenced Treatment Alternatives to Relieve
Depression study (the “STAR*D Study”) that approximately 6.4 million of these patients have failed to
achieve remission of their MDD from their prior antidepressant medication therapy and that
approximately 3.8 million of those patients have commercial insurance or federal healthcare programs
coverage for NeuroStar Advanced Therapy System. As a result, based on our expected revenues for a
standard course of treatment, we believe our total annual addressable market opportunity for treatment
sessions in the United States is approximately $8.9 billion.We intend to continue to expand our team of
business development managers that are responsible for driving new customer acquisitions. To reach
our target practices, we also plan to expand our advertising efforts, both online and through more
traditional approaches, such as targeting leading psychiatric journals, practice outreach and education
through webinars and in person events, attendance at key psychiatric trade shows and sponsoring
clinical symposiums and product theaters.
● Increase utilization of our new and existing active customer sites of NeuroStar Advanced
Therapy Systems. We plan to expand our sales and customer support team to increase the number of
patients treated at new and existing active customer sites using our NeuroStar Advanced Therapy
Systems in the United States. We currently have 1,145 active customer sites in the United States. We
currently have 47 NeuroStar practice development managers in 2023 (“PDMs”), to focus exclusively on
helping increase patient utilization of NeuroStar Advanced Therapy System in a practice. We intend to
add to this team to support our revenue growth. Our NeuroStar practice consultants focus their efforts
on helping psychiatrist customers implement our Better Me Guarantee Provider pilot program and our 5
Stars Solution for Practice Success. We intend to make further investments in marketing resources,
such as our marketing portal, which consists of customizable practice development and advertising
materials, and digital patient outreach tools all of which are designed to drive patient awareness and
help identify patients who can benefit from NeuroStar TMS within an existing practice and in the local
community. We also plan to invest further in our direct to consumer marketing programs, which is
comprised of paid search, display advertising, social media, billboards, radio and public relations.
● Expand our international market opportunities. We primarily sell our products within the United
States. We also sell our products through distributors in countries where we have received regulatory
approval, including Japan, Saudi Arabia, The United Arab Emirates, Singapore, and the Republic of
Korea. We primarily focus our commercial efforts outside of the United States on Japan. We worked
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with Teijin to obtain reimbursement approval for the NeuroStar Advanced Therapy System in
June 2019 and will continue to provide sales, marketing and clinical support to ensure our commercial
success. We will continue to opportunistically evaluate additional markets outside the United States
and Japan for commercial expansion.
●
Pursue enhancements of our NeuroStar Advanced Therapy System and pipeline development
for additional indications. We plan to continue our research and development efforts to enhance the
hardware and software components of our NeuroStar Advanced Therapy System for the treatment of
MDD and other neurohealth disorders.
Research and Development
We invest in research and development for the use of the NeuroStar Advanced Therapy System in neurohealth
disorders. Throughout our history, we have provided material support to more than 65 investigator-initiated trials
and are currently considering a number of new indications for the use of the NeuroStar Advanced Therapy
System related to neurohealth disorders.
Sales and Customer Support Team and Customer Training
As of December 31, 2023, our sales and customer support team consisted of 91 employees working
collaboratively across the following departments: sales, marketing, field service and customer support, and
reimbursement. In 2024, we plan to continue to expand our sales and customer support teams to have the
largest direct sales and customer support team in the industry, including 47 NeuroStar practice development
managers, 18 area sales managers, 7 clinical training managers, 18 field service and technical support
specialists, 15 sales leaders, 8 customer service representatives, 4 inside sales managers and 10
reimbursement specialists and managers.
Key Customers, Sales and marketing—United States
We primarily market and sell the NeuroStar Advanced Therapy System and recurring treatment sessions to
psychiatrists, with primary care physicians and pain management specialists representing a small percentage of
our customer base. We are dependent upon a small number of customers, as the market for neurohealth
disorder equipment is highly concentrated. In 2022, our largest customer acquired our second-largest customer.
The combined entity accounted for 15% of our revenue in 2023. We executed a new long-term, exclusive
agreement with the customer in 2023, which covers sales to the combined organization on what we believe are
mutually beneficial terms.
We target approximately 53,000 psychiatrists across 26,000 psychiatric practices, We target these practices by
the number of psychiatrists within their practices, the number of patients they treat and their acceptance of
commercial insurance and Medicare. We believe that our psychiatrist targeting strategy makes for a well-
defined customer base that is accessible by our direct sales organization.
We have structured our sales and customer support team with specialized roles to sell our NeuroStar Advanced
Therapy Systems and recurring treatment sessions, while delivering customer service at each stage of the
implementation process. Our area sales managers are responsible for identifying key customer prospects,
educating them on the value of NeuroStar Advanced Therapy System, gaining their commitment for capital
placement and introducing them to our PDMs. Our PDMs enhance the operational experience for providers and
drive implementation of the NeuroStar Advanced Therapy System into our customers’ practices. We created the
role of clinical training manager to partner with our customers to conduct initial and ongoing on-site clinical
training to ensure clinical and practice success.
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Practice Management Support and Psychiatrist Training—United States
Our PDMs play a pivotal role in ensuring the success of our customers as they implement a new service line
into their practice. In the early stages of implementation, they help the practice set goals, educate on the types
of patients that can benefit from our therapy and train the office staff on how to talk with patients about TMS and
how to use patient educational tools such as presentations, videos and starter kits. Once the practice begins
treating patients, our PDMs will educate the psychiatrist on how to track clinical outcomes, interpret data and
effectively convey results to existing and potential patients and referring physicians. Our PDMs also work with
our customers to increase awareness with referring physicians and develop external marketing tactics. Our
dedicated reimbursement managers help practices navigate issues regarding the reimbursement process
including investigation of benefits, prior authorizations and claims documentation. This group has assisted our
customers to conduct over 69,900 benefit investigations.
Psychiatrists and staff training on the NeuroStar Advanced Therapy System is a key to success within each
practice. Our clinical training managers take the burden of clinical training off our NeuroStar practice
consultants and provide a dedicated training resource to each customer. Clinical training managers conduct a
hands-on training course that is scheduled after system installation at each practice and also provide ongoing
advanced on-site clinical training.
To enhance the work our PDMs do to support customer training and education, our sales training team hosts bi-
monthly NeuroStar University courses to educate existing customers on internal best practices that help them
improve the patient experience and overall business operations. This group has trained 369 customers during
the year 2023.
Field Support—United States
Our field service engineers are responsible for maintenance, repairs and installation. We provide a support
hotline to respond to inquiries and technical questions that arise in all time zones.
International
We market our products in a few select markets outside the United States through independent distributors. In
Japan, we have an exclusive distribution agreement with Teijin for the commercialization of our products. The
current term of this distribution agreement expires March 31, 2027, subject to automatic renewal unless
terminated by either party.
Competition
We have competitors that sell other forms of TMS therapy, including Brainsway, Apollo TMS, Magstim,
MagVenture, CloudTMS and Nexstim, that compete directly with the NeuroStar Advanced Therapy System. We
also face competition from pharmaceutical and other companies that develop products, such as antidepressant
medications, for the treatment of neurohealth disorders.
For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors –
Risks Related to Our Business and Industry.”
Intellectual Property
Our patent estate includes patents and applications with claims directed to our NeuroStar Advanced Therapy
Systems and broader claims for potential future products and developments. On a worldwide basis, as of
December 31, 2023, our patent estate included over 98 issued or allowed patents and 18 pending patent
applications for our products and novel design methods, manufacturing processes, novel TMS devices and
systems and future combination products that are mainly designed to treat psychiatric conditions or perform
diagnostic procedures. In the United States, as of December 31, 2023, we owned or licensed 38 issued or
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allowed patents and 10 pending patent applications that are directed to our TMS technology. Outside the United
States, as of December 31, 2023, we owned or licensed 60 issued or allowed patents, 7 pending patent
applications and 1 pending Patent Cooperation Treaty application.
These U.S. issued patents are expected to remain in effect until between 2024 and 2035. Non-U.S. patents are
expected to remain in effect until between 2024 and 2035. In 2024, we expect that five U.S. patents will expire
and 14 non -U.S. patents will expire. Our worldwide intellectual property portfolio includes multiple pending
patent applications relating to methods and apparatuses for the treatment of psychiatric health conditions in
Australia, Canada, the European Union, Japan and the United States. Our patents and patent applications
mainly relate to iron core technology, including materials, manufacturing methods, geometries, applications, and
open core technologies, TMS design patents, including coil position, motor threshold level determination,
contact sensing, and articulation arm designs, patient comfort, TMS support technologies and pulse monitoring,
and potential next generation technologies.
We own trade secrets relating to our technology, and we maintain the confidentiality of proprietary information to
protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent
protection. We seek to protect our trade secrets and know-how by entering into confidentiality agreements with
third-parties, consultants and employees who have access to such trade secrets and know-how.
For a more comprehensive discussion of the risks related to our intellectual property, please see “Risk Factors
—Risks Related to Intellectual Property.”
Raw Materials, Manufacturing and Supply
We manage all aspects of product supply through our operations team based in Malvern, Pennsylvania. We
outsource the manufacturing of components and high-level assemblies, which are produced and tested to our
specifications. We rely on third parties to acquire the raw materials and provide components used in existing
products and we expect to continue to do so for future products.
We establish our relationships with our third-party manufacturers and suppliers through supplier contracts and
purchase orders. In most cases, these supplier relationships may be terminated by either party upon short
notice. As of December 31, 2023, we engaged with Gharieni Group GmbH to supply our chair, Molex
Incorporated to supply our SenStar Components, and other companies to supply components of our chairs and
treatment packs. We are continuing to transition our console manufacturing to Ascential Technologies (previous
D&K), collaborating with them on optimizing the global supply chain.
Reimbursement, Payor Relations and Customer Support
Based on our estimates, over 65 major private insurers in the United States, including the top 25 largest private
insurers and federal healthcare programs, have coverage policies for reimbursement of TMS, including
NeuroStar Advanced Therapy System, representing over 300 million covered lives or about 95% of the total
payor covered lives in the United States.
Government Regulation
Our products and our operations are subject to extensive regulation by the FDA and other federal and state
authorities in the United States, as well as comparable authorities in foreign jurisdictions.
FDA
Our products are subject to regulation as medical devices under the U.S. Federal Food, Drug, and Cosmetic
Act, as amended (the “FDCA”), as implemented and enforced by the FDA. The FDA regulates the development,
design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage,
installation, servicing, recordkeeping, premarket clearance or approval, import, export, adverse event
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reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to
ensure that medical devices distributed domestically are safe and effective for their intended uses and
otherwise meet the requirements of the FDCA.
In addition to U.S. regulations, we are subject to a variety of regulations in other jurisdictions governing clinical
trials and commercial sales and distribution of our products. Whether or not we obtain FDA clearance or
approval for a product, we must obtain authorization before commencing clinical trials or obtain marketing
authorization or approval of our products under the comparable regulatory authorities of countries outside of the
United States. The marketing authorization process varies from country to country and the time may be longer
or shorter than that required for FDA clearance or approval.
FDA Premarket Clearance and Approval Requirements
Unless an exemption applies, each medical device commercially distributed in the United States requires either
FDA clearance of a 510(k) premarket notification or premarket approval (“PMA”). Under the FDCA, medical
devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk
associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its
safety and efficacy. Class I includes devices with the lowest risk to the patient and are those for which safety
and efficacy can be assured by adherence to the FDA’s General Controls for medical devices, which include
compliance with the applicable portions of the quality systems regulation (“QSR”), facility registration and
product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and
promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as
deemed necessary by the FDA to ensure the safety and efficacy of the device. These special controls can
include performance standards, post-market surveillance, patient registries, special labeling requirements,
premarket data requirements, and FDA guidance documents. While most Class I devices are exempt from the
510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the
FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially
distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket
notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks,
such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use,
or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed
in Class III, generally requiring approval of a PMA.
Our NeuroStar Advanced Therapy System is classified as a Class II medical device. We initially received
marketing authorization of this device through the de novo classification process. Subsequently, we have
cleared any changes made to our system through the 510(k) clearance process.
510(k) Marketing Clearance Pathway
To obtain 510(k) clearance, we must submit to the FDA a premarket notification submission demonstrating that
the proposed device is “substantially equivalent” to a predicate device already on the market. A predicate
device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally
marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that
has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through
the 510(k) process. The FDA’s 510(k) clearance process usually takes from 30 to 90 days but may take
significantly longer if the FDA requires additional information and places the submission on hold for up to an
additional 180 days. The FDA may require additional information, including clinical data, to make a
determination regarding substantial equivalence. If the FDA agrees that the device is substantially equivalent to
a predicate device currently on the market, it will issue a “substantially equivalent” letter, which serves as the
clearance to commercially market the device.
If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device
is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA
requirements, or can request a risk-based classification determination for the device in accordance with
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the “de novo” classification process, which is a route to market for novel medical devices that are low to
moderate risk and are not substantially equivalent to a predicate device.
Pre-Market Approval Process
A PMA application must be submitted if the medical device is in Class III (although the FDA has the discretion
to continue to allow certain pre-amendment Class III devices to use the 510(k) process) or cannot be cleared
through the 510(k) process. A PMA application must be supported by, among other things, extensive technical,
preclinical, clinical trials, manufacturing and labeling data to demonstrate to the FDA’s satisfaction the safety
and effectiveness of the device.
After a PMA application is submitted and filed, the FDA begins an in-depth review of the submitted information,
which typically takes 180 days, but may take longer if the FDA requests additional information and places the
submission on hold for up to an additional 180 days. During this review period, the FDA may request additional
information (e.g., clinical or non-clinical data) or clarification of information already provided. Also, during the
review period, an advisory panel of experts from outside the FDA will usually be convened to review and
evaluate the application and provide recommendations to the FDA as to the approvability of the device. In
addition, the FDA will conduct a pre-approval inspection of the manufacturing facility to ensure compliance with
the QSR, which imposes elaborate design development, testing, control, documentation and other quality
assurance procedures in the design and manufacturing process. The FDA may approve a PMA application with
post-approval conditions intended to ensure the safety and effectiveness of the device including, among other
things, restrictions on labeling, promotion, sale, distribution and collection of long-term follow-up data from
patients in the clinical study that supported approval. Failure to comply with the conditions of approval can result
in materially adverse enforcement action, including the loss or withdrawal of the approval. New PMA
applications or supplements are required for significant modifications to the manufacturing process, labeling of
the product and design of a device that is approved through the PMA process. PMA supplements often require
submission of the same type of information as an original PMA application, except that the supplement is limited
to information needed to support any changes from the device covered by the original PMA application, and
may not require as extensive clinical data or the convening of an advisory panel.
De Novo Classification Process
Medical device types that the FDA has not previously classified as Class I, II, or III are automatically classified
as Class III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of
1997 established a new route to market for low to moderate risk medical devices that are automatically placed
into Class III due to the absence of a substantially equivalent predicate device, called the “Request for
Evaluation of Automatic Class III Designation,” or the de novo classification process. This process allows a
manufacturer whose novel device is automatically classified as Class III to request down-classification of its
medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than
requiring the submission and approval of a PMA application. Prior to the enactment of the Food and Drug
Administration Safety and Innovation Act, (the “FDASIA”), in July 2012, a medical device could only be eligible
for de novo classification if the manufacturer first submitted a 510(k) premarket notification and received a
determination from the FDA that the device was not substantially equivalent to a predicate device. The FDASIA
streamlined the de novo classification pathway by permitting manufacturers to request de novo classification
directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially
equivalent determination. We were granted marketing authorization for our system using the de novo
classification process after receiving a not substantially equivalent determination following the submission of a
510(k) premarket notification.
Clinical Trials
A clinical trial is typically required to support a PMA application or de novo classification and is sometimes
required for a 510(k) pre-market notification, particularly in the case of changes to indications. Clinical trials
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for significant risk devices generally require submission of an application for an Investigational Device
Exemption (“IDE”) to the FDA. The IDE application must be supported by appropriate data, such as animal and
laboratory testing results, showing that it is safe to test the device in humans and that the investigational
protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified
number of patients, unless the study is deemed a non-significant risk and eligible for more abbreviated IDE
requirements. Clinical trials may begin once the IDE application is approved by the FDA (or abbreviated IDE
due to non-significant risk determination) as well as the appropriate institutional review boards at the clinical trial
sites, and the informed consent of the patients participating in the clinical trial is obtained. After a trial begins,
the FDA may place it on hold or terminate it if, among other reasons, it concludes that the clinical subjects are
exposed to an unacceptable health risk. Any trials we conduct must be conducted in accordance with FDA
regulations as well as other federal regulations and state laws concerning human subject protection and
privacy. Moreover, the results of a clinical trial may not be sufficient to obtain clearance or approval of the
product.
Changes to Marketed Devices
After a device receives 510(k) marketing clearance, or de novo classification, any modification that could
significantly affect its safety or efficacy, or that would constitute a major change or modification in its intended
use, will typically require a new 510(k) marketing clearance but may, depending on the modification, require a
de novo classification or PMA. Depending on the scope of the change, a traditional, special, or abbreviated
510(k) application may be submitted. Compared to a traditional 510(k), a special 510(k) application may be
used in special cases where: 1) the manufacturer makes a change to their own device; 2) performance data is
unnecessary or well-established methods are available to evaluate the change; and 3) performance data
necessary to demonstrate substantial equivalence can be presented in a summary or risk analysis format. In
this case, the review time is shorter (approximately 30 days), compared to the review time of approximately 90
days for the traditional 510(k) pathway. Alternatively, the abbreviated 510(k) pathway may be used when the
submission relies on FDA guidance documents, demonstration of compliance with special controls for the
device type, and voluntary consensus standards. This pathway has a review time of approximately 90 days.
The FDA requires each manufacturer to determine which pathway is most appropriate; however, in the event
that the FDA disagrees with a manufacturer’s determination, it may ask the manufacturer to convert its
application to another type (e.g., if the FDA determines that it requires additional information about the
performance testing beyond the summary data, it may ask the manufacturer to convert a special 510(k) to a
traditional 510(k)).
Many minor modifications today are accomplished by a manufacturer documenting the change in an internal
letter-to-file (a “LTF”). The LTF is documented in lieu of submitting a new 510(k) or PMA to obtain clearance or
approval for every change and includes the rationale for why a submission was not filed. The changes
contained in the LTFs are then summarized and included within the following 510(k) or PMA submission. The
FDA will review these changes during the submission process or during an inspection. If the FDA disagrees
with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request
the recall of the modified device until 510(k) marketing clearance or PMA is obtained. Also, in these
circumstances, we may be subject to significant regulatory fines or penalties.
Post-Market Regulation
After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue
to apply. These include:
● establishment registration and device listing with the FDA;
● QSR requirements, which require manufacturers, including third-party manufacturers and contract
manufacturers, to follow stringent design, testing, control, documentation and other quality assurance
procedures during all aspects of the design and, manufacturing, and distribution process;
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● labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly
balanced and provide adequate directions for use and that all claims are substantiated, and also
prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on
labeling; FDA guidance on off-label dissemination of information and responding to unsolicited requests
for information;
● clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect
safety or efficacy or that would constitute a major change in intended use of one of our cleared devices;
● medical device reporting regulations, which require that a manufacturer report to the FDA if a device it
markets may have caused or contributed to a death or serious injury, or has malfunctioned and the
device or a similar device that it markets would be likely to cause or contribute to a death or serious
injury or serious adverse events, if the malfunction were to recur;
● correction, removal and recall reporting regulations, which require that manufacturers report to the FDA
field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the
device or to remedy a violation of the FDCA that may present a risk to health;
● complying with regulations requiring Unique Device Identifiers on devices and also requiring the
submission of certain information about each device to the FDA’s Global Unique Device Identification
Database;
● the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the
market a product that is in violation of governing laws and regulations; and
● post-market surveillance activities and regulations, which apply when deemed by the FDA to be
necessary to protect the public health or to provide additional safety and efficacy data for the device.
We may be subject to similar foreign laws that may include applicable post-marketing requirements, such as
ongoing safety/ malfunction surveillance and risk management. Our manufacturing processes are required to
comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the
design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging,
distribution, installation and servicing of finished devices intended for human use. The QSR also requires,
among other things, maintenance of a device master file, device history file, and complaint files. As a
manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. Our failure to
maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, our
manufacturing operations and the recall or seizure of our products. The discovery of previously unknown
problems with any of our products, including unanticipated adverse events or adverse events of increasing
severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label
by a physician in the practice of medicine, could result in restrictions on the device, including voluntary or
mandatory device corrections or removals.
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that we failed to
comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions,
which may result in any of the following sanctions:
● warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties;
● recalls, withdrawals, or administrative detention or seizure of our products;
● operating restrictions or partial suspension or total shutdown of production;
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● refusing or delaying requests for 510(k) marketing clearance or PMAs of new products or modified
products;
● withdrawing 510(k) clearances or PMAs that have already been authorized;
● refusal to authorize export or import approvals for our products; or
● criminal prosecution.
U.S. and Foreign Healthcare Laws and Compliance Requirements
Healthcare providers, physicians and third-party payors play a primary role in the recommendation, prescription
and payment for medical treatments. A medical device manufacturer’s arrangements with third-party payors,
providers and patients may expose it to broadly applicable fraud and abuse and other healthcare laws and
regulations that may affect its business or the financial arrangements and relationships through which it
markets, sells and distributes its products. Even if a medical device manufacturer does not control referrals of
healthcare services or bill directly to Medicare, Medicaid, other federal healthcare programs, or other third-party
payors, federal and state healthcare laws and regulations are applicable to its business. In addition, a portion of
our business is subject to the Health Insurance Portability and Accountability Act of 1996, (“HIPAA”), as a
business associate of our covered entity customers. To provide our covered entity customers with services that
involve the use or disclosure of protected health information (“PHI”), we are required to enter into business
associate agreements. As a business associate, we are also directly liable for compliance with HIPAA. The laws
that may affect a medical device manufacturer’s ability to operate include, but are not limited to:
● the federal Anti-Kickback Statute, which prohibits any person or entity from, among other things,
knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the
purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a
federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration”
has been broadly interpreted to include anything of value. The government can establish a violation of
the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a
specific intent to violate. Moreover, the government may assert that a claim for reimbursement that
includes items resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act (“FCA”). Although there are a
number of statutory exceptions and regulatory safe harbors to the federal healthcare Anti-Kickback
Statute protecting certain common business arrangements and activities from prosecution or regulatory
sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to
those who prescribe, purchase, or recommend medical device products, including discounts, or
engaging individuals as speakers, consultants, or advisors, may be subject to scrutiny if they do not fit
squarely within an exception or a safe harbor. Our practices may not in all cases meet all of the criteria
for safe harbor protection from anti-kickback liability. Moreover, there are no safe harbors for many
common practices, such as reimbursement support programs, educational or research grants, or
charitable donations;
● the federal civil and criminal false claims laws and civil monetary penalty laws, such as the FCA, which
can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from,
among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent
claims for payment of federal funds, and knowingly making, using or causing to be made or used a
false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an
obligation to pay money to the federal government. The Social Security Act also has a provision that
provides for the imposition of civil monetary penalties against any person who offers or transfers
remuneration to a Medicare or Medicaid beneficiary that such person knows or should know is likely to
influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the
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order or receipt of any item or service payable by a federal health care program. Private individuals,
commonly known as “whistleblowers,” can bring FCA qui tam actions on behalf of the government and
themselves, and may share in amounts paid by the entity to the government in recovery or settlement.
False Claims Act liability is potentially significant in the healthcare industry because the statute
provides for treble damages and mandatory penalties of $13,946 to $27,894 (beginning in 2024) per
false or fraudulent claim or statement. Many pharmaceutical and medical device manufacturers have
been investigated and have reached substantial settlements under the FCA in connection with alleged
off label promotion of their products and allegedly providing free products to customers with the
expectation that the customers would bill federal health care programs for the product. In addition, a
claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the FCA. As a result of a modification made by
the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money
or property presented to the U.S. government. In addition, manufacturers can be held liable under the
FCA even when they do not submit claims directly to government payors if they are deemed to “cause”
the submission of false or fraudulent claims. There are also criminal penalties, including imprisonment
and criminal fines, for making or presenting false, fictitious or fraudulent claims to the federal
government;
●
the federal physician self-referral law (“Stark Law”) prohibits, subject to exceptions, referring Medicare
patients for “designated health services” (including “durable medical equipment and supplies” and
“outpatient hospital services”) (“DHS”) to entities with which a referring physician (or immediate family
member) maintains a “financial relationship.” States (as required in order to maintain Medicaid funding)
have further enacted similar prohibitions that apply to Medicaid, as well as other insurance programs,
and which may be more restrictive than the Stark Law. Persons who attempt to circumvent these laws
or submit (or cause others to submit) claims to payors in violation of these laws may be subject to
significant civil and criminal penalties. As such, we are generally prohibited from billing for any services
referred in violation of these laws. Importantly, we do not provide DHS and do not bill payors for DHS
(or any other items or services). While we manufacture and sell equipment and supplies to our
customers, we are not a Medicare supplier. Additionally, in instances in which we maintain contractual
arrangements with physicians or hospitals, we have no reason to believe that we are engaged in
assisting any person with circumventing these laws. Further, the services (specifically TMS) furnished
(outside of a hospital context) by physician groups with whom we maintain contractual arrangements
do not constitute DHS. Notably, however, the Stark Law is a strict liability statute and compliance is
difficult to assure;
● HIPAA, among other things, established various criminal health care fraud laws, which impose criminal
liability for executing or attempting to execute a scheme to defraud any healthcare benefit program,
including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare
benefit program, willfully obstructing a criminal investigation of a healthcare offense, and creates
federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement or representation, or making or
using any false writing or document knowing the same to contain any materially false, fictitious or
fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits,
items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity does not
need to have actual knowledge of the applicable statute or specific intent to violate it or to have
committed a violation;
● HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act
(“HITECH”), and their implementing regulations, which imposes privacy, security, transmission and
breach reporting obligations with respect to individually identifiable health information upon “covered
entities” subject to the law, including health plans, healthcare clearinghouses and certain healthcare
providers and their respective business associates that perform services on their behalf that involve
individually identifiable health information. HITECH also created new tiers of civil monetary penalties,
amended HIPAA to make civil and criminal penalties directly applicable to business associates, and
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gave state attorneys general new authority to file civil actions for damages or injunctions in federal
courts to enforce HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil
actions;
● the federal physician payment transparency requirements, sometimes referred to as the “Physician
Payments Sunshine Act,” created under the Patient Protection and Affordable Care Act (“PPACA”),
which requires, among other things, certain manufacturers of drugs, devices, biologics and medical
supplies reimbursed under Medicare, Medicaid, or the Children’s Health Insurance Program (with
certain exceptions) to report annually to the United States Department of Health and Human Services,
Centers for Medicare and Medicare Services,(“CMS”), information related to payments or other
transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), other professionals (physician assistants, nurse practitioners, clinical nurse specialists,
certified nurse anesthetists, and certified nurse-midwives) and teaching hospitals, as well as ownership
and investment interests held by physicians and their immediate family members; and
● foreign and state law equivalents of each of the above federal laws, such as anti-kickback and false
claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or
services reimbursed by any non-governmental third-party payors, including private insurers; state laws
that require device manufacturers to comply with the industry’s voluntary compliance guidelines and
the applicable compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws
that require device manufacturers to report information related to payments and other transfers of value
to physicians and other healthcare providers or marketing expenditures and pricing information; and
other federal and state laws that govern the privacy and security of health information or personally
identifiable information in certain circumstances, including state health information privacy and data
breach notification laws which govern the collection, use, disclosure, and protection of health-related
and other personal information, many of which differ from each other in significant ways and often are
not pre-empted by HIPAA, thus requiring additional compliance efforts and data privacy and security
laws and regulations in foreign jurisdictions that may be more stringent than those in the United States
(such as the European Union, which adopted the GDPR, which became effective in May 2018).
Because of the breadth of these laws and the narrowness of their statutory exceptions and regulatory safe
harbors, it is possible that some of a medical device manufacturer’s business activities could be subject to
challenge under one or more of these laws. The scope and enforcement of each of these laws is uncertain and
subject to rapid change in the current environment of healthcare reform, especially in light of the lack of
applicable precedent and regulations. Federal and state enforcement bodies have recently increased their
scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of
investigations, prosecutions, convictions and settlements in the healthcare industry.
Ensuring that business arrangements with third parties comply with applicable healthcare laws and regulations
is costly and time consuming. If a medical device manufacturer’s operations are found to be in violation of any
of the laws described above or any other governmental regulations that apply to it, it may be subject to
penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, substantial
monetary penalties, individual imprisonment, exclusion from governmental funded healthcare programs, such
as Medicare and Medicaid, additional reporting obligations and oversight if it becomes subject to a corporate
integrity agreement or other agreement to resolve allegations of non-compliance with these laws, reputational
harm, diminished profits and future earnings, and the curtailment or restructuring of operations, any of which
could adversely affect the ability of a medical device manufacturer to operate its business and the results of its
operations.
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United States Healthcare Reform
In the United States, a number of legislative and regulatory proposals have been considered or enacted to
change the healthcare system in ways that could affect a medical device manufacturer’s business. Among
policy makers and governmental and private insurers in the United States, there is significant interest in
promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality
or expanding access. For example, in 2010, the PPACA was enacted, which include measures to significantly
change the way health care is financed by both governmental and private insurers, and significantly impacts the
medical device industry. Among other ways in which it may impact a medical device manufacturer’s business,
the PPACA:
● established a Patient-Centered Outcomes Research Institute to oversee and identify priorities in
comparative clinical efficacy research in an effort to coordinate and develop such research;
● required manufacturers to report certain payments and other transfers of value pursuant to the
Physician Payments Sunshine Act, described above;
● implemented payment system reforms including a national pilot program on payment bundling to
encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency
of certain healthcare services through bundled payment models; and
● expanded the eligibility criteria for Medicaid programs and, originally, required certain employers to
provide, and all individuals to obtain, health insurance.
Some of the provisions of the PPACA have yet to be implemented, and there were judicial and congressional
challenges to certain aspects of the PPACA, as well as efforts by the Trump administration to repeal or replace
certain aspects of the PPACA. Most recently, under President Biden, the Department of Justice dropped its
support of two Supreme Court cases challenging PPACA in addition to a case before the U.S. Court of Appeals
for the Fifth Circuit. On January 28, 2021, President Biden signed an executive order to expand access to
PPACA coverage, stating that it is the “policy” of the Biden administration to protect and strengthen the PPACA
and directing agencies to consider suspending, revising, or rescinding actions related to President Trump’s
executive orders that are inconsistent with this policy position. In the past, Congress has considered legislation
that would repeal or repeal and replace all or part of the PPACA. For example, in 2017 Congress effectively
eliminated the individual mandate, which could result in adverse selection and decreased utilization of
reimbursable healthcare services, such as those offered by healthcare providers via use of our products.
Additionally, in 2019, Congress repealed a (repeatedly delayed) medical device excise tax previously passed
under the PPACA. There is no way to know whether, and to what extent, if any, the PPACA will remain in-effect
in the future, and it is unclear how judicial decisions, subsequent appeals, or other efforts to repeal and replace
or, possibly, to restore the PPACA will impact the U.S. healthcare industry or our business.
Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices
for their marketed products, which has resulted in several U.S. congressional inquiries and proposed federal
legislation designed to, among other things, bring more transparency to product pricing, reduce the cost of
certain products under Medicare, review the relationship between pricing and manufacturer patient programs,
and reform government program reimbursement methodologies. At the state level, individual states in the
United States are also increasingly passing legislation and implementing regulations designed to control
product pricing or manufacturer interactions with healthcare providers, including price or patient reimbursement
constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures.
It is likely that additional state and federal healthcare reform measures will be adopted in the future, any of
which could limit the amounts that federal and state governments will pay for healthcare products and
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services, which could result in reduced demand for a medical device manufacturer’s products or additional
pricing pressure.
We cannot predict the impact that health care reform under the Biden administration will have on our business,
and there is uncertainty as to what healthcare programs and regulations may be implemented or changed at the
federal and/or state level in the United States, or the effect of any future legislation or regulation. However, it is
possible that such initiatives could have an adverse effect on our ability to obtain approval and/or successfully
commercialize products in the United States in the future. For example, U.S. federal government and state
legislatures have continued to implement cost containment programs, including price controls and restrictions
on coverage and reimbursement. To contain costs, governmental healthcare programs and third-party payers
are increasingly challenging the price, scrutinizing the medical necessity, and reviewing the cost-effectiveness
of medical treatments. Any changes that reduce, or impede the ability to obtain, reimbursement for the type of
products we intend to commercialize in the United States (or our products more specifically, if approved) or
reduce medical procedure volumes could adversely affect our business plan to introduce our products in the
United States.
Japanese Regulation
In Japan, medical devices are regulated mainly under the Pharmaceutical and Medical Device Act. This act was
implemented on November 25, 2014 and served as a revision to the original Pharmaceutical Affairs Law of
2005. Under this regulation, medical devices must be approved prior to importation and commercial sale by the
Pharmaceutical Medical Device Agency (“PMDA”) and Ministry of Health and Welfare (“MHLW”). The PMDA is
the MHLW-created, quasi-independent agency that was established to review and approve pharmaceutics and
medical devices for marketing in Japan. They are also responsible for Japan Good Manufacturing Practices
audits, clinical studies oversight, and facility licensing. The approval process identifies a Marketing Authorization
Holder (“MAH”), who is designated as the only authorized seller of products. Manufacturers of medical devices
outside of Japan who do not operate through a Japanese entity are able to designate a MAH, known as a
designated MAH (“D-MAH”), who will apply for product approval and take responsibility for the medical device
within Japan. After receiving PMDA’s recommendations for marketing approval, the MHLW will ultimately
evaluate and approve those pharmaceutics and medical devices deemed to be safe and effective. As part of its
approval process, the MHLW may require that the product be tested in Japanese laboratories. The approval
process ranges in length between two and twelve months, depending on the submission type (e.g., Todokede –
for Class I devices, Ninsho – for Class II and III devices, or Shonin for Class II through IV devices). Since the
NeuroStar Advanced Therapy System is classified as a Class III under Japanese law, Neuronetics has followed
the Shonin process for pre-market approval. After approval is received, the MHLW issues a Shonin approval to
Neuronetics’ D-MAH, thereby permitting such entity to import the device into Japan for sale. The MHLW is also
responsible for creating policies, regulations, guidance documents, and laws, and governs safe use of medical
products as well as for social insurance, reimbursement policies, and pricing.
After a device is approved for importation and commercial sale in Japan, the MHLW continues to monitor sales
of approved products for compliance with labeling regulations, which prohibit promotion of devices for
unapproved uses, and reporting regulations, which require reporting of product malfunctions, including serious
injury or death caused by any approved device. Failure to comply with applicable regulatory requirements can
result in enforcement action by the MHLW, which may include fines, injunctions, and civil penalties, recall or
seizure of our products, operating restrictions, partial suspension or total shutdown of sales in Japan, or criminal
prosecution.
European Union Regulation
Neuronetics has received European Conformity (“CE”) certification under the European Union (“EU” or “E.U.”)
Medical Device Regulation (“MDR”) (2017/745). This CE mark provides market authorization within the EU and
European Economic Area (“EEA”). In the EU, a single regulatory approval process exists, in which a Notified
Body assesses the conformity of the medical device intended to be marketed with the legal
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requirements set forth in the EU MDR. To obtain a CE mark, medical devices and their accessories must meet
minimum standards of performance, safety, and quality (i.e., the essential requirements), and then, according to
their classification, comply with one or more of a selection of conformity assessment routes. After conformity is
confirmed, the CE mark is affixed to the medical device itself or on its packaging, thus indicating its conformity
status. The competent authorities of the EU countries separately regulate the clinical research for medical
devices and the market surveillance of products once they are placed on the market.
Other International Regulation
Sales and marketing of medical devices outside of the United States are subject to foreign regulatory
requirements that vary widely from country to country. The global regulatory environment is increasingly
stringent and unpredictable. Several countries that did not have regulatory requirements for medical devices
have established such requirements in recent years, and other countries have expanded, or plan to expand,
their existing regulations. While harmonization of global regulations has been pursued, requirements continue to
differ significantly among countries. We expect this global regulatory environment will continue to evolve, which
could impact the cost, the time needed to approve, and ultimately, our ability to maintain existing approvals or
obtain future approvals for our products. The time required to obtain appropriate marketing authorizations from
other foreign authorities may be substantially longer or shorter than required for FDA approval. Some countries
may not require any special registration process prior to importing and marketing the device. Whether or not we
have obtained FDA approval, our NeuroStar Advanced Therapy System may be subject to different regulatory
requirements in other jurisdictions. The foreign regulatory approval process includes all the risks associated
with FDA regulation, as well as country-specific regulations.
Other Regulations
Import-export. Our international operations enable us to be subjected to laws regarding sanctioned countries,
entities and persons, customs, and import-export. Among other things, these laws restrict, and in some cases
can prevent, U.S. companies from directly or indirectly selling goods, technology or services to people or
entities in certain countries. In addition, these laws require that we exercise care in our business dealings with
entities in and from foreign countries.
Data Privacy and Cybersecurity Laws and Regulations. As a business with a significant global footprint,
compliance with evolving regulations and standards in data privacy and cybersecurity (relating to the
confidentiality and security of our information technology systems, products such as medical devices, and other
services provided by us) may result in increased costs, lower revenue, new complexities in compliance, new
challenges for competition, and the threat of increased regulatory enforcement activity. Our business relies on
the secure electronic transmission, storage and hosting of sensitive information, including personal information,
financial information, intellectual property, and other sensitive information related to our customers and
workforce.
For example, in the U.S. the collection, maintenance, protection, use, transmission, disclosure and disposal of
certain personal information and the security of medical devices are regulated at the U.S. federal and state, and
industry levels. U.S. federal and state laws protect the confidentiality of certain patient health information,
including patient medical records, and restrict the use and disclosure of patient health information by health
care providers. In addition, the FDA has issued guidance advising manufacturers to take cybersecurity risks into
account in product design for connected medical devices and systems, to assure that appropriate safeguards
are in place to reduce the risk of unauthorized access or modification to medical devices that contain software
and reduce the risk of introducing threats into hospital systems that are connected to such devices. The FDA
also issued guidance on the post market management of cybersecurity in medical devices.
Outside the U.S., we are impacted by the privacy and data security requirements at the international, national
and regional level, and on an industry specific basis. Legal requirements in these countries relating to the
collection, storage, handling and transfer of personal data and, potentially, intellectual property continue to
evolve with increasingly strict enforcement regimes.
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Human Capital
Employees
As of December 31, 2023, we had 203 full time employees working collaboratively across our sales and
customer support team, in research and development, including clinical, regulatory and certain quality functions,
operations and in general and administrative. All of our employees are employed full time. We have never had a
work stoppage and none of our employees are covered by collective bargaining agreements or represented by
a labor union. We believe that our employee relations are strong.
We recruit employees with the skills and training relevant to functional responsibilities. We believe that cultural
fit and energy are important considerations. We assess the likelihood that a particular candidate will contribute
to the Company’s overall goals, and beyond their specifically assigned tasks. We aim to provide market-based
compensation and work to retain our employees for many years. During 2023, the Company continued to offer
a two-day work from home policy to provide personal flexibility and support employees in managing family
priorities.
Development
Developing employees contributes to growing our business. The Company has leadership development
programs which bring a consistent approach to leadership development that all managers and directors are
required to attend. The Company also provides learning opportunities for all employees to continue to progress
their development and career at the Company.
Diversity, Inclusion and Belonging
A diverse and inclusive culture that provides fair and equitable opportunities helps the Company remain
competitive, advance its innovation culture, and serve customers. The Company focuses on attracting and
advancing top talent as well as advancing initiatives that enhance diversity, inclusion and belonging.
Compensation and Benefits
In addition to a professional work environment that promotes innovation and rewards performance, our total
compensation for employees includes a variety of components that support sustainable employment and the
ability to build a strong financial future, including competitive market-based pay, share-based compensation
awards, and comprehensive benefits. In addition to earning a base salary, eligible employees are compensated
for their contributions to the Company’s goals with cash incentives and long-term equity-based incentives. The
Company is committed to providing fair and equitable pay for employees. Eligible full-time employees also have
access to medical, dental, and vision plans; savings and retirement plans; and other benefits.
Corporate Information
We were incorporated in Delaware in April of 2003. Our principal executive offices are located at 3222
Phoenixville Pike, Malvern, Pennsylvania 19355, and our telephone number is (610) 640-4202. Our website
address is https://neurostar.com/neuronetics/. We make available, free of charge on our website, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, (the “Exchange Act”), as soon as reasonably practicable after we electronically file those reports with,
or furnish them to, the SEC. The SEC maintains an internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically with the SEC, which can be found at
http://www.sec.gov. The information contained on, or accessible through, our website is not incorporated by
reference into this Annual Report on Form 10-K, and you should not consider any information contained in, or
that can be accessed through, our website as part of this Annual Report on Form 10-K.
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Summary Risk Factors
An investment in shares of our common stock involves significant risks. See the “Risk Factors” section of this
Annual Report on Form 10-K. These risks include, among others:
● We have incurred losses in the past and may be unable to achieve or sustain profitability in the future.
● If insurance coverage is unavailable or reimbursement from third-party payors for treatments using our
products significantly declines, psychiatrists may be reluctant to use our products.
● Our revenue has been concentrated among a small number of customers, and if we lose any of these
customers and fail to replace them, or if any of these customers fail to perform their obligations to us,
our revenue may decrease substantially.
● Our success depends upon patient satisfaction with the effectiveness of our NeuroStar Advanced
Therapy System.
● We operate in a very competitive environment and if we are unable to compete successfully against
our existing or potential competitors, our sales and operating results may be negatively affected.
● The loss of certain members of our senior management or our inability to attract and retain highly
skilled executives, salespeople, product development and other personnel could negatively impact our
business.
● We rely on single-source suppliers for some components used in our NeuroStar Advanced Therapy
System and on a single manufacturer for the assembly of our NeuroStar Advanced Therapy System,
and we may be unable to find replacements or immediately transition to alternative parties for these
components.
● We rely on a network of third-party distributors to market and distribute our products internationally, and
if we are unable to maintain and expand this network, we may be unable to generate anticipated sales.
● If we are not able to obtain and enforce patent protection for our technologies, products, or product
candidates, development and commercialization of our products and product candidates may be
adversely affected.
● Our products and operations are subject to extensive government regulation and oversight both in the
United States and abroad, and our failure to comply with applicable requirements could harm our
business.
● Modifications to our products may require new 510(k) clearances, de novo classification or PMAs, and
may require us to cease marketing or recall the modified products until clearances are obtained.
● Our products must be manufactured in accordance with federal and state regulations, and we could be
forced to recall our installed systems or terminate production if we fail to comply with these regulations.
● Our products may cause or contribute to adverse medical events that we are required to report to the
FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business,
financial condition and results of operations. The discovery of serious safety issues with our
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products, or a recall of our products either voluntarily or at the direction of the FDA or another
governmental authority, could have a negative impact on us.
● We are subject to certain federal, state and foreign fraud and abuse laws, health information privacy
and security laws and transparency laws, which, if violated, could subject us to substantial penalties.
Additionally, any challenge to or investigation into our practices under these laws could cause adverse
publicity and be costly to respond to, and thus could harm our business.
● Our operating results are directly dependent upon the sales and marketing efforts of our sales and
customer support team as well as our field sales personnel in the United States and our independent
third-party distributors outside of the United States. If our employees or our independent distributors fail
to adequately promote, market and sell our products, our sales could significantly decrease.
● We may need to raise additional capital to fund our existing commercial operations, develop and
commercialize new products and expand our operations.
● The terms of our credit facility place restrictions on our operating and financial flexibility and could
subject us to potential default. If we raise additional capital through debt financing, the terms of any
new debt could further restrict our ability to operate our business.
● If we experience significant disruptions in our information technology systems, our business may be
adversely affected.
Item 1A. Risk Factors.
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and
uncertainties described below and the other information contained in this Annual Report on Form 10-K before
deciding whether to invest in our common stock. The occurrence of any of the events or developments
described below could harm our business, financial condition, results of operations and prospects. As a result,
the market price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
We have incurred losses in the past and may be unable to achieve or sustain profitability in the future.
We have incurred net losses since inception, including net losses of $30.2 million and $37.2 million for the years
ended December 31, 2023 and 2022, respectively. As a result of ongoing losses, as of December 31, 2023, we
had an accumulated deficit of $376.1 million. We expect to continue to incur significant sales and marketing,
product development, regulatory and other expenses as we continue to expand our marketing efforts to
increase adoption of our products and expand existing relationships with our customers, to obtain regulatory
clearances or approvals for our products in additional countries and for additional indications, and to develop
new products or add new features to our existing products. The net losses we incur may fluctuate significantly
from quarter to quarter. We will need to generate significant additional revenues to achieve and sustain
profitability, and even if we achieve profitability, we cannot be sure that we will remain profitable for any
substantial period of time. Our failure to achieve or maintain profitability could negatively impact the value of our
common stock.
We rely on the sale of our NeuroStar Advanced Therapy System and treatment sessions to generate
revenues.
We rely on the sale of our NeuroStar Advanced Therapy System and treatment sessions to generate revenues,
and we expect to generate substantially all of our revenues in the foreseeable future from sales of these and
any related products and services. Because the market for TMS therapy is still developing and
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contains a limited number of market participants, sales of our products could be negatively impacted by
unfavorable market reactions to our or other TMS devices. If the use of our or other TMS therapies results in
serious adverse events, or such products malfunction or are misused, patients and psychiatrists may attribute
such negative events to TMS therapy generally, which may adversely affect market adoption of our products.
Additionally, if patients undergoing treatment with a NeuroStar Advanced Therapy System perceive the benefits
to be inadequate or adverse events too numerous or severe compared to the relevant rates of alternative TMS
therapies or pharmaceutical options, it will be difficult to demonstrate the value of our NeuroStar Advanced
Therapy System to patients and psychiatrists. As a result, demand for and the use of our NeuroStar Advanced
Therapy System may decline or may not increase at the pace or to the levels we expect.
Our business and ability to meet obligations to our customers may be disrupted and our results of operations,
financial condition, cash flows and liquidity may be adversely affected by a global pandemic or epidemic
diseases.
Our operations and interactions with healthcare systems, providers and patients expose us to risks associated
with public health crises, including epidemics and pandemics. The global impact of COVID-19, or other global
pandemic including corresponding preventative and precautionary measures that we and other businesses,
communities and governments may take to mitigate the spread of such disease, may lead to restrictions on,
disruptions in, and other related impacts on business and personal activities, which may adversely impact our
business and liquidity.
Throughout the year ended 2021 and into early 2022, we experienced a material impact to revenue particularly
with regard to U.S. treatment session revenues as a result of the COVID-19 pandemic. Capital equipment sales
and treatment session revenues may continue to be materially impacted by the pandemic as customers defer
capital purchase decisions and delay new patient treatment starts. Further, during the COVID-19 pandemic,
several countries placed significant restrictions on travel within their respective borders, leading to extended
business closures in some instances.
The significance of the impact of a global pandemic on our operations depends on numerous evolving factors
that we may not be able to accurately predict or effectively respond to, including, among others:
● the effect on global economic activity, financial markets and the resulting impact on our customer’s
businesses, their credit and liquidity, and their demand for our solutions and services, as well as their
ability to pay;
● our ability to deliver and implement our solutions in a timely manner, including as a result of supply
chain disruptions and related cost increases; and
● actions taken by U.S., foreign, state, and local governments, suppliers, and individuals in response to
the outbreak (including the extent of travel restrictions and business closures).
If insurance coverage is unavailable or reimbursement from third-party payors for treatments using our
products significantly declines, psychiatrists may be reluctant to use our products.
In the United States, sales of our products will depend, in part, on the extent to which the treatment sessions
using our products are covered and reimbursed by third-party payors, including private insurers and
government healthcare programs. Even if a third-party payor covers a particular treatment that uses our
products, the resulting reimbursement rate may not be adequate to cover a provider’s cost to purchase our
products or ensure such purchase is profitable for the provider. Further, patients who are treated in-office for a
medical condition generally rely on third-party payors to reimburse all or part of the costs associated with
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the treatment and may be unwilling to undergo such treatment in the absence of coverage and adequate
reimbursement, or due to large annual deductibles associated with certain health insurance plans.
Reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s
determination that a treatment is neither experimental nor investigational, safe, effective, medically reasonable
and necessary (which may include provision of treatment only in the absence of certain alternatives),
appropriate for the specific patient, cost-effective, supported by peer-reviewed medical journals and/or included
in clinical practice guidelines.
In the United States, there is no uniform policy of coverage and reimbursement among third-party payors. Third-
party payors often rely upon Medicare coverage policies and payment limitations in setting their own
reimbursement policies, but also have their own methods and approval process apart from Medicare coverage
and reimbursement determinations. Therefore, coverage, reimbursement and utilization guidelines for
treatments may differ significantly from payor to payor. Decisions regarding the extent of coverage and amount
of reimbursement to be provided for an in-office treatment is made on a plan-by-plan basis. One payor’s
determination to provide coverage for a specific treatment does not assure that other payors will also provide
coverage, and adequate reimbursement.
In addition, the federal government and state legislatures have continued to implement cost containment
programs, including price controls and restrictions on coverage and reimbursement. To contain costs,
governmental healthcare programs and third-party payors are increasingly challenging the price, scrutinizing the
medical necessity and reviewing the cost-effectiveness of medical treatments.
Outside of the United States, reimbursement systems vary significantly by country. Many foreign markets,
including Japan, have government-managed healthcare systems that govern reimbursement for psychiatric
treatments and procedures. Additionally, some foreign reimbursement systems provide for limited payments in a
given period and therefore result in extended payment periods. If adequate levels of reimbursement from third-
party payors outside of the United States are not obtained, international sales of our products may not
materialize or grow significantly.
The marketability of our products may suffer if the government and third-party payors fail to provide adequate
coverage and reimbursement. Even if favorable coverage and reimbursement status is attained, less favorable
coverage policies and reimbursement rates may be implemented in the future.
If we are unable to adequately train psychiatrists and other treatment providers on the safe and
appropriate use of our products, we may be unable to achieve our expected growth.
There is a learning process involved for treatment providers to become proficient in the use of our products,
which requires us to spend considerable time and resources for training. It is critical to the success of our
commercialization efforts to train a sufficient number of psychiatrists and to provide them with adequate,
ongoing instruction and training in the use of our products. This training process generally requires psychiatrists
to review and study product materials, engage in multi-day, hands-on training sessions for up to four hours per
day and participate in a multi-day observational period prior to treating patients independently. This training
process may also take longer than expected or be more complicated than the psychiatrists or their personnel
are comfortable with and may therefore affect our ability to increase sales. Convincing psychiatrists to dedicate
the time and energy necessary for adequate training is challenging, and we may not be successful in these
efforts.
Our revenue has been concentrated among a small number of customers, and if we lose any of these
customers and fail to replace them, our revenue may decrease substantially.
A significant amount of our revenue is derived from a limited number of customers. Any material non-payment
or non-performance by one of these customers, a significant downturn or deterioration in the business or
financial condition of any of these customers, or any other event significantly negatively impacting a
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contractual relationship with one of these customers could adversely affect our financial condition and results of
operations.
Customers and their patients may be slow to adopt and use TMS therapies.
TMS therapy is an emerging treatment option for patients suffering from MDD. As a result, customer and patient
awareness of TMS therapy as a treatment option for MDD, and experience with TMS therapies, is limited. Our
success depends in large part on our ability to educate and train customers and patients, and successfully
demonstrate the safety, tolerability, ease of use, efficacy, cost effectiveness and other merits of our NeuroStar
Advanced Therapy System. We have been engaging in an active marketing campaign to raise awareness of
our NeuroStar Advanced Therapy System and its benefits among customers, but we cannot assure you that
these efforts will be successful or that they will not prove to be cost-prohibitive. Some customers may also find
the initial patient set up and the subsequent procedures for future treatment sessions to be difficult or
complicated, or could be wary of the initial investment required for the purchase of the NeuroStar Advanced
Therapy System, which may impact their decision to purchase or use the NeuroStar Advanced Therapy System
as part of their practice. Similarly, customers may find it difficult to hire additional staff, allocate sufficient space
or operationalize our NeuroStar Advanced Therapy System, which could slow its adoption.
In addition, customers may not derive sufficient cash flow from using the NeuroStar Advanced Therapy Systems
due to their own practice economics or otherwise. Failure to achieve economic benefits from the purchase or
use of the NeuroStar Advanced Therapy System would adversely affect our customers’ purchase of treatment
sessions. These factors could also reduce the number of procedures performed using our NeuroStar Advanced
Therapy System, and if we do not facilitate the utilization of our products by our customers, our revenues and
results of operations could be harmed.
Our success depends upon patient satisfaction with the effectiveness of our NeuroStar Advanced
Therapy System.
In order to generate repeat and referral business, patients must be satisfied with the effectiveness of our
NeuroStar Advanced Therapy System. Clinical studies demonstrate that, in order to be effective, our products
must be used for a period of four to six weeks, and require a patient to return to a psychiatrist’s office five days
a week during that period in order to receive the recommended course of treatment. Since patients who achieve
response or remission using our therapy will obtain these results gradually over this treatment period, their
perception of their results may vary depending on their compliance with the prescribed treatment course.
We train our customers to select the appropriate patient candidates for treatment using the NeuroStar
Advanced Therapy System, explain to their patients the time-period over which the results from a treatment
course can be expected to occur, and measure the success of treatments using medical guidelines. However,
our customers may not select appropriate patient candidates for NeuroStar Advanced Therapy System
treatment, which may produce results that may not meet patients’ expectations. In addition, the efficacy of
treatment is dependent on proper patient set up at the initial treatment session and duplication of that set up at
future treatment sessions. To the extent customers do not make the proper measurements for a specific patient
or use the same procedures at each treatment session, it could result in variability of the treatment efficacy and
results for the patient. If patients are not satisfied with the results of our NeuroStar Advanced Therapy System,
our reputation and future sales will suffer.
We operate in a very competitive environment and if we are unable to compete successfully against our
existing or potential competitors, our sales and operating results may be negatively affected.
Our currently marketed products are, and any future products we develop and commercialize will be, subject to
intense competition. The industry in which we operate is subject to rapid change and is highly sensitive to the
introduction of new products or other market activities of current or new industry participants. Our ability to
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compete successfully will depend on our ability to develop products that reach the market in a timely manner, to
receive adequate coverage and reimbursement from third-party payors, and to successfully demonstrate to
psychiatrists and patients the merits of our products compared to those of our competitors. If we are not
successful in convincing others of the merits of our products, including in comparison to those of our
competitors, or educating them on the use of our products, they may not use our products or use them
effectively and we may be unable to increase our sales.
We have competitors that sell other forms of TMS therapy, including Brainsway, Magstim, MagVenture,
CloudTMS and Nexstim, that compete directly with the NeuroStar Advanced Therapy System. Competing TMS
therapy companies have developed and may develop additional treatments that can be administered for shorter
time periods or for indications outside of MDD, or may develop treatments that have improved efficacy when
compared to our products or that require a less significant investment of resources from psychiatrists. We also
face competition from pharmaceutical and other companies that develop competitive products, such as
antidepressant medications. Our commercial opportunity could be reduced or eliminated if these competitors
develop and commercialize antidepressant medications or other treatments that are safer, more convenient or
more effective than the NeuroStar Advanced Therapy System. At any time, these and other potential market
entrants may develop treatment alternatives that may render our products uncompetitive.
In addition, our competitors may have more established distribution networks than we do, or may be acquired
by enterprises that have more established distribution networks than we do. Our competitors may also develop
and patent processes or products earlier than we can or obtain domestic or international regulatory clearances
or approvals for competing products more rapidly than we can, which could impair our ability to develop and
commercialize similar products. We also compete with our competitors in acquiring technologies and technology
licenses complementary to our products or advantageous to our business. In addition, we compete with our
competitors to engage the services of independent distributors outside the United States, both those presently
working with us and those with whom we hope to work as we expand.
We may face difficulties encountered by companies in new and evolving markets.
In assessing our prospects, you must consider the risks and difficulties frequently encountered by companies in
new and evolving markets. These risks include our ability to:
● manage rapidly changing and expanding operations;
● increase awareness of our brand and strengthen customer loyalty;
● successfully execute our business and marketing strategy;
● respond effectively to competitive pressures and developments;
● continue to develop and enhance our products and products in development;
● obtain regulatory clearance or approval to commercialize new products and enhance our existing
products;
● refrain from infringing on the intellectual property rights of others, and maintaining appropriate legal
policies and procedures;
● expand our presence in existing and commence operations in new international markets; and
●
attract, retain and motivate qualified personnel.
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If we are unable to adequately address our customers’ needs, it could negatively impact sales and
market acceptance of our products and we may never generate sufficient revenues to achieve or
sustain profitability.
Our operating results are directly dependent upon the sales and marketing efforts of our sales and customer
support team as well as our field sales personnel in the United States and our independent third-party
distributors outside of the United States. If our employees or our independent distributors fail to adequately
promote, market and sell our products, our sales could significantly decrease.
If we launch new products, expand our product offerings to new indications or increase our marketing efforts
with respect to existing products, we will need to expand the reach of our marketing and sales networks. Our
future success will depend largely on our ability to continue to hire, train, retain and motivate skilled employees,
and distributors with significant technical knowledge in various areas. Further, most of the salespersons we
recently hired have technical expertise from other industries but no experience within our specific industry. New
hires require training and take time to achieve full productivity. If we fail to train new hires adequately, new hires
fail to successfully transition to our industry, or we experience high turnover in our sales force in the future, new
hires may not become as productive as may be necessary to maintain or increase our sales. If we are unable to
expand our sales and marketing capabilities domestically and internationally, we may be unable to effectively
commercialize our products.
The loss of any member of our senior management or our inability to attract and retain highly skilled
executives, salespeople, product development and other personnel could negatively impact our
business.
Our success depends on the skills, experience and performance of the members of our senior management
team. The individual and collective efforts of these employees will be important as we continue to develop our
products and as we expand our commercial activities. We believe that it is challenging to identify individuals
with the requisite skills to serve in many of our key positions, and the loss or incapacity of existing members of
our executive management team could negatively impact our operations. We did not maintain key person life
insurance on any of our employees in 2023 (other than our Chief Executive Officer, on whom we maintained a
$1,000,000 key person life insurance policy) and do not expect to in the future. Our Chief Executive Officer’s
employment agreement does not guarantee our retention of our Chief Executive Officer for any period of time.
Our commercial, supply chain and research and development programs and operations depend on our ability to
attract and retain highly skilled managers, salespeople and product development and customer training
personnel. We may be unable to attract or retain qualified managers, salespeople or product development and
customer training personnel in the future due to the competition for qualified personnel in the medical treatment
and device fields, as well as other fields. We also face competition from universities and public and private
research institutions in recruiting and retaining highly qualified scientific personnel. Recruiting and retention
difficulties can limit our ability to support our commercial, supply chain and research and development
programs. The loss of key employees, the failure of any key employee to perform or our inability to attract and
retain skilled employees, as needed, or an inability to effectively plan for and implement a succession plan for
key employees could harm our business.
Our long-term growth depends on our ability to commercialize our approved products for current and
future indications and to develop and commercialize additional products through our research and
development efforts. If we fail to do so we may be unable to compete effectively.
In order to increase our future revenues, we must successfully enhance our existing product offerings and
introduce new products in response to changing customer demands and competitive pressures and
technologies. Our industry is characterized by intense competition, including from lower-cost competitors, rapid
technological changes, new product introductions and enhancements and evolving industry standards. We also
face competition from pharmaceutical companies, including large pharmaceutical companies with
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greater capital. Our business prospects depend in part on our ability to develop and commercialize new
products and applications for our technology, including in new markets that develop as a result of technological,
pharmaceutical and scientific advances, while improving the performance and cost-effectiveness of our
products. New pharmaceutical products, technologies, techniques or other products could emerge that might
offer better combinations of price and performance than our products. It is important that we anticipate changes
in technology and market demand, as well as psychiatrist practices to successfully develop, obtain clearance or
approval, if required, and successfully introduce new, enhanced and competitive technologies to meet our
prospective customers’ needs on a timely and cost-effective basis.
We might be unable to successfully further commercialize or develop or obtain regulatory clearances or
approvals to market new products or our existing products for additional indications. Future products, even if
cleared, might not be accepted by psychiatrists or the third-party payors who reimburse for the procedures
performed with our products. The success of any new product offering or enhancement to an existing product
will depend on numerous additional factors, including our ability to:
● properly identify and anticipate clinician and patient needs;
● demonstrate the benefits associated with the use or our products when compared to the products and
devices of our competitors;
● develop and introduce new products or product enhancements in a timely manner;
● adequately protect our intellectual property and avoid infringing upon the intellectual property rights of
third parties;
● demonstrate the safety and efficacy of new products; and
● obtain the necessary regulatory clearances or approvals for new products or product enhancements.
If we do not develop and obtain regulatory clearances or approvals for new products or indications or product
enhancements in time to meet market demand, or if there is insufficient demand for these products or
enhancements, our results of operations will suffer. Our research and development efforts may require a
substantial investment of time and resources before we are adequately able to determine the commercial
viability of a new product, technology, material or other innovation. In addition, even if we are able to develop
enhancements or new generations of our products successfully, these enhancements or new generations of
products may not produce sales in excess of the costs of development and they may be quickly rendered
obsolete by changing customer preferences or the introduction by our competitors of products embodying new
technologies or features.
Nevertheless, we must carefully manage our introduction of new products. If potential customers believe such
products will offer enhanced features or be sold for a more attractive price, they may delay purchases until such
products are available. We may also have excess or obsolete inventory as we transition to new products, and
we have limited experience in managing product transitions.
We rely on single-source suppliers for some components used in our NeuroStar Advanced Therapy
System and on a single manufacturer for the assembly of our NeuroStar Advanced Therapy System,
and we may be unable to find replacements or immediately transition to alternative parties for these
components.
We rely on single-source suppliers for some components used in our NeuroStar Advanced Therapy System,
and we do not have long-term supply contracts with these suppliers. Furthermore, we rely on a single
manufacturer for the assembly of the mobile console and patient positioning system used in our NeuroStar
Advanced Therapy System. For us to be successful, our suppliers and contract manufacturer must be able to
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provide us with components in substantial quantities, in compliance with regulatory requirements, in accordance
with agreed upon specifications, at acceptable costs and on a timely basis. While these suppliers have
generally met our demand requirements on a timely basis in the past, their ability and willingness to continue to
do so going forward may be limited for several reasons, including our lack of long-term agreements with those
suppliers, our relative importance as a customer of those suppliers, or, as applicable, their ability to produce the
components for or provide assembly services to manufacture our NeuroStar Advanced Therapy System. An
interruption in our commercial operations could occur if we encounter delays or difficulties in securing these
components or manufactured products, if we cannot obtain an acceptable substitute.
Any transition to a new supplier or contract manufacturer could be time-consuming and expensive, may result in
interruptions in our operations and product delivery, could affect the performance specifications of our
NeuroStar Advanced Therapy System or could require that we modify its design. If we are required to change
our contract manufacturer, we will be required to verify that the new manufacturer maintains facilities,
procedures and operations that comply with our quality and applicable regulatory requirements, which could
further impede our ability to manufacture our products in a timely manner. If the change in manufacturer results
in a significant change to any product, a new 510(k) clearance from the FDA or similar non-U.S. regulatory
authorization may be necessary before we implement the change, which could cause a substantial delay. We
cannot assure you that we will be able to identify and engage alternative suppliers or contract manufacturers on
similar terms or without delay. Furthermore, our contract manufacturer could require us to move to a different
production facility. The occurrence of any of these events could harm our ability to meet the demand for our
NeuroStar Advanced Therapy System in a timely and cost-effective manner. During 2023, we transitioned to a
new contract manufacturer for our console in a planned process.
We may be unable to achieve or manage our anticipated growth effectively, which could make it difficult
to execute our business strategy.
We have a relatively short history of operating as a commercial company and our growth rate may be volatile.
For example for 2023, 2022 and 2021 our growth rate was 9%, 18% and 12% respectively. We intend to grow
our business operations and may experience periods of rapid growth and expansion. This anticipated growth
could create a strain on our organizational, administrative and operational infrastructure, including our supply
chain operations, quality control, technical support and customer service, sales force management and general
and financial administration. We may be unable to maintain the quality, or delivery timelines, of our products or
customer service or satisfy customer demand if our business grows too rapidly. Our ability to manage our
growth properly will require us to continue to improve our operational, financial and management controls, and
our reporting systems and procedures. We may implement new enterprise software systems in a number of
areas affecting a broad range of business processes and functional areas. The time and resources required to
implement these new systems is uncertain and failure to complete this in a timely and efficient manner could
harm our business.
As our commercial operations and sales volume grow, we will need to continue to increase our workflow
capacity for our supply chain, customer service, training and education personnel, billing, accounting reporting
and general process improvements and expand our internal quality assurance program, among other things.
Because our products require us to devote significant resources to training our customers on the use, and
educating our customers on the benefits, of our products, we will be required to expand these personnel as we
increase our sales efforts. We may not successfully implement these increases in scale or the expansion of our
personnel, which could harm our business.
We rely on a network of third-party distributors to market and distribute our products internationally,
and if we are unable to maintain and expand this network, we may be unable to generate anticipated
sales.
We rely on a network of third-party distributors to market and distribute our products in international markets.
We currently sell our products in five countries outside of the United States and plan to market and sell our
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products through our exclusive distribution agreement in Japan once we attain reimbursement approval. We are
assessing the opportunity to continue expanding into other international markets. We may face significant
challenges and risks in managing a geographically dispersed distribution network. We have limited ability to
control any third-party distributors. Our distributors may be unable to successfully market and sell our products
and may not devote sufficient time and resources to support the marketing, sales, education and training efforts
that we believe enable the products to develop, achieve or sustain market acceptance. Additionally, in some
international jurisdictions, we rely on our distributors to manage the regulatory process, while complying with all
applicable rules and regulations, and we are dependent on their ability to do so effectively. In addition, if a
dispute arises with a distributor or if a distributor is terminated by us or goes out of business, it may take time to
locate an alternative distributor, to seek appropriate regulatory approvals and to train new personnel to market
our products, and our ability to sell those systems in the region formerly serviced by such terminated distributor
could be harmed. Any of these factors could reduce our revenues from affected markets, increase our costs in
those markets or damage our reputation. In addition, if an independent distributor were to depart and be
retained by one of our competitors, we may be unable to prevent that distributor from helping competitors solicit
business from our existing customers, which could further adversely affect our sales. As a result of our reliance
on third-party distributors, we may be subject to disruptions and increased costs due to factors beyond our
control, including labor strikes, third-party error and other issues. If the services of any of these third-party
distributors become unsatisfactory, we may experience delays in meeting our customers’ demands and we may
be unable to find a suitable replacement on a timely basis or on commercially reasonable terms. Any failure to
deliver products in a timely manner may damage our reputation and could cause us to lose potential customers.
We face risks associated with our international business.
We currently market and sell our products outside of the United States, including in Japan, and plan to market
and sell our products through our exclusive distribution agreement in Japan. Once we attain satisfactory
reimbursement approval, we expect that sales of our NeuroStar Advanced Therapy System in Japan will
increase.
The sale and shipment of our products across international borders, as well as the purchase of components and
products from international sources, subjects us to extensive U.S. and other foreign governmental trade, import
and export and customs regulations and laws. Compliance with these regulations and laws is costly and
exposes us to penalties for non-compliance. We expect our international activities will be dynamic over the
foreseeable future as we continue to pursue opportunities in international markets. Our international business
operations are subject to a variety of risks, including:
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difficulties in staffing and managing foreign and geographically dispersed operations, to the extent
we establish non-U.S. operations;
attaining reimbursement under differing and multiple payor reimbursement regimes, government
payors or patient self-pay systems;
difficulties in determining and creating the proper sales pathway in new, international markets;
compliance with various U.S. and international laws, including export control laws and the U.S.
Foreign Corrupt Practices Act of 1977, (the “FCPA”), and anti-money laundering laws;
differing regulatory requirements for obtaining clearances or approvals to market our products;
changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to
sell our products, perform services or repatriate profits to the United States;
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tariffs and trade barriers, export regulations, sanctions and other regulatory and contractual
limitations on our ability to sell our products in certain foreign markets;
potential adverse tax consequences, including imposition of limitations on or increases of
withholding and other taxes on remittances and other payments by foreign subsidiaries or joint
ventures;
imposition of differing labor laws and standards;
armed conflicts or economic, political, health (including pandemic diseases) or social instability in
foreign countries and regions;
fluctuations in foreign currency exchange rates;
an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory
licensing imposed by government action;
availability of government subsidies or other incentives that benefit competitors in their local markets
that are not available to us; and
●
conducting post-market surveillance on product performance.
We are assessing the opportunity to expand into other international markets. However, our expansion plans
may not be realized, or if realized, may not be successful. We expect each market to have particular regulatory
hurdles to overcome, and future developments in these markets, including the uncertainty relating to
governmental policies and regulations, could harm our business.
Our employees, consultants, distributors and other commercial partners may engage in misconduct or
other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, consultants, distributors and other commercial partners may
engage in inappropriate, fraudulent or illegal activity. Misconduct by these parties could include intentional,
reckless or negligent conduct or other unauthorized activities that violate the regulations of the FDA and other
U.S. healthcare regulators, as well as non-U.S. regulators, including by violating laws requiring the reporting of
true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and
abuse laws and regulations in the United States and abroad or laws that require the true, complete and
accurate reporting of financial information or data. In particular, sales, marketing and business arrangements in
the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations
intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales
commission, customer incentive programs and other business arrangements. It is not always possible to identify
and deter misconduct by our employees, distributors and other third parties, and the precautions we take to
detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply
with these laws or regulations. These risks may be more pronounced, and we may find that the processes and
policies we have implemented are not effective at preventing misconduct. If any actions are instituted against us
and we are not successful in defending ourselves or asserting our rights, those actions could result in the
imposition of significant fines or other sanctions, including the imposition of civil, criminal and administrative
penalties, damages, monetary fines, individual imprisonment, disgorgement, possible exclusion from
participation in government healthcare programs, additional reporting obligations and oversight if we become
subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with
these laws, contractual damages, reputational harm, diminished profits and future earnings and the curtailment
of our operations. Whether or not we are successful in defending against such
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actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of
management in defending ourselves against any of these claims or investigations.
We rely in part on third parties to conduct our clinical trials. If these third parties fail to perform their
duties on time or as expected, we may not be able to obtain regulatory approval for additional
indications that we may seek for the NeuroStar Advanced Therapy System.
Our clinical trials are managed by our own staff and personnel, but we rely in part upon certain third parties,
including clinical trial sites, medical institutions, clinical research organizations, (“CROs”), and private practices,
for, among other things, site monitoring, statistical work and electronic data capture in our clinical trials.
Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with
applicable protocols, and legal, regulatory and scientific standards, including current good clinical practices,
(“CGCPs”), which are regulations and guidelines enforced by the FDA and comparable foreign regulatory
authorities for clinical trials. If we or any such third parties fail to comply with applicable CGCPs, the clinical data
generated in such trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities
may require us to perform additional clinical trials before approving a marketing application for any particular
indication. In addition, if such third parties do not devote sufficient time and resources to our clinical trials or
otherwise carry out their contractual duties or obligations or meet expected deadlines, if they need to be
replaced or if the quality or accuracy of the clinical data they assist in obtaining is compromised due to the
failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be
extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully
commercialize our product candidates in a specified indication.
If product liability lawsuits are brought against us, our business may be harmed, and we may be
required to pay damages that exceed our insurance coverage.
Our business exposes us to potential product liability claims that are inherent in the testing, manufacture and
sale of medical devices for the treatment of MDD. Our treatments are designed for patients who suffer from
significant neurohealth disorders, and these patients are more likely to experience significant adverse health
outcomes, which could increase the risk of product liability lawsuits. Furthermore, if psychiatrists are not
sufficiently trained in the use of our products, they may misuse or ineffectively use our products, which may
result in unsatisfactory patient outcomes. We could become the subject of product liability lawsuits alleging that
component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-
related risks or product-related information resulted in an unsafe condition or injury to patients.
Regardless of the merit or eventual outcome, product liability claims may result in:
● decreased demand for our products;
● injury to our reputation;
● significant litigation costs;
● substantial monetary awards to or costly settlements with patients;
● product recalls;
● material defense costs;
● loss of revenues;
● the inability to commercialize new products or product candidates; and
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● diversion of management attention from pursuing our business strategy.
Our existing product liability insurance coverage may be inadequate to protect us from any liabilities we might
incur. If a product liability claim or series of claims is brought against us for uninsured liabilities or in excess of
our insurance coverage, our business could suffer. Any product liability claim brought against us, with or without
merit, could result in the increase of our product liability insurance rates or the inability to secure coverage in the
future. In addition, a recall of some of our products, whether or not the result of a product liability claim, could
result in significant costs and loss of customers.
Our insurance policies protect us only from some business risks, which will leave us exposed to
significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we
currently maintain include general liability, cybersecurity liability, employee benefits liability, property, umbrella,
workers’ compensation, products and clinical trial liability and directors’ and officers’ insurance. We do not know,
however, if these policies will provide us with adequate levels of coverage. Any significant uninsured liability
may require us to pay substantial amounts, which would adversely affect our cash position and results of
operations.
We bear the risk of warranty claims on our products.
We bear the risk of warranty claims on the products we supply for one year from the date of delivery. There can
be no assurance that we will not face increased claims in the future. We may not be successful in claiming
recovery under any warranty or indemnity provided to us by our suppliers or vendors in the event of a
successful warranty claim against us by a customer or that any recovery from such vendor or supplier would be
adequate. In addition, warranty claims brought by our customers related to third-party components may arise
after our ability to bring corresponding warranty claims against such suppliers expires, which could result in
costs to us.
We could be negatively impacted by violations of applicable anti-corruption laws or violations of our
internal policies designed to ensure ethical business practices.
We operate in a number of countries throughout the world, including in countries that do not have as strong a
commitment to anti-corruption and ethical behavior as is required by U.S. laws and by our corporate policies.
We are subject to the risk that we, our U.S. employees or any future employees or consultants located in other
jurisdictions or any third parties such as our distributors that we engage to do work on our behalf in foreign
countries may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we
conduct business, including the FCPA. The FCPA generally prohibits covered entities and their intermediaries
from engaging in bribery or making other prohibited payments, offers or promises to foreign officials for the
purpose of obtaining or retaining business or other advantages. In addition, the FCPA imposes recordkeeping
and internal controls requirements on publicly traded corporations and their foreign affiliates, which are intended
to, among other things, prevent the diversion of corporate funds to the payment of bribes and other improper
payments, and to prevent the establishment of “off books” slush funds from which such improper payments can
be made.
We will face significant risks if we fail to comply with the FCPA and other laws that prohibit improper payments,
offers or promises of payment to foreign governments and their officials and political parties by us and other
business entities for the purpose of obtaining or retaining business or other advantages. In many foreign
countries, particularly in countries with developing economies, it may be a local custom that businesses
operating in such countries engage in business practices that are prohibited by the FCPA or other laws and
regulations. We have implemented company policies relating to compliance with the FCPA and similar laws.
However, such policies may not be effective at preventing all potential FCPA or other violations. Although our
agreements with our international distributors state our expectations for our distributors’ compliance with U.S.
laws, including the FCPA, and provide us with various remedies upon any non-
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compliance, including the ability to terminate the agreement, our distributors may not comply with U.S. laws,
including the FCPA.
Any violation of the FCPA or any similar anti-corruption law or regulation could result in substantial fines,
sanctions, civil and/or criminal penalties and curtailment of operations in certain jurisdictions and might harm
our business, financial condition or results of operations.
If we experience significant disruptions in our information technology systems, our business may be
adversely affected.
We depend on our information technology systems for the efficient functioning of our business, including for our
TrakStar system and accounting, data storage, compliance, purchasing and inventory management. We do not
have redundant systems at this time. While we will attempt to mitigate interruptions, we may experience
difficulties in implementing upgrades to our information technology systems, which would impact our business
operations, or experience difficulties in operating our business during the upgrade, either of which could disrupt
our operations, including our ability to provide customers with data on patient outcomes, track the usage of our
products, timely ship and track product orders, project inventory requirements, manage our supply chain and
otherwise adequately service our customers or disrupt our customers’ ability to access patient data or use our
products for treatments. In the event we experience significant disruptions as a result of the current
implementation of our information technology systems, we may be unable to repair our systems in an efficient
and timely manner. Accordingly, such events may disrupt or reduce the efficiency of our entire operation and
have a material adverse effect on our results of operations and cash flows. Currently we carry business
interruption coverage to mitigate any potential losses, but we cannot be certain that such potential losses will
not exceed our policy limits.
We are increasingly dependent on sophisticated information technology for our infrastructure. Our information
systems require an ongoing commitment of significant resources to maintain, protect and enhance existing
systems. Failure to maintain or protect our information systems and data integrity effectively could have a
materially adverse effect on our business.
Performance issues, service interruptions or price increases by our shipping carriers could adversely
affect our business and harm our reputation and ability to provide our services on a timely basis.
Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for
reliable and secure point-to-point transport of our products to our customers and for tracking of these
shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of any
systems, it would be costly to replace such systems in a timely manner and such occurrences may damage our
reputation and lead to decreased demand for our products and increased cost and expense to our business. In
addition, any significant increase in shipping rates could adversely affect our operating margins and results of
operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery
services we use would adversely affect our ability to process orders for our products on a timely basis.
Security and privacy breaches may expose us to liability and harm our reputation and business.
As part of our business we receive and process information about our customers, partners and their patients,
including PHI, and we may store or contract with third parties to store our customers’ data, including PHI. PHI, a
subset of individually identifiable information, is regulated at the federal level by HIPAA, as amended by
HITECH, and by various laws at the state level, as more fully described below. We are required to safeguard
PHI in accordance with HIPAA and, as a business associate, we are also directly liable for compliance with
HIPAA.
The security measures we have implemented relating to our NeuroStar Advanced Therapy System and
TrakStar database, specifically, and our operations, generally, may not prevent security breaches that could
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harm our business. Advances in computer capabilities, inadequate technology or facility security measures or
other factors may result in a compromise or breach of our systems and the data and PHI we store and process.
Our security measures have been and may in the future be breached as a result of actions by third parties or
employee error or malfeasance. A party who is able to circumvent our security measures or exploit
inadequacies in our security measures, could, among other things, misappropriate proprietary information,
including information about our customers and their patients, cause the loss or disclosure of some or all of this
information, cause interruptions in our or our customers’ operations or expose our customers to computer
viruses or other disruptions or vulnerabilities. Any compromise of our systems or the data we store or process
could implicate reporting requirements under HIPAA, result in a loss of confidence in the security of our
software, damage our reputation, disrupt our business, lead to legal liability and adversely affect our results of
operations. Moreover, a compromise of our systems could remain undetected for an extended period of time,
exacerbating the impact of that compromise. Actual or perceived vulnerabilities may lead to claims against us
by our customers, their patients or other third parties, including the federal and state governments. While our
customer agreements typically contain provisions that seek to limit our liability, there is no assurance these
provisions will be enforceable and effective under applicable law. In addition, the cost and operational
consequences of implementing further data protection measures could be significant.
Employment litigation and unfavorable publicity could negatively affect our future business.
Employees may, from time to time, bring lawsuits against us or make public claims about us regarding injury,
creating a hostile workplace, discrimination, wage and hour, sexual harassment and other employment issues.
In recent years there has been an increase in the number of discrimination and harassment claims generally.
Coupled with the expansion of social media platforms and similar devices that allow individuals access to a
broad audience, these claims have had a significant negative impact on some businesses. Companies that
have faced employment or harassment related lawsuits have had to terminate management or other key
personnel and have suffered reputational harm that has negatively impacted their sales. If we were to face any
employment related claims or allegations, our business could be negatively affected.
The 2017 comprehensive tax reform law could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new legislation, (Pub. L. 115-97), commonly referred
to as the Tax Cuts and Jobs Act of 2017, (the “TCJA”), which significantly revised the Internal Revenue Code of
1986, as amended. The TCJA, among other things, contained significant changes to corporate taxation,
including the reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation
of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses),
limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net
operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they
are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate
deductions for certain new investments instead of deductions for depreciation expense over time, and modifying
or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax
rate, the overall impact of the federal tax law is uncertain and our business and financial condition could be
adversely affected. In addition, it is uncertain how various states will respond to the TCJA. The impact of this tax
reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to
consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of
investing in or holding our common stock.
Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of
accrued amounts.
We are subject to taxation in numerous U.S. states and territories. As a result, our effective tax rate is derived
from a combination of applicable tax rates in the various places that we operate. In preparing our financial
statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our
effective tax rate may be different than experienced in the past due to numerous factors, including passage of
the newly enacted federal income tax law, changes in the mix of our profitability from state to
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state, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable
agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these
factors could cause us to experience an effective tax rate significantly different from previous periods or our
current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.
Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss,
strikes and other events beyond our control.
A major earthquake, fire or other disaster, such as a major flood, seasonal storms, global pandemic (such as
COVID-19), or terrorist attack affecting our facilities, or those of our third-party manufacturers or suppliers, could
significantly disrupt our or their operations, and delay or prevent product shipment or installation during the time
required to repair, rebuild or replace our third-party manufacturers or suppliers’ damaged manufacturing
facilities. These delays could be lengthy and costly. If any of our manufacturers’, suppliers’ or customers’
facilities are negatively impacted by a disaster, shipments of our products could be delayed. Additionally,
customers may delay purchases of our products until operations return to normal. Even if we are able to quickly
respond to a disaster, the ongoing effects of the disaster could create some uncertainty in the operations of our
business. In addition, our or their facilities may be subject to a shortage of available electrical power and other
energy supplies. Any shortages may increase our costs for power and energy supplies or could result in
blackouts, which could disrupt the operations of our affected facilities and harm our business. In addition,
concerns about terrorism, the effects of a terrorist attack, political turmoil or an outbreak a pandemic (such as
COVID-19) could have a negative effect on our operations.
We may seek to grow our business through acquisitions or investments in new or complementary
businesses, products or technologies, through the licensing of products or technologies from third
parties. The failure to manage acquisitions, investments, licenses or other strategic alliances, or the
failure to integrate them with our existing business, could harm our business.
Our success depends in part on our ability to continually enhance and broaden our product offerings in
response to changing customer demands, competitive pressures, technologies and market pressures.
Accordingly, from time to time we may consider opportunities to acquire, make investments in or license other
technologies, products and businesses that may enhance our capabilities, complement our current products or
expand the breadth of our markets or customer base. Potential and completed acquisitions, strategic
investments, licenses and other alliances involve numerous risks, including:
● difficulty assimilating or integrating acquired or licensed technologies, products or business operations;
● issues maintaining uniform standards, procedures, controls and policies;
● unanticipated costs associated with acquisitions or strategic alliances, including the assumption of
unknown or contingent liabilities and the incurrence of debt or future write-offs of intangible assets or
goodwill;
● diversion of management’s attention from our core business and disruption of ongoing operations;
● adverse effects on existing business relationships with suppliers, distributors and customers;
● risks associated with entering new markets in which we have limited or no experience;
● potential losses related to investments in other companies;
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● potential loss of key employees of the acquired businesses; and
● increased legal and accounting compliance costs.
We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether
we will be able to successfully complete any such transactions on favorable terms or at all or whether we will be
able to successfully integrate any acquired business, product or technology into our business or retain any key
personnel, suppliers or distributors.
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to
integration of operations across different cultures, languages and legal and regulatory environments, currency
risks and the particular economic, political and regulatory risks associated with specific countries.
To finance any acquisitions, investments or strategic alliances, we may choose to issue shares of our common
stock or other equity-linked securities as consideration, which could dilute the ownership of our stockholders.
Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common
stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances
using our stock as consideration.
Our reported financial results may be adversely affected by changes in accounting principles generally
accepted in the United States.
Generally accepted accounting principles in the United States, (“U.S. GAAP”), are subject to interpretation by
the Financial Accounting Standards Board, (“FASB”), or SEC, and various bodies formed to promulgate and
interpret appropriate accounting principles. A change in these principles or interpretations could have a
significant effect on our reported financial results and could affect the reporting of transactions completed before
the announcement of a change.
Refer to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related notes
thereto included elsewhere in this Annual Report on Form 10-K.
Our sales volumes and our results of operations may fluctuate over the course of the year.
We have experienced and may continue to experience meaningful variability in our sales and gross profit
among fiscal quarters. In the first quarter, our results can be impacted by the resetting of annual U.S. patient
healthcare insurance plan deductibles, which may cause delays in patients seeking NeuroStar Advanced
Therapy System treatments. Historically, we have seen a sequential decline in third quarter revenues, which we
believe is attributable to summer vacation plans of psychiatrists and patients. In addition, the fourth quarter has
consistently been a strong revenue quarter on a sequential basis primarily due to U.S. psychiatrists’ historical
timing for capital expenditures and patients’ needs to exhaust remaining balances in flexible spending accounts.
Additional factors that we expect may contribute to variability in our sales and gross profit over the course of
the year include:
● the growth or decline of our installed system base;
● the unpredictability of future sales by our international distributors, including through our exclusive
distributor in Japan;
● the demand for, and pricing of, our products and the products of our competitors;
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● the timing of or failure to obtain regulatory clearances or approvals for other products, indications or
treatments; or
● the costs, benefits and timing of new product introductions.
Risks Related to Intellectual Property
If we are not able to obtain and enforce patent protection for our technologies, products, or product
candidates, development and commercialization of our products and product candidates may be
adversely affected.
Our commercial success will depend in part on our success in obtaining and maintaining issued patents and
other intellectual property rights in the United States and elsewhere and protecting our proprietary technology. If
we do not adequately protect our intellectual property and proprietary technology, competitors may be able to
use our technologies and erode or negate any competitive advantage we may have, which could harm our
business and ability to achieve profitability. We have applied, and we intend to continue applying, for patents
covering aspects of our technologies that we deem appropriate. However, the patent process is expensive and
time consuming, and we may not be able to apply for patents on certain aspects of our current or future
products and other technologies in a timely fashion, at a reasonable cost, in all jurisdictions, or at all, and any
potential patent coverage we obtain may not be sufficient to prevent substantial competition.
We cannot offer any assurances about which, if any, of our patent applications will issue or whether any of our
issued patents will be found invalid and unenforceable or will be threatened by third parties. Any patent
applications we file may be challenged and may not result in issued patents or may be invalidated or narrowed
in scope after they are issued. We also cannot provide any assurances that any of our patents have, or that any
of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to
protect and provide exclusivity for our products, any additional features we develop for our products or any new
products. Other parties may have designed around our claims or developed technologies that may be related or
competitive to our platform, may have filed or may file patent applications and may have received or may
receive patents that overlap or conflict with our patent applications, either by claiming the same methods or
devices or by claiming subject matter that could dominate our patent position. Any successful opposition to
these patents or any other patents owned by or, if applicable in the future, licensed to us could deprive us of
rights necessary for the practice of our technologies or the successful commercialization of any products or
product candidates that we may develop. Since patent applications in the US and most other countries are
confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to file any
patent application related to our technologies, products, or product candidates. Furthermore, an interference
proceeding can be provoked by a third party or instituted by the United States Patent and Trademark Office,
(the “USPTO”), to determine who was the first to invent any of the subject matter covered by the patent claims
of our applications for any application with an effective filing date before March 16, 2013.
The patent positions of medical device companies, including our patent position, may involve complex legal and
factual questions, and, therefore, the scope, validity and enforceability of any patent claims that we may obtain
cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated or
circumvented. Once granted, patents may remain open to opposition, interference, re-examination, post-grant
review, inter partes review, nullification or derivation action in court or before patent offices or similar
proceedings for a given period after allowance or grant, during which time third parties can raise objections
against such initial grant. Proceedings challenging our patents, which may continue for a protracted period of
time, could result in either loss of the patent or denial of the patent application or loss or reduction in the scope
of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly.
Thus, any patents that we may own may not provide any protection against competitors. Furthermore, an
adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us,
which in turn could affect our ability to commercialize our products.
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Furthermore, though an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its
validity or its enforceability and it may not provide us with adequate proprietary protection or competitive
advantages against competitors with similar products. Competitors may also be able to design around our
patents. Other parties may develop and obtain patent protection for alternative and possibly more effective
technologies, designs or methods. We may be unable to prevent the unauthorized disclosure or use of our
technical knowledge or trade secrets by consultants, suppliers, vendors, former employees and current
employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the
laws of the United States, and we may encounter significant problems in protecting our proprietary rights in
these countries.
Our ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect
infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or
impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not
prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may
not be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held
unenforceable or interpreted narrowly. Such proceedings could also provoke third parties to assert claims
against us, including that some or all of the claims in one or more of our patents are invalid or otherwise
unenforceable. If any of our patents covering our products are invalidated or found unenforceable, or if a court
found that valid, enforceable patents held by third parties covered one or more of our products, our competitive
position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
If we initiate lawsuits to protect or enforce our patents, or litigate against third party claims, such proceedings
would be expensive and would divert the attention of our management and technical personnel.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
● any of our patents, or any of our pending patent applications, if issued, or those of our licensors, will
include claims having a scope sufficient to protect our products;
● any of our pending patent applications or those of our licensors may issue as patents;
● others will not or may not be able to make, use, offer to sell, or sell products that are the same as or
similar to our own but that are not covered by the claims of the patents that we own or license;
● we will be able to successfully commercialize our products on a substantial scale, if approved, before
the relevant patents that we own or license expire;
● we were the first to make the inventions covered by each of the patents and pending patent
applications that we own or license;
● we or our licensors were the first to file patent applications for these inventions;
● others will not develop similar or alternative technologies that do not infringe the patents we own or
license;
● any of the patents we own or license will be found to ultimately be valid and enforceable;
● any patents issued to us or our licensors will provide a basis for an exclusive market for our
commercially viable products or will provide us with any competitive advantages;
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● a third party may not challenge the patents we own or license and, if challenged, a court would hold
that such patents are valid, enforceable and infringed;
● we may develop or in-license additional proprietary technologies that are patentable;
● the patents of others will not have an adverse effect on our business;
● our competitors do not conduct research and development activities in countries where we do not have
enforceable patent rights and then use the information learned from such activities to develop
competitive products for sale in our major commercial markets;
● we will develop additional proprietary technologies or products that are separately patentable; or
● our commercial activities or products will not infringe upon the patents of others.
Where we obtain licenses from or collaborate with third parties, in some circumstances, we may not have the
right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering
technology that we license from third parties, or such activities, if controlled by us, may require the input of such
third parties. We may also require the cooperation of our licensors and collaborators to enforce any licensed
patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be
prosecuted and enforced in a manner consistent with the best interests of our business. Moreover, if we do
obtain necessary licenses, we will likely have obligations under those licenses, and any failure to satisfy those
obligations could give our licensor the right to terminate the license. Termination of a necessary license, or
expiration of licensed patents or patent applications, could have a material adverse impact on our business.
Our inability to effectively protect our proprietary technologies could harm our competitive position.
Although our competitors have utilized and are expected to continue utilizing technologies similar to ours, our
success will depend upon our ability to protect and continue to develop proprietary technologies and products
and to defend any advantages afforded to us relative to our competitors. If we do not protect our intellectual
property adequately, competitors may be able to use our technologies and thereby erode any competitive
advantages we may have. For example, patents for our core technology will begin to expire in the United States
in 2024, and our patents outside of the United States are expected to remain in effect until between 2024 and
2035. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent
that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as
trade secrets. We have agreements with our employees and selected consultants that obligate them to assign
their inventions to us. If the employees and consultants who are parties to these agreements breach or violate
the terms of these agreements, including by refusing or being unavailable to sign assignments, oaths,
declarations or other documents, we may not have adequate remedies for any such breach or violation, and we
could lose our rights in inventions through such breaches or violations. Furthermore, it is possible that
technology relevant to our business will be independently developed by a person that is not a party to such an
agreement.
The lives of our patents may not be sufficient to effectively protect our products and business.
Patents have a limited lifespan. In the US, the natural expiration of a utility patent is generally 20 years after its
first effective filing date. The natural expiration of a design patent is generally 14 years after the grant of the
design patent for design patent applications filed before May 13, 2014, and the natural expiration of a design
patent is generally 15 years after the grant of the design patent for design patent applications that are filed on or
after May 13, 2015. Although various extensions may be available, the life of a patent, and the protection it
affords, is limited. Even if patents covering our technologies, products, or product candidates are obtained, once
the patent life has expired, we may be open to competition. Patents covering some of our core
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technology have expired or will expire within the next five years. In addition, although upon issuance in the
United States a patent’s life can be increased based on certain delays caused by the USPTO, this increase can
be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. If
we do not have sufficient patent life to protect our technologies, products, and product candidates, our business
and results of operations will be adversely affected.
Litigation or other proceedings or third-party claims of intellectual property infringement could require
us to spend significant time and money and could prevent us from selling our products.
Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights
of others. We cannot assure you that our operations do not, or will not in the future, infringe existing or future
patents. Our activities may be subject to claims that we infringe or otherwise violate patents owned or controlled
by third parties.
Numerous U.S. and foreign patents and pending patent applications exist in our market that are owned by third
parties. Our competitors in both the United States and abroad, many of which have substantially greater
resources and have made substantial investments in patent portfolios and competing technologies, may have
applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise
interfere with our ability to make, use and sell our products. We do not always conduct independent reviews of
pending patent applications of and patents issued to third parties. Patent applications in the United States and
elsewhere are typically published approximately 18 months after the earliest filing for which priority is claimed,
with such earliest filing date being commonly referred to as the priority date. Certain U.S. applications that will
not be filed outside the U.S. can remain confidential until patents issue. In addition, patent applications in the
United States and elsewhere can be pending for many years before issuance, or unintentionally abandoned
patents or applications can be revived. Furthermore, pending patent applications that have been published can,
subject to certain limitations, be later amended in a manner that could cover our technologies, our products or
the use of our products. As such, there may be applications of others now pending or recently revived patents
of which we are unaware. These applications may later result in issued patents, or the revival of previously
abandoned patents, that will prevent, limit or otherwise interfere with our ability to make, use or sell our
products.
The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and
the patent’s prosecution history and can involve other factors such as expert opinion. Our interpretation of the
relevance or the scope of claims in a patent or a pending application may be incorrect, which may negatively
impact our ability to market our products. Further, we may incorrectly determine that our technologies, products,
or product candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s
pending patent application will issue with claims of relevant scope. Our determination of the expiration date of
any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively
impact our ability to develop and market our products or product candidates.
Significant litigation regarding patent rights occurs in our industry. Third parties may, in the future, assert claims
that we are employing their proprietary technology without authorization, including claims from competitors or
from non-practicing entities that have no relevant product revenue and against whom our own patent portfolio
may have no deterrent effect. As we continue to commercialize our products in their current or updated forms,
launch new products and enter new markets, we expect competitors may claim that one or more of our products
infringe their intellectual property rights as part of business strategies designed to impede our successful
commercialization and entry into new markets. The large number of patents, the rapid rate of new patent
applications and issuances, the complexities of the technology involved, and the uncertainty of litigation may
increase the risk of business resources and management’s attention being diverted to patent litigation.
We may become party to future adversarial proceedings regarding our patent portfolio or the patents of third
parties. Such proceedings could include supplemental examination or contested post-grant proceedings such
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as review, reexamination, interference or derivation proceedings before the USPTO and challenges in U.S.
District Court. Patents may be subjected to opposition, post-grant review or comparable proceedings lodged in
various foreign, both national and regional, patent offices. The legal threshold for initiating litigation or contested
proceedings may be low, so that even lawsuits or proceedings with a low probability of success might be
initiated. Litigation and contested proceedings can also be expensive and time-consuming, regardless of the
merit of the claims, and our adversaries in these proceedings may have the ability to dedicate substantially
greater resources to prosecuting these legal actions than we can.
Any lawsuits resulting from such allegations could subject us to significant liability for damages and invalidate
our proprietary rights. Any potential intellectual property litigation also could force us to do one or more of the
following:
● stop making, selling or using products or technologies that allegedly infringe the asserted intellectual
property;
● lose the opportunity to license our technology to others or to collect royalty payments based upon
successful protection and assertion of our intellectual property rights against others;
● incur significant legal expenses;
● pay substantial damages or royalties to the party whose intellectual property rights we may be found to
be infringing, including enhanced damages if we are found to have willfully infringed or misappropriated
such rights;
● pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be
found to be infringing;
● redesign those products that contain the allegedly infringing intellectual property, which could be costly,
disruptive and infeasible; and
● attempt to obtain a license to the relevant intellectual property from third parties, which may not be
available on reasonable terms or at all, or from third parties who may attempt to license rights that they
do not have.
Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could
place a significant strain on our financial resources, divert the attention of management from our core business
and harm our reputation. If we are found to infringe the intellectual property rights of third parties, we could be
required to pay substantial damages (which may be increased up to three times of awarded damages) and/or
substantial royalties and could be prevented from selling our products unless we obtain a license or are able to
redesign our products to avoid infringement. Any such license may not be available on reasonable terms, if at
all, and there can be no assurance that we would be able to redesign our products in a way that would not
infringe the intellectual property rights of others. Even if such licenses are available, we could incur substantial
costs related to royalty payments for licenses obtained from third parties, which could negatively affect our
gross margins, and the rights may be non-exclusive, which could give our competitors access to the same
technology or intellectual property rights licensed to us. We could encounter delays in product introductions
while we attempt to develop alternative methods or products. If we fail to obtain any required licenses or make
any necessary changes to our products or technologies, we may have to withdraw existing products from the
market or may be unable to commercialize one or more of our products.
If we collaborate with third parties in the development of technology in the future, our collaborators may not
properly maintain or defend our intellectual property rights or may use our proprietary information in such a way
as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or
expose us to litigation or potential liability. Further, collaborators may infringe the intellectual property rights
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of third parties, which may expose us to litigation and potential liability. Also, we may be obligated under our
agreements with our collaborators, licensors, suppliers and others to indemnify and hold them harmless for
damages arising from intellectual property infringement by us.
In addition, we generally indemnify our customers and international distributors with respect to infringement by
our products of the proprietary rights of third parties. Third parties may assert infringement claims against our
customers or distributors. These claims may require us to initiate or defend protracted and costly litigation on
behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed
or settle, we may be forced to pay damages or settlement payments on behalf of our customers or distributors
or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on
commercially reasonable terms, our customers may be forced to stop using our products.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive
position could be harmed.
In addition to patent protection, we also rely upon copyright and trade secret protection, unpatented know-how
and continuing technological innovation to develop and maintain our competitive position, which we seek to
protect through non-disclosure agreements and invention assignment agreements with our employees,
consultants and third parties, to protect our confidential and proprietary information. In addition to contractual
measures, we try to protect the confidential nature of our proprietary information using commonly accepted
physical and technological security measures. Such measures may not provide adequate protection for our
proprietary information, for example, in the case of misappropriation of a trade secret by an employee,
consultant, customer or third party with authorized access. Our security measures may not prevent an
employee, consultant or customer from misappropriating our trade secrets and providing them to a competitor,
and recourse we take against such misconduct may not provide an adequate remedy to protect our interests
fully. Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have
taken to protect our proprietary technologies will be effective. Unauthorized parties may also attempt to copy or
reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party
illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the
outcome is unpredictable. Even though we use commonly accepted security measures, the criteria for
protection of trade secrets can vary among different jurisdictions.
In addition, trade secrets may be independently developed by others in a manner that could prevent legal
recourse by us. Trade secrets will over time be disseminated within the industry through independent
development, the publication of journal articles and the movement of personnel skilled in the art from company
to company or academic to industry scientific positions. Though our agreements with third parties typically
restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and
consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited
publication rights. If any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent such competitor from using that technology or information to
compete with us, which could harm our competitive position. Because from time to time we expect to rely on
third parties in the development, manufacture, and distribution of our products and provision of our services, we
must, at times, share trade secrets with them. Despite employing the contractual and other security precautions
described above, the need to share trade secrets increases the risk that such trade secrets become known by
our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in
violation of these agreements. If any of our confidential or proprietary information, such as our trade secrets,
were to be disclosed or misappropriated, or if any such information was independently developed by a
competitor, our business and competitive position could be harmed.
We may be unable to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of
the United States. Many companies have encountered significant problems in protecting and defending
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intellectual property rights in certain foreign jurisdictions. These challenges can be caused by the absence or
inconsistency of the application of rules and methods for the establishment and enforcement of intellectual
property rights outside of the United States. In addition, the legal systems of some countries, particularly
developing countries, do not favor the enforcement of patents and other intellectual property protection,
especially those relating to healthcare. This could make it difficult for us to stop infringement of our foreign
patents, or the misappropriation of our other intellectual property rights. For example, some foreign countries
have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition,
some countries limit the enforceability of patents against third parties, including government agencies or
government contractors. In these countries, patents may provide limited or no benefit. Patent protection must
ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with
uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will
not have the benefit of patent protection in such countries.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual
property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by
courts in the United States and foreign countries may affect our ability to obtain adequate protection for our
technology and the enforcement of our intellectual property.
Further, the standards applied by the USPTO and foreign patent offices in granting patents are not always
applied uniformly or predictably. As such, we do not know the degree of future protection that we will have on
our technologies, products, and product candidates. While we will endeavor to try to protect our technologies,
products, and product candidates with intellectual property rights such as patents, as appropriate, the process
of obtaining patents is time-consuming, expensive and sometimes unpredictable.
Third parties may assert ownership or commercial rights to inventions we develop.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual
property, including studies we commission or reports on the efficacy of our products. In addition, we may face
claims by third parties that our agreements with employees, contractors or consultants obligating them to assign
intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of
assignment, which could result in ownership disputes regarding intellectual property we have developed or will
develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation
may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from
using certain intellectual property or may lose our exclusive rights in that intellectual property. Either outcome
could harm our business and competitive position.
Third parties may assert that our employees or consultants have wrongfully used or disclosed
confidential information or misappropriated trade secrets.
We employ individuals who previously worked with other companies, including our competitors or potential
competitors. Although we try to ensure that our employees and consultants do not use the proprietary
information or know-how of others in their work for us, we may be subject to claims that we or our employees,
consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property,
including trade secrets or other proprietary information, of a former employer or other third party. Litigation may
be necessary to defend against these claims. If we fail in defending any such claims or settling those claims, in
addition to paying monetary damages or a settlement payment, we may lose valuable intellectual property rights
or personnel. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees.
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Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability
to protect our products.
Our patent rights may be affected by developments or uncertainty in the patent statute, patent case law or
USPTO rules and regulations. There are a number of recent changes to the patent laws that may have a
significant impact on our ability to protect our technology and enforce our intellectual property rights. For
example, the United States has enacted and is currently implementing the America Invents Act of 2011, a wide-
ranging patent reform legislation. These changes include provisions that affect the way patent applications will
be prosecuted and may also affect patent litigation. As an example, the first to file provisions, which became
effective March 2013, mean that the party that is first to file in the United States generally is awarded the patent
rights, regardless of who invented first. This could have a negative impact on some of our IP and could increase
uncertainties surrounding obtaining and enforcement or defense of our issued patents. Further, the U.S.
Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent
protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events
has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S.
Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents or
future patents.
Obtaining and maintaining patent protection depends on compliance with various procedural,
document submission, fee payment and other requirements imposed by governmental patent agencies,
and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other provisions during the patent process. Periodic maintenance
fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due
to be paid to the USPTO and various governmental patent agencies outside of the US in several stages over
the lifetime of the patents and/or applications. We employ reputable professionals and rely on such third parties
to help us comply with these requirements and effect payment of these fees with respect to the patents and
patent applications that we own, and if we in-license intellectual property we may have to rely upon our
licensors to comply with these requirements and effect payment of these fees with respect to any patents and
patent applications that we license. In many cases, an inadvertent lapse can be cured by payment of a late fee
or by other means in accordance with the applicable rules. However, there are situations in which
noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or
complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter
the market earlier than would otherwise have been the case.
If we fail to comply with our obligations under license or technology agreements with third parties, we
may be required to pay damages and we could lose license rights that are critical to our business.
We license certain intellectual property, and in the future, we may enter into additional agreements that provide
us with licenses to valuable intellectual property or technology. These licenses impose various payment
obligations on us. If we fail to comply with any of these obligations, we may be required to pay damages and the
licensor may have the right to terminate the license. Termination by the licensor could cause us to lose valuable
rights, and could prevent us from distributing our products, or inhibit our ability to commercialize future products.
Our business could suffer if any current or future licenses terminate, if the licensors fail to abide by the terms of
the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents
or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on
acceptable terms.
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Any collaboration arrangements that we may enter into in the future may not be successful, which
could adversely affect our ability to develop and commercialize our products.
Any future collaborations that we enter into may not be successful. The success of our collaboration
arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to
numerous risks, which may include that:
● collaborators have significant discretion in determining the efforts and resources that they will apply to
collaborations;
● collaborators may not pursue development and commercialization of our products or may elect not to
continue or renew development or commercialization programs based on trial or test results, changes
in their strategic focus due to the acquisition of competitive products, availability of funding or other
external factors, such as a business combination that diverts resources or creates competing priorities;
● collaborators could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates;
● a collaborator with marketing, manufacturing and distribution rights to one or more products may not
commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities;
● we could grant exclusive rights to our collaborators that would prevent us from collaborating with
others;
● collaborators may not properly maintain or defend our intellectual property rights or may use our
intellectual property or proprietary information in a way that gives rise to actual or threatened litigation
that could jeopardize or invalidate our intellectual property or proprietary information or expose us to
potential liability;
● disputes may arise between us and a collaborator that causes the delay or termination of the research,
development or commercialization of our current or future products or that results in costly litigation or
arbitration that diverts management attention and resources;
● collaborations may be terminated, and, if terminated, may result in a need for additional capital to
pursue further development or commercialization of the applicable current or future products;
● collaborators may own or co-own intellectual property covering our products that results from our
collaborating with them, and in such cases, we would not have the exclusive right to develop or
commercialize such intellectual property; and
● a collaborator’s sales and marketing activities or other operations may not be in compliance with
applicable laws resulting in civil or criminal proceedings.
If our trademarks and trade names are not adequately protected, then we may not be able to build name
recognition in our markets of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or descriptive.
Our trademarks or trade names may be determined to be infringing on other marks. We may not be able to
protect our rights to these trademarks and trade names or may be forced to stop using these names, which we
need for name recognition by potential partners or customers in our markets of interest. During trademark
registration proceedings, we may receive rejections. Although we would be given an opportunity to respond to
those rejections, we may be unable to overcome such rejections. In addition, in the
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USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to
oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation
proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we
are unable to establish name recognition based on our trademarks and trade names, we may not be able to
compete effectively and our business may be adversely affected. We may license our trademarks and trade
names to third parties, such as distributors. Though these license agreements may provide guidelines for how
our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and
tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our
trademarks and trade names.
Risks Related to Government Regulation
Our products and operations are subject to extensive government regulation and oversight both in the
United States and abroad, and our failure to comply with applicable requirements could harm our
business.
We and our products are subject to extensive regulation in the United States and elsewhere, including by the
FDA, FTC, and their foreign counterparts. The FDA and foreign regulatory agencies regulate, among other
things, with respect to medical devices: design, development and manufacturing; testing, labeling, content and
language of instructions for use and storage; clinical trials; product safety; marketing, sales and distribution;
premarket clearance and approval; record keeping procedures; advertising and promotion; recalls and field
safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and
malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval studies; and
product import and export.
The regulations to which we are subject are complex and have tended to become more stringent over time.
Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than
anticipated costs or lower than anticipated sales. The FDA enforces these regulatory requirements through,
among other means, periodic unannounced inspections. We do not know whether we will pass any future FDA
inspections. Failure to comply with applicable regulations could jeopardize our ability to sell our products and
result in enforcement actions such as: warning letters; fines; injunctions; civil penalties; termination of
distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial
suspension of production; refusal to grant future clearances or approvals; withdrawals or suspensions of current
clearances or approvals, resulting in prohibitions on sales of our products; and in the most serious cases,
criminal penalties.
We may not receive the necessary regulatory clearances or approvals to market our future products or
other proposed indications for our products in the future, and failure to timely obtain necessary
clearances or approvals for such future products or indications would adversely affect our ability to
grow our business.
An element of our strategy is to continue to upgrade our products, add new enhancements and features and
expand clearance or approval of our current products to include new indications. In the United States, before we
can market a new medical device, or a new use of, new claim for or significant modification to an existing
product, we must first receive either clearance under Section 510(k) of the Federal Food, Drug and Cosmetic
Act or approval of a premarket approval application (PMA) from the FDA, unless an exemption applies. In the
510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is
“substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been
previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-
amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later
down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the
same intended use as the predicate device, and either have the same technological characteristics as the
predicate device or have different technological characteristics and not raise different questions of safety or
effectiveness than the predicate device. Clinical data are sometimes required to support substantial
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equivalence. In the PMA process, the FDA must determine that a proposed device is safe and effective for its
intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial,
manufacturing and labeling data. Our ability to successfully obtain clearance for any new indications will be
dependent on us submitting data as to the successful completion of clinical trials evidencing safety and efficacy.
The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-
sustaining, life-supporting or implantable devices. However, some devices are automatically subject to the PMA
pathway regardless of the level of risk they pose because they have not previously been classified into a lower
risk class by the FDA. Manufacturers of these devices may request that FDA review such devices in
accordance with the de novo classification procedure, which allows a manufacturer whose novel device would
otherwise require the submission and approval of a PMA prior to marketing to request down-classification of the
device on the basis that the device presents low or moderate risk. If the FDA agrees with the down-
classification request, the applicant will then receive authorization to market the device. This device type can
then be used as a predicate device for future 510(k) submissions. We initially received marketing authorization
of our device through the de novo classification process, and we have made changes to our system through
subsequent 510(k) clearances. Competitors may seek 510(k) clearance of similar products with similar
indications and use our de novo classification as a predicate device in their submission. The process of
obtaining regulatory clearances or approvals, or completing the de novo classification process, to market a
medical device can be costly and time consuming, and we may not be able to successfully obtain pre-market
reviews on a timely basis, if at all.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including: we may be
unable to demonstrate to the FDA’s satisfaction that the product or modification is substantially equivalent to the
proposed predicate device or safe and effective for its intended use; the data from our pre-clinical studies and
clinical trials may be insufficient to support clearance or approval, where required; and the manufacturing
process or facilities we use may not meet applicable requirements. The FDA may also, instead of accepting a
510(k) submission, require us to submit a PMA, which is typically a much more complex, lengthy, and
burdensome application than a 510(k) submission. To support a PMA, the FDA would likely require that we
conduct one or more clinical studies to demonstrate that the device is safe and effective. In some cases, such
studies may be requested for a 510(k) as well. We may not be able to meet the requirements to obtain 510(k)
clearance or PMA (or a de novo classification request), in which case the FDA may not grant any necessary
clearances or approvals. In addition, the FDA may place significant limitations upon the intended uses of our
products as a condition to a 510(k) clearance or PMA. Product applications can also be denied or withdrawn
due to failure to comply with regulatory requirements or the occurrence of unforeseen problems following
clearance or approval. Any delays or failure to obtain FDA clearance or approval of new products we develop,
any limitations imposed by the FDA on new product use or the costs of obtaining FDA clearance or approvals
could have a material adverse effect on our business, financial condition, and results of operations.
Even if granted, a 510(k) clearance, de novo classification, or PMA imposes substantial restrictions on how our
devices may be marketed or sold, and the FDA continues to place considerable restrictions on our products and
operations. For example, the manufacture of medical devices must comply with the FDA’s Quality System
Regulation (QSR). In addition, manufacturers must register their manufacturing facilities, list the products with
the FDA, and comply with requirements relating to labeling, marketing, complaint handling, adverse event and
medical device reporting, reporting of corrections and removals, and import and export restrictions. The FDA
monitors compliance with the QSR and these other requirements through periodic inspections. If our facilities or
those of our manufacturers or suppliers are found to be in violation of applicable laws and regulations, or if we
or our manufacturers or suppliers fail to take satisfactory corrective action in response to an adverse inspection,
the regulatory authority could take enforcement action, including any of the following sanctions: untitled letters,
warning letters, fines, injunctions, consent decrees and civil penalties; customer notifications or repair,
replacement, refunds, recalls, detention or seizure of our products; operating restrictions or partial suspension
or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA of new
products or modified products; withdrawing 510(k) marketing clearances or PMAs that have already been
granted; refusing to provide Certificates for Foreign Government; refusing to grant export approval for our
products; or pursuing criminal prosecution. Any of these sanctions could impair our ability to produce or
commercialize our products in a cost-effective and timely manner in
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order to meet our customers’ demands and could have a material adverse effect on our reputation, business,
results of operations and financial condition. We may also be required to bear other regulatory compliance costs
or take other actions that may have a negative impact on our sales and our ability to generate profits.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise
existing regulations, or take other actions, which may prevent or delay approval or clearance of our future
products under development or impact our ability to modify our currently marketed products on a timely basis.
Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to
obtain new 510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current
clearances. We also cannot predict the likelihood, nature or extent of government regulation that may arise from
future legislation or administrative or executive action, either in the United States or abroad, especially with a
new administration that may have different policy priorities than the previous one.
In order to sell our products in member countries of the European Economic Area, or (EEA) or in countries that
also rely on the CE Mark outside the EEA, our products must comply with the essential requirements of the EU
Medical Devices Directive (Council Directive 93/42/EEC), and with the Medical Device Regulation (Regulation
2017/745). Compliance with these requirements is a prerequisite to be able to affix the CE Mark to our
products, without which they cannot be sold or marketed in the EEA. To demonstrate compliance with the
essential requirements we must undergo a conformity assessment procedure, which varies according to the
type of medical device and its classification. Except for low-risk medical devices (Class I non-sterile, non-
measuring devices), where the manufacturer can issue an EC Declaration of Conformity based on a self-
assessment of the conformity of its products with the essential requirements of the EU Medical Devices
Directive, a conformity assessment procedure requires the intervention of an organization accredited by a
Member State of the EEA to conduct conformity assessments, or a Notified Body. Depending on the relevant
conformity assessment procedure, the Notified Body would typically audit and examine the technical file and the
quality system for the manufacture, design and final inspection of our devices. The Notified Body issues a
certificate of conformity following successful completion of a conformity assessment procedure conducted in
relation to the medical device and its manufacturer and their conformity with the essential requirements. This
certificate entitles the manufacturer to affix the CE Mark to its medical devices after having prepared and signed
a related EC Declaration of Conformity.
As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential
requirements must be based, among other things, on the evaluation of clinical data supporting the safety and
performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate
that the device achieves its intended performance during normal conditions of use, that the known and
foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of
its intended performance, and that any claims made about the performance and safety of the device are
supported by suitable evidence. If we fail to remain in compliance with applicable European laws and directives,
we would be unable to continue to affix the CE Mark to our surgical systems, which would prevent us from
selling them within the EEA and may have an impact on our marketing authorization in other countries.
We or our distributors will also need to obtain or retain regulatory approval in other foreign jurisdictions in which
we plan to or currently do market and sell our products, and we or they may not obtain such approvals as
necessary to commercialize our products in those territories. Regulatory marketing authorizations in these
foreign jurisdictions typically require device testing, conformance to classification requirements, pre-market
requests to authorize commercialization, and in some cases inspections.
Modifications to our products may require new 510(k) clearances. de novo classification, or PMAs, and
may require us to cease marketing or recall the modified products until clearances or approvals are
obtained.
Any modification to a 510(k)-cleared product that could significantly affect its safety or effectiveness, or that
would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance
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or de novo classification, or, possibly, approval of a PMA. Modifications to products that have been approved
through the PMA process generally require premarket FDA approval. Similarly, certain modifications made to
products cleared through a 510(k) or authorized through the de novo classification process may require a new
510(k) clearance. Each of the PMA, de novo classification, and the 510(k) clearance processes can be
expensive, lengthy, and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12 months,
but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k)
clearance process and generally takes from one to three years, or even longer, from the time the application is
filed with the FDA. In addition, a PMA generally requires the performance of one or more clinical trials.
Despite the time, effort, and cost, a device may not be approved or cleared by the FDA. Any delay or failure to
obtain necessary regulatory authorizations could harm our business. Furthermore, even if we are granted
regulatory authorizations, they may include significant limitations on the indicated uses for the device, which
may limit the market for the device.
Any modifications to our existing products may require new 510(k) clearance; however, future modifications
may be subject to the substantially more costly, time-consuming, and uncertain PMA process. If the FDA
requires us to go through a lengthier, more rigorous examination for future products or modifications to existing
products than we had expected, product introductions or modifications could be delayed or canceled, which
could cause our sales to decline.
The FDA requires every manufacturer to make this modification determination in the first instance, but the FDA
may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new
clearances or approvals are necessary. We have made modifications to our products in the past and have
determined based on our review of the applicable FDA regulations and guidance that in certain instances new
510(k) clearances were not required. We may make similar modifications or add additional enhancements or
features in the future that we believe do not require a new 510(k) clearance or approval of a PMA. If the FDA
disagrees with our determination and requires us to submit new 510(k) notifications, de novo classifications, or
PMAs for modifications to our previously authorized products for which we have concluded that new clearances
or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we
obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. In addition, the
FDA may not approve or clear our products for the indications that are necessary or desirable for successful
commercialization or could require clinical trials to support any modifications. Any delay or failure in obtaining
required clearances or approvals would adversely affect our ability to introduce new or enhanced products in a
timely manner, which in turn would harm our future growth.
Our products must be manufactured in accordance with federal and state regulations, and we could be
forced to recall our installed systems or terminate production if we fail to comply with these
regulations.
The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s
Quality System Regulation (QSR) which is a complex regulatory scheme that covers the procedures and
documentation of the design, testing, production, process controls, quality assurance, labeling, packaging,
handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we are
required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality
standards and applicable regulatory requirements. Compliance with the QSR is necessary to receive FDA
clearance or approval to market new products and is necessary for a manufacturer to be able to continue to
market cleared or approved devices in the United States. The FDA enforces the QSR through periodic
announced or unannounced inspections of medical device manufacturing facilities, which may include the
facilities of subcontractors. Our products are also subject to similar state regulations and various laws and
regulations of foreign countries governing manufacturing. Foreign regulatory authorities also impose
manufacturing quality requirements, which may differ from the FDA requirements, with which we must comply.
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We or our third-party suppliers and manufacturers may not take the necessary steps to comply with applicable
regulations, which could cause delays in the delivery of our products. In addition, failure to comply with
applicable FDA or foreign jurisdiction requirements or later discovery of previously unknown problems with our
products or manufacturing processes could result in, among other things: warning letters or untitled letters;
fines, injunctions or civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of
our products; total or partial suspension of production or distribution; administrative or judicially imposed
sanctions; the FDA’s refusal to grant pending or future clearances or approvals for our products; clinical holds;
refusal to permit the import or export of our products; and criminal prosecution of us or our employees.
Any of these actions could significantly and negatively impact supply of our products. If any of these events
occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose
customers and suffer reduced revenues and increased costs.
If treatment guidelines for the clinical conditions we are targeting change or the standard of care
evolves, we may need to redesign and seek new marketing authorization from the FDA for one or more
of our products.
If treatment guidelines for the clinical conditions we are targeting or the standard of care for such conditions
evolves, we may need to redesign the applicable product and seek new clearances or approvals from the FDA.
Our existing 510(k) and de novo clearances from the FDA are based on current treatment guidelines. If
treatment guidelines change so that different treatments become desirable, the clinical utility of one or more of
our products could be diminished and our business could suffer.
The misuse or off-label use of our products may harm our reputation in the marketplace, result in
injuries that lead to product liability suits or result in costly investigations, fines or sanctions by
regulatory bodies, particularly if we are deemed to have engaged in the promotion of these uses, any of
which could be costly to our business.
Our product has been authorized for marketing by the FDA for a specific indication. We train our commercial
organization and distributors inside and outside the United States to not promote our products for uses outside
of the FDA-cleared indications for use, known as “off-label uses.” However, we cannot guarantee that all of our
employees, representatives, and agents will abide by our marketing policies.
If the FDA or any foreign regulatory body determines that our promotional materials, training, or other marketing
activities constitute promotion of an off-label or unapproved use, it could request that we modify our training or
promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of
an untitled letter, which is used for violations that do not necessitate a warning letter, injunction, seizure, civil
fine or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might
take action under other regulatory authority, such as laws prohibiting false claims for reimbursement.
Moreover, even if we, and all our employees, contractors, and agents, market our products in compliance with
applicable FDA regulations, such regulations do not apply to the practice of medicine, and we cannot prevent a
physician from prescribing and/or using our products off-label when, in the physician’s independent professional
medical judgment, he or she deems it appropriate. Similarly, we cannot prevent patients from using our
products off-label. There may be increased risk of injury to patients if physicians attempt to prescribe, or
patients attempt to use, our products off-label. Furthermore, the use of our products for indications other than
those authorized by the FDA may not effectively treat such conditions, which could harm our reputation in the
marketplace among physicians and patients. There are similar risks if our products are used off-label with
respect to non-U.S. regulatory approvals.
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Our products may cause or contribute to adverse medical events that we are required to report to the
FDA, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business,
financial condition and results of operations. The discovery of serious safety issues with our products,
or a recall of our products either voluntarily or at the direction of the FDA or another governmental
authority, could have a negative impact on us.
We are subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require
us to report to the FDA when we receive or become aware of information that reasonably suggests that one or
more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way
that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our
obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the
event. We may fail to report adverse events of which we become aware within the prescribed timeframe. We
may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not
reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the
use of the product. If we fail to comply with our reporting obligations, the FDA could take action, including
warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary
penalties, revocation of our device clearance, seizure of our products or delay in clearance of future products.
The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the
event of material deficiencies or defects in design or manufacture of a product or in the event that a product
poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that
there is reasonable probability that the device could cause serious injury or death. We may also choose to
voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us
could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing
defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with
applicable regulations. Product defects or other errors may occur in the future. If we initiate a correction or
removal for one of our devices to reduce a risk to health posed by the device, we would be required to submit a
publicly available Correction and Removal report or Safety Alert to the FDA and, in many cases, similar reports
to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to
increased scrutiny by the FDA, other international regulatory agencies, and our customers regarding the quality
and safety of our devices. Furthermore, the submission of these reports could be used by competitors against
us in competitive situations and cause customers to delay purchase decisions or cancel orders and would harm
our reputation.
Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA may require,
or we may decide, that we will need to obtain new approvals or clearances for the device before we may market
or distribute the corrected device. Seeking such approvals or clearances may delay our ability to replace the
recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our
devices, we may face additional regulatory enforcement action, including FDA warning letters, product seizure,
injunctions, administrative penalties or civil or criminal fines.
Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to
the FDA. We may initiate voluntary withdrawals or corrections for our products in the future that we determine
do not require notification to the FDA. If the FDA disagrees with our determinations, it could require us to report
those actions as recalls and we may be subject to enforcement action. A future recall announcement could
harm our reputation with customers, potentially lead to product liability claims against us and negatively affect
our sales.
Any adverse event involving our products could result in voluntary corrective actions, such as recalls or
customer notifications, or agency action, such as inspection, mandatory recall or other enforcement action. Any
corrective action, whether voluntary or involuntary, as well as exposing us to private litigation, would require the
dedication of our time and capital, distract management from operating our business and may harm our
reputation and financial results.
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If we or our distributors do not obtain and maintain international regulatory registrations or approvals
for our products, we will be unable to market and sell our products outside of the United States.
Sales of our products outside of the United States are subject to foreign regulatory requirements that vary
widely from country to country. In addition, the FDA regulates exports of medical devices from the United
States. While the regulations of some countries may not impose barriers to marketing and selling our products
or only require notification, others require that we or our distributors obtain the approval of a specified regulatory
body. Complying with foreign regulatory requirements, including obtaining registrations or approvals, can be
expensive and time-consuming, and we or our distributors may not receive regulatory approvals in each country
in which we plan to market our products or we may be unable to do so on a timely basis. The time required to
obtain registrations or approvals, if required by other countries, may be longer than that required for FDA
clearance or approval, and requirements for such registrations, clearances or approvals may significantly differ
from FDA requirements. If we modify our products, we or our distributors may need to apply for additional
regulatory approvals before we are permitted to sell the modified product. In addition, we may not continue to
meet the quality and safety standards required to maintain the authorizations that we or our distributors have
received. If we or our distributors are unable to maintain our authorizations in a particular country, we will no
longer be able to sell the applicable product in that country.
Regulatory clearance or approval by the FDA and/or the permission to affix the CE Mark does not ensure
clearance or approval by regulatory authorities in other countries, and clearance or approval by one or more
foreign regulatory authorities does not ensure clearance or approval by regulatory authorities in other foreign
countries or by the FDA. However, a failure or delay in obtaining regulatory clearance or approval in one country
may have a negative effect on the regulatory process in others.
We are subject to certain federal, state and foreign fraud and abuse laws, health information privacy
and security laws and transparency laws, which, if violated, could subject us to substantial penalties.
Additionally, any challenge to or investigation into our practices under these laws could cause adverse
publicity and be costly to respond to, and thus could harm our business.
There are numerous U.S. federal and state, as well as foreign, laws pertaining to healthcare fraud and abuse,
including anti-kickback, false claims and physician transparency laws. Our business practices and relationships
with providers, patients and third-party payors are subject to scrutiny under these laws. We may also be subject
to patient information privacy and security regulation by both the federal government in addition to the states
and foreign jurisdictions in which we conduct our business. The healthcare laws and regulations that may affect
our ability to operate include:
● the federal Anti-Kickback Statute, which prohibits any person or entity from, among other things,
knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly,
overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the
purchase, order or recommendation of an item or service reimbursable, in whole or in part, under a
federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration”
has been broadly interpreted to include anything of value. The government can establish a violation of
the Anti-Kickback Statute without proving that a person or entity had actual knowledge of the law or a
specific intent to violate. Moreover, the government may assert that a claim for reimbursement that
includes items resulting from a violation of the federal healthcare Anti-Kickback Statute constitutes a
false or fraudulent claim for purposes of the federal civil False Claims Act (“FCA”). Although there are a
number of statutory exceptions and regulatory safe harbors to the federal healthcare Anti-Kickback
Statute protecting certain common business arrangements and activities from prosecution or regulatory
sanctions, the exceptions and safe harbors are drawn narrowly. Practices that involve remuneration to
those who prescribe, purchase, or recommend medical device products, including discounts, or
engaging individuals as speakers, consultants, or advisors, may be subject to scrutiny if they do not fit
squarely within an exception or a safe harbor. Our practices may not in all cases meet all of the criteria
for safe harbor protection from anti-kickback liability. Moreover, there are no safe
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harbors for many common practices, such as reimbursement support programs, educational or
research grants, or charitable donations;
● the federal civil and criminal false claims laws and civil monetary penalty laws, such as the FCA, which
can be enforced by private citizens through civil qui tam actions, prohibits individuals or entities from,
among other things, knowingly presenting, or causing to be presented, false, fictitious or fraudulent
claims for payment of federal funds, and knowingly making, using or causing to be made or used a
false record or statement material to a false or fraudulent claim to avoid, decrease or conceal an
obligation to pay money to the federal government. The Social Security Act also has a provision that
provides for the imposition of civil monetary penalties against any person who offers or transfers
remuneration to a Medicare or Medicaid beneficiary that such person knows or should know is likely to
influence the beneficiary’s selection of a particular provider, practitioner, or supplier for the order or
receipt of any item or service payable by a federal health care program. Private individuals commonly
known as “whistleblowers,” can bring FCA qui tam actions on behalf of the government and
themselves, and may share in amounts paid by the entity to the government in recovery or settlement.
False Claims Act liability is potentially significant in the healthcare industry because the statute
provides for treble damages and mandatory penalties of $13,946 to $27,894 (beginning in 2024) per
false or fraudulent claim or statement. Many pharmaceutical and medical device manufacturers have
been investigated and have reached substantial settlements under the FCA in connection with alleged
off label promotion of their products, and allegedly providing free products to customers with the
expectation that the customers would bill federal health care programs for the product. In addition, a
claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the FCA. As a result of a modification made by
the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money
or property presented to the U.S. government. In addition, manufacturers can be held liable under the
FCA even when they do not submit claims directly to government payors if they are deemed to “cause”
the submission of false or fraudulent claims. There are also criminal penalties, including imprisonment
and criminal fines, for making or presenting false, fictitious or fraudulent claims to the federal
government;
●
the federal physician self-referral law (“Stark Law”) prohibits, subject to exceptions, referring Medicare
patients for “designated health services” (including “durable medical equipment and supplies” and
“outpatient hospital services”) (“DHS”) to entities with which a referring physician (or immediate family
member) maintains a “financial relationship.” States (as required in order to maintain Medicaid funding)
have further enacted similar prohibitions that apply to Medicaid, as well as other insurance programs,
and which may be more restrictive than the Stark Law. Persons who attempt to circumvent these laws
or submit (or cause others to submit) claims to payors in violation of these laws may be subject to
significant civil and criminal penalties. As such, we are generally prohibited from billing for any services
referred in violation of these laws. Importantly, we do not provide DHS and do not bill payors for DHS
(or any other items or services). While we manufacture and sell equipment and supplies to our
customers, we are not a Medicare supplier. Additionally, in instances in which we maintain contractual
arrangements with physicians or hospitals, we have no reason to believe that we are engaged in
assisting any person with circumventing these laws. Further, the services (specifically TMS) furnished
(outside of a hospital context) by physician groups with whom we maintain contractual arrangements
do not constitute DHS. Notably, however, the Stark Law is a strict liability statute and compliance is
difficult to assure;
● HIPAA among other things established various criminal health care fraud laws, which impose criminal
liability for executing or attempting to execute a scheme to defraud any healthcare benefit program,
including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare
benefit program, willfully obstructing a criminal investigation of a healthcare offense, and creates
federal criminal laws that prohibit knowingly and willfully falsifying, concealing or covering up a material
fact or making any materially false, fictitious or fraudulent statement or representation, or making or
using any false writing or document knowing the same to contain any materially false,
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fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare
benefits, items or services. Similar to the federal healthcare Anti-Kickback Statute, a person or entity
does not need to have actual knowledge of the applicable statute or specific intent to violate it or to
have committed a violation;
● HIPAA, as amended by HITECH, and their implementing regulations, which imposes privacy, security,
transmission and breach reporting obligations with respect to individually identifiable health information
upon “covered entities” subject to the law, including health plans, healthcare clearinghouses and
certain healthcare providers and their respective business associates that perform services on their
behalf that involve individually identifiable health information. HITECH also created new tiers of civil
monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business
associates, and gave state attorneys general new authority to file civil actions for damages or
injunctions in federal courts to enforce HIPAA laws and seek attorneys’ fees and costs associated with
pursuing federal civil actions;
● the federal physician payment transparency requirements, sometimes referred to as the “Physician
Payments Sunshine Act” created under the PPACA, which requires, among other things, certain
manufacturers of drugs, devices, biologics and medical supplies reimbursed under Medicare, Medicaid,
or the Children’s Health Insurance Program (with certain exceptions) to report annually to the United
States Department of Health and Human Services, Centers for Medicare and Medicare Services
(“CMS”), information related to payments or other transfers of value made to physicians (defined to
include doctors, dentists, optometrists, podiatrists and chiropractors) other professionals (physician
assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified
nurse-midwives) and teaching hospitals, as well as ownership and investment interests held by
physicians and their immediate family members; and
● foreign and state law equivalents of each of the above federal laws, such as anti-kickback and false
claims laws, that may impose similar or more prohibitive restrictions, and may apply to items or
services reimbursed by any non-governmental third-party payors, including private insurers; state laws
that require device manufacturers to comply with the industry’s voluntary compliance guidelines and
the applicable compliance guidance promulgated by the federal government or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; state laws
that require device manufacturers to report information related to payments and other transfers of value
to physicians and other healthcare providers or marketing expenditures and pricing information; and
other federal and state laws that govern the privacy and security of health information or personally
identifiable information in certain circumstances, including state health information privacy and data
breach notification laws which govern the collection, use, disclosure, and protection of health-related
and other personal information, many of which differ from each other in significant ways and often are
not pre-empted by HIPAA, thus requiring additional compliance efforts and data privacy and security
laws and regulations in foreign jurisdictions that may be more stringent than those in the United States
(such as the European Union, which adopted the GDPR, which became effective in May 2018).
These laws and regulations, among other impacts, constrain our business, marketing and other promotional
activities by limiting the kinds of financial arrangements, including sales programs, we may have with
psychiatrists, other healthcare provides, or other potential purchasers of our products. We have also entered
into consulting agreements with physicians, which are subject to these laws. Further, while we do not submit
claims to any payor and our customers make the ultimate decision on how to submit claims, we may provide
reimbursement guidance and support regarding our products. Due to the breadth of these laws, the narrowness
of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are
subject, it is possible that some of our current or future practices might be challenged under one or more of
these laws.
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To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased
their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a
number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to
investigations can be time-and resource-consuming and can divert management’s attention from the business.
Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our
business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and
be costly to respond to.
If our operations are found to be in violation of any of the healthcare laws or regulations described above or any
other healthcare regulations that apply to us, we may be subject to penalties, including administrative, civil and
criminal penalties, damages, fines, disgorgement, exclusion from participation in government healthcare
programs, such as Medicare and Medicaid, imprisonment, additional reporting obligations and oversight if we
becomes subject to a corporate integrity agreement or other agreement to resolve allegations of non-
compliance with these laws, reputational harm, diminished profits and future earnings, and the curtailment or
restructuring of our operations, any of which could adversely affect our ability to operate our business and
pursue our strategy.
Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system,
could harm our cash flows, financial condition and results of operations.
From time to time, Congress drafts legislation that could significantly change the statutory provisions governing
the regulation of medical devices. In addition, FDA regulations and guidance are often revised or reinterpreted
by the FDA in ways that may significantly affect our business and our products. Any new statutes, regulations,
revisions, or reinterpretations of existing regulations may impose additional costs, lengthen review times of any
future products, or make it more difficult to manufacture, market or distribute our products. We cannot determine
what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted
or adopted may have on our business in the future.
For example, in March 2010, the PPACA was enacted in the United States, which made a number of substantial
changes in the way healthcare is financed by both governmental and private insurers. Among other ways in
which it may impact our business, the PPACA:
● establishes a new Patient-Centered Outcomes Research Institute to oversee and identify priorities in
comparative clinical effectiveness research in an effort to coordinate and develop such research;
●
required manufacturers to report certain payments and other transfers of value pursuant to the
Physician Payments Sunshine Act, described above;
● implements payment system reforms including a national pilot program on payment bundling to
encourage hospitals, psychiatrists and other providers to improve the coordination, quality and
efficiency of certain healthcare services through bundled payment models; and
● expands the eligibility criteria for Medicaid programs and, originally, required certain employers to
provide, and all individuals to obtain, health insurance.
We expect additional state and federal healthcare reform measures to be adopted in the future, any of which
could limit the amounts that federal and state governments will pay for healthcare products and services, which
could result in reduced demand for our products or additional pricing pressure.
Our employees, distributors, and other third parties may engage in misconduct or other improper
activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, distributors, and other third parties may engage in
inappropriate, fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless or
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negligent conduct or other unauthorized activities that violate, regardless of intent, regulations of the FDA and
other U.S. healthcare regulators, as well as non-U.S. regulators, including by violating laws requiring the
reporting of true, complete and accurate information to such regulators, manufacturing standards, healthcare
fraud and abuse laws and regulations in the United States and abroad or laws that require the true, complete,
and accurate reporting of financial information or data. In particular, sales, marketing, and business
arrangements in the healthcare industry, including the sale, promotion and labeling of medical devices or
arrangements with healthcare providers, are subject to extensive laws and regulations intended to prevent
fraud, misconduct, kickbacks, self-dealing, patient steering and other abusive practices, as described herein.
These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and
promotion, sales commission, customer or patient incentive programs, and other business, investment or
compensation arrangements. It is not always possible to identify and deter misconduct by our employees,
distributors, and other third parties, and the precautions we take to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations.
Efforts to ensure that the activities of these parties will comply with applicable healthcare laws and regulations
involve substantial costs. These risks may exceed those which we have identified, and the processes and
policies we have implemented may not be sufficient to prevent misconduct. Noncompliance may result in the
imposition of significant fines or other sanctions, including civil, criminal and administrative penalties, monetary
damages, fines, individual imprisonment, disgorgement, possible exclusion from participation in government
healthcare programs, additional reporting obligations and oversight if we becomes subject to a corporate
integrity agreement or other agreement to resolve allegations of non-compliance with these laws, contractual
damages, reputational harm, diminished profits and future earnings and the curtailment of our operations.
Whether or not we are successful in defending against such actions or investigations, we could incur substantial
costs, including legal fees, and divert the attention of management in defending ourselves against any of these
claims or investigations.
Risks Related to Our Capital Structure
We may need to raise additional capital to fund our existing commercial operations, develop and
commercialize new products and expand our operations.
If our available cash balances, potential future borrowing capacity, and anticipated cash flow from operations
are insufficient to satisfy our liquidity requirements, including because of lower demand for our products as a
result of the risks described in this Annual Report on Form 10-K, we may seek to sell common or preferred
equity or debt securities, enter into an additional credit facility or another form of third-party funding or seek
other debt financing. Our present and future funding requirements will depend on many other factors, including:
● our ability to achieve revenue growth and improve operating margins;
● our ability to comply with financial and other restrictive covenants in our credit facility, which, among
other things, requires us to maintain specified financial covenants;
● our ability to improve or maintain coverage and reimbursement arrangements with domestic third-party
and government payors;
● our rate of progress in establishing coverage and reimbursement arrangements from international
commercial third-party and government payors, particularly in Japan;
● the cost of expanding our operations and offerings, including our sales and marketing efforts;
● our rate of progress in, and cost of the sales and marketing activities associated with, establishing
adoption of our products and maintaining or improving our sales to our current customers;
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● the cost of research and development activities, including research and development relating to
additional indications;
● the effect of competing technological and market developments;
● costs related to international expansion; and
● the potential cost of and delays in product development as a result of any regulatory oversight
applicable to our products.
We may also consider raising additional capital in the future to expand our business, to pursue strategic
investments, to take advantage of financing opportunities or for other reasons, including to:
● expand our sales and marketing efforts to increase market adoption of our products and address
competitive developments;
● fund development and marketing efforts of any future products or additional features to then-current
products;
● acquire, license or invest in new technologies;
● provide for supply and inventory costs associated with plans to accommodate potential increases in
demand for our products
● acquire or invest in complementary businesses or assets; and
● finance capital expenditures and general and administrative expenses.
Additional capital may not be available to us at such times or in the amounts we need. Even if capital is
available, it might be available only on unfavorable terms. Any issuance of additional equity or equity-linked
securities could be dilutive to our existing stockholders, and any new equity securities could have rights,
preferences and privileges superior to those of holders of our common stock, including the shares of common
stock sold in this offering. Debt financing, if available, may involve covenants further restricting our operations or
our ability to incur additional debt, pay dividends, repurchase our stock, make investments and engage in
merger, consolidation or asset sale transactions. If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to relinquish or license some rights to our technologies or
products, on terms that are not favorable to us. If access to sufficient capital is not available as and when
needed, our business will be materially impaired and we may be required to cease operations, curtail one or
more product development or commercialization programs, significantly reduce expenses, sell assets, seek a
merger or joint venture partner, file for protection from creditors or liquidate all our assets.
The terms of our credit facility place restrictions on our operating and financial flexibility and could
subject us to potential default. If we raise additional capital through debt financing, the terms of any
new debt could further restrict our ability to operate our business.
On September 29, 2023, the Company entered into a fifth amendment (the “Solar Fifth Amendment”) to the
Loan and Security Agreement dated March 2, 2020 with SLR Investment Corp.(formerly known as Solar Capital
Ltd.) (“Solar”), as collateral agent, and the lenders as defined in the agreement, that is secured by a lien
covering substantially all of our assets (as amended, the “Solar Facility”). The credit facility contains customary
covenants and events of default applicable to us. The affirmative covenants include, among others, a covenant
that requires us to achieve agreed amounts of trailing twelve month net product revenue (“net product revenue
covenant”), measured monthly through the term of the credit facility. The negative covenants include, among
others, restrictions on us transferring collateral, changing businesses, engaging in
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mergers or acquisitions, incurring additional indebtedness and encumbering collateral. If we default under the
credit facility, Solar may accelerate all of our repayment obligations and take control of our pledged assets,
potentially requiring us to renegotiate our agreement on terms less favorable to us or to immediately cease
operations. Further, if we are liquidated, Solar’s right to repayment would be senior to the rights of the holders of
our common stock to receive any proceeds from the liquidation. Solar could declare a default upon the
occurrence of any event that it interprets as a material adverse effect as defined under the credit facility, thereby
requiring us to repay the loan immediately or to attempt to reverse the declaration of default through negotiation
or litigation. Any declaration by Solar of an event of default could significantly harm our business and prospects
and could cause the price of our common stock to decline. If we raise any additional debt financing, the terms of
such additional debt could further restrict our operating and financial flexibility.
In certain months of 2023 and 2021, we did not achieve the required revenue under the net product revenue
covenant and we obtained waivers from Solar to cure the non-compliance of the net product revenue covenant.
We cannot provide any assurance that our lender would provide us with a waiver should we not be in
compliance in the future. A failure to maintain compliance along with our lender not agreeing to a waiver for the
non-compliance would cause the outstanding borrowings to be in default and payable on demand which would
have a material adverse effect on us and our ability to continue as a going concern.
Our ability to comply with financial covenant tests can be affected by events beyond our control, including
economic, financial and industry conditions. If market or other economic conditions deteriorate, our ability to
comply with these covenants may be impaired. We cannot be certain that our earnings will be sufficient to allow
us to pay the principal and interest on our existing or future debt and meet our other obligations. If we do not
have enough money to service our existing or future debt, we may be required to refinance all or part of our
existing or future debt, sell assets, borrow more money or raise equity. We may not be able to refinance our
existing or future debt, sell assets, borrow more money or raise equity on terms acceptable to us, if at all.
Our ability to use net operating losses to offset future taxable income may be subject to limitations.
As of December 31, 2023, we had federal and state net operating loss carryforwards of $338.0 million and
$217.1 million, respectively. The federal and state net operating loss carryforwards will begin to expire, if not
utilized, beginning in 2024. These net operating loss carryforwards could expire unused and be unavailable to
offset future income tax liabilities. Under the newly enacted federal income tax law, federal net operating losses
incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net
operating losses is limited. It is uncertain how various states will respond to the newly enacted federal tax law.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding
provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a
greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to
use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change
income or taxes may be limited. We have not done an analysis to determine whether or not ownership changes
have occurred since inception and we may experience ownership changes in the future as a result of
subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change
occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future
operating results by effectively increasing our future tax obligations.
Risks Related to Ownership of Our Common Stock
The price of our common stock has been and may continue to be volatile.
The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control. Factors that could cause volatility in the
market price of our common stock include, but are not limited to:
● the actual or anticipated fluctuations in our financial condition and operating results;
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● the actual or anticipated changes in our growth rate;
● the commercial success and market acceptance of our products;
● the success of our competitors in developing or commercializing products;
● media exposure of our products or of those of others in our industry;
● our ability to commercialize or obtain regulatory approvals for our products, or delays in
commercializing or obtaining regulatory approvals;
● announcements by us or our competitors of significant acquisitions, strategic partnerships, joint
ventures, collaborations or capital commitments;
● the addition or departure of key personnel;
● product liability claims;
● general prevailing economic, industry and market conditions, including factors unrelated to our
operating performance or the operating performance of our competitors;
● business disruptions caused by earthquakes, fires, pandemic diseases (such as from coronavirus), or
other natural disasters;
● disputes or other developments concerning our intellectual property or other proprietary rights,
including litigation;
● the FDA or other U.S. or foreign regulatory actions affecting us or the healthcare or medical device
industry;
● healthcare reform measures in the United States;
● third-party payor developments in the United States and other countries;
● sales of our common stock by our directors, officers, or stockholders;
● the timing and amount of our investments in the growth of our business;
● inability to obtain additional funding;
● future sales or issuances of equity or debt securities by us;
● failure to meet or exceed financial estimates and projections of the investment community or that we
provide to the public; and
● the issuance of new or changed securities analysts’ reports or recommendations regarding us.
In addition, the stock markets in general, and the markets for companies like ours in particular, have from time
to time experienced extreme volatility that has been often unrelated to the operating performance of the
company. These broad market and industry fluctuations may negatively impact the price or liquidity of our
common stock, regardless of our operating performance.
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Moreover, because of these fluctuations, comparing our operating results on a period-to-period basis may not
be meaningful. You should not rely on our past results as an indication of our future performance. This variability
and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or
investors for any period. If our revenues or operating results fall below the expectations of analysts or investors
or below any forecasts we may provide to the market, or if the forecasts we provide to the market are below the
expectations of analysts or investors, the price of our common stock could decline substantially. Such a stock
price decline could occur even when we have met any previously publicly stated revenues or earnings forecasts
that we may provide.
Future sales of our common stock or securities convertible or exchangeable for our common stock may
cause our stock price to decline.
If our stockholders or option holders sell, or indicate an intention to sell, substantial amounts of our common
stock in the public market, the price of our common stock could decline. The perception in the market that these
sales may occur could also cause the price of our common stock to decline.
Shares of common stock that are either subject to outstanding options, or are outstanding but subject to vesting
or reserved for future issuance under our 2018 Equity Incentive Plan (the “2018 Plan”), will become eligible for
sale in the public market to the extent permitted by the provisions of various vesting schedules, Rule 144 and
Rule 701 under the Securities Act. We have also filed a registration statement permitting certain shares of
common stock issued under our 2003 Stock Incentive Plan, or the 2003 Plan, and shares of common stock
issued pursuant to the 2018 Plan or our 2018 Employee Stock Purchase Plan (the “2018 ESPP”), to be freely
resold by plan participants in the public market, subject to applicable vesting schedules and, for shares held by
directors, executive officers and other affiliates, volume limitations under Rule 144 under the Securities Act.
Both the 2018 Plan and the 2018 ESPP contain provisions for the annual increase of the number of shares
reserved for issuance under such plans, which shares we also intend to register. If the shares we may issue
from time to time under the 2003 Plan, the 2018 Plan or the 2018 ESPP are sold, or if it is perceived that they
will be sold, by the award recipients in the public market, the price of our common stock could decline.
Certain shares of common stock are entitled to rights with respect to registration under the Securities Act. Such
registration would result in these shares becoming fully tradable without restriction under the Securities Act
when the applicable registration statement is declared effective. Sales of such shares could cause the price of
our common stock to decline.
Our principal stockholders and management own a significant percentage of our stock and are able to
exert control over matters subject to stockholder approval.
As of February 29, 2024, our officers and directors, together with holders of 5% or more of our outstanding
common stock and their respective affiliates, beneficially owned approximately 10% of our outstanding common
stock. Accordingly, these stockholders have a material influence over the outcome of corporate actions
requiring stockholder approval, including the election of directors, mergers, consolidation or sale of all or
substantially all of our assets or any other significant corporate transaction. The interests of these stockholders
may not be the same as or may even conflict with your interests. For example, these stockholders could attempt
to delay or prevent a change in control of the company, even if such a change in control would benefit our other
stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common
stock as part of a sale of the company or our assets and might affect the prevailing price of our common stock.
The significant concentration of stock ownership may negatively impact the price of our common stock due to
investors’ perception that conflicts of interest may exist or arise.
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Provisions of our amended and restated charter documents or Delaware law could delay or prevent an
acquisition of the company, even if the acquisition would be beneficial to our stockholders, which could
make it more difficult for you to change management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may
discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider
favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In
addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our
current management by making it more difficult to replace or remove our board of directors. These provisions
include:
● a prohibition on stockholder action through written consent;
● no cumulative voting in the election of directors;
● the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion
of the board of directors or the resignation, death or removal of a director;
● a requirement that special meetings of stockholders be called only by the board of directors, the
chairman of the board of directors, the chief executive officer or, in the absence of a chief executive
officer, the president;
● an advance notice requirement for stockholder proposals and nominations;
● the authority of our board of directors to issue blank-check preferred stock with such terms as our
board of directors may determine; and
● a requirement of approval of not less than 66 2/3% of all outstanding shares of our capital stock entitled
to vote to amend any bylaws by stockholder action, or to amend specific provisions of our amended
and restated certificate of incorporation.
In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder, generally a person who, together with its affiliates, owns, or within
the last three years has owned, 15% or more of our voting stock, for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the business combination is approved
in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of our
company.
Provisions in our charter documents and other provisions of Delaware law could limit the price that investors are
willing to pay in the future for shares of our common stock.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State
of Delaware and the federal district courts of the United States of America will be the exclusive forums
for substantially all disputes between us and our stockholders, which could limit our stockholders’
ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, the
Court of Chancery of the State of Delaware is the exclusive forum for (i) any derivative action or proceeding
brought on our behalf, other than an action or suit to enforce a duty or liability created by the Exchange Act or
any other claim for which the federal courts have exclusive jurisdiction, (ii) any action asserting a claim of
breach of a fiduciary duty or other wrongdoing by any of our directors, officers, employees or agents to us or our
stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General
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Corporation Law or our amended and restated certificate of incorporation or amended and restated bylaws,
(iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of
incorporation or amended and restated bylaws or (v) any action asserting a claim governed by the internal
affairs doctrine. Our amended and restated certificate of incorporation further provides that the federal district
courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause
of action arising under the Securities Act. These exclusive forum provisions may limit a stockholder’s ability to
bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees, which may discourage such lawsuits against us and our directors, officers and other employees.
Some companies that adopted a similar federal district court forum selection provision are currently subject to a
suit in the Chancery Court of Delaware by stockholders who assert that the provision is not enforceable. If a
court were to find either choice of forum provision contained in our amended and restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with
resolving such action in other jurisdictions, which could harm our business.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future;
therefore, capital appreciation, if any, of our common stock will be your sole source of gain for the
foreseeable future.
We have never declared or paid any cash dividends on our common stock and do not intend to do so in the
foreseeable future. We currently intend to retain all available funds and any future earnings to finance the
growth and development of our business. In addition, the terms of our credit agreements contain, and the terms
of any future credit agreements we may enter into may contain, terms prohibiting or limiting the amount of
dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our
common stock will be your sole source of gain for the foreseeable future.
If securities or industry analysts do not publish research or reports about our business, or publish
inaccurate or unfavorable research or reports about our business, our stock price and trading volume
could decline.
The trading market for our common stock depends, to some extent, on the research and reports that securities
or industry analysts publish about us and our business. We do not have any control over these analysts. If one
or more of the analysts who cover us downgrade our common stock or change their opinion of our common
stock, our stock price would likely decline. If one or more of these analysts cease to cover us or fail to regularly
publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or
trading volume to decline.
General Risk Factors
We may be subject to securities litigation, which is expensive and could divert our management’s
attention.
In the past, companies that have experienced volatility in the market price of their securities have been subject
to securities class action litigation. We may be the target of this type of litigation in the future. Regardless of the
merits or the ultimate results of such litigation, securities litigation brought against us could result in substantial
costs and divert our management’s attention from other business concerns.
While we currently qualify as a smaller reporting company under SEC regulations, we cannot be certain
whether taking advantage of the reduced disclosure requirements applicable to these companies will
not make our common stock less attractive to investors. Once we lose smaller reporting company
status, the costs and demands placed upon our management are expected to increase.
The SEC’s rules permit smaller reporting companies to take advantage of certain exemptions from various
reporting requirements applicable to other public companies. As long as we qualify as a smaller reporting
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company, based on our public float, and report less than $100 million in annual revenues in a fiscal year we are
permitted, and we intend to, omit the auditor’s attestation on internal control over financial reporting that would
otherwise be required by the Sarbanes-Oxley Act.
Our status as an emerging growth company expired as of December 31, 2023. While we expect to remain a
smaller reporting company and non-accelerated filer, we now face increased disclosure requirements as a non-
emerging growth company, such as stockholder advisory votes on executive compensation (“say-on-pay”). Until
such time that we lose smaller reporting company status, it is unclear if investors will find our common stock
less attractive because we may rely on certain disclosure exemptions. If some investors find our common stock
less attractive as a result, there may be a less active trading market for our common stock and our stock price
may be more volatile and could cause our stock price to decline.
As a result of the loss of our emerging growth company status, we expect the costs and demands placed upon
our management to increase, as we now have to comply with additional disclosure and accounting
requirements. In addition, even if we remain a smaller reporting company, if our public float exceeds $75 million
and we report $100 million or more in annual revenues in a fiscal year, we will become subject to the provisions
of Section 404(b) of the Sarbanes-Oxley Act requiring an independent registered public accounting firm to
provide an attestation report on the effectiveness of our internal control over financial reporting, making the
public reporting process more costly.
We are obligated to develop and maintain proper and effective internal controls over financial reporting
and any failure to maintain the adequacy of these internal controls may adversely affect investor
confidence in our company and the value of our common stock.
As a public company, we are required under the Sarbanes-Oxley Act to maintain effective disclosure controls
and procedures and internal control over financial reporting. We have developed disclosure controls and other
procedures that are designed to ensure that information required to be disclosed by us in the reports that we file
with the SEC is recorded, processed, summarized and reported within the time periods specified in SEC
rules and regulations, and that information required to be disclosed in reports under the Exchange Act, is
communicated to our principal executive and financial officers. Our current controls and any new controls that
we develop may become inadequate and weaknesses in our internal control over financial reporting may be
discovered in the future. We believe that any disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. These inherent limitations reflect the reality that judgments can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly,
because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not
be detected.
Any failure to maintain effective controls could negatively impact the results of periodic management
evaluations and annual independent registered public accounting firm attestation reports regarding the
effectiveness of our internal control over financial reporting that we will be required to include in periodic reports
we file with the SEC under Section 404 of the Sarbanes-Oxley Act, harm our operating results, cause us to fail
to meet our reporting obligations or result in a restatement of our prior period financial statements. In the event
that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over
financial reporting is perceived as inadequate or that we are unable to produce timely or accurate financial
statements, investors may lose confidence in our operating results and the price of our common stock could
decline. In addition, if we are unable to continue to meet these requirements, we may be unable to remain listed
on the Nasdaq Global Market.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our
internal control over financial reporting due to our status as a smaller reporting company (“SRC”).
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Pursuant to the Exchange Act Continuous Disclosure Accommodations, the auditor attestation requirement of
section 404(b) of the Sarbanes Oxley Act of 2002 is not required by SRCs, with public common equity float
between $75 million and $700 million and annual revenues of less than $100 million.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
We regularly assess risks from cybersecurity threats; monitor our information systems for potential
vulnerabilities; and test those systems pursuant to our cybersecurity policies, processes, and practices, which
are integrated into our overall risk management program. To protect our information systems from cybersecurity
threats, we use various industry standard security tools that are designed to help identify, escalate, investigate,
resolve, and recover from security incidents in a timely manner. Given the prevalence of social engineering
attacks, we have implemented a two-pronged approach of training and security mitigations: educating users
about how to detect a potential attack (phishing, malware, etc.) and security tools, which can decrease the
likelihood of occurrence through multi-factor authentication, endpoint detection and response and other tools
focused on locking down cyber threats. A team of industry experts comprised of representatives from our
Information Technology department and support functions, along with outside experts assesses risks based on
probability and potential impact to key business systems and processes. Risks that are considered high are
incorporated into our overall risk management program. A mitigation plan is developed for each identified high
risk, with progress reported to the Executive Leadership Team and Audit Committee and tracked as part of our
overall risk management program overseen by the Audit Committee of our board of directors. These mitigations
target implementing automated tools for detection and prevention wherever possible, supplemented by training
and process controls as needed. Recurring maintenance, reporting and awareness tasks are conducted and
documented within our Service Management Software and Security tools for record keeping and trending.
We collaborate with third parties to assess the effectiveness of our cybersecurity prevention and response
systems and processes through various penetration testing and best practice reviews. These include
cybersecurity assessors, consultants, and other external cybersecurity experts to assist in the identification,
verification, and validation of cybersecurity risks, as well as to support associated mitigation plans when
necessary. We are aware that cybersecurity is a continually changing landscape and as a result, the
engagement with these experts helps us evaluate our risk-based processes with respect to the trends.
Cybersecurity threats, including those resulting from any previous cybersecurity incidents, have not materially
affected our Company, including our business strategy, results of operations, or financial condition. We do not
believe that cybersecurity threats resulting from any previous cybersecurity incidents of which we are aware are
reasonably likely to materially affect our Company. Refer to the risk factor captioned “Security and privacy
breaches may expose us to liability and harm our reputation and business ” in Part I, Item 1A. “Risk Factors” for
additional description of cybersecurity risks and potential related impacts on our Company.
Governance
Our board of directors oversees our risk management process, including as it pertains to cybersecurity risks,
directly and through its committees. The Audit Committee of the board oversees our risk management program,
which focuses on the most significant risks we face in the short-, intermediate-, and long-term timeframe. Audit
Committee meetings include discussions of emerging industry-wide trends in cybersecurity risks along with
specific risk areas our company has greater risks throughout the year, including, among
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others, those relating to cybersecurity threats. These reports come from the Head of IT to include our enterprise
risk profile on a quarterly basis. The Audit Committee reviews our cybersecurity risk profile with management on
a periodic basis using key performance and/or risk indicators. These key performance indicators are industry-
standard metrics and measurements designed to assess the effectiveness of our cybersecurity program in the
prevention, detection, mitigation, and remediation of cybersecurity incidents.
We take a risk-based approach to cybersecurity and have implemented cybersecurity policies throughout our
operations that are designed to address cybersecurity threats and incidents. The Company’s Head of IT is
responsible for the establishment and maintenance of our cybersecurity program, as well as the assessment
and management of cybersecurity risks. The current Head of IT has over 20 years of experience in information
security and possesses the requisite education, skills and experience expected of an individual assigned to
these duties. In addition to individual skills, the Head of IT has partnered with several third-party Cybersecurity
experts to identify new areas of risk and the latest trends in security tools and methods.
Item 2. Properties.
We occupy an approximately 42,500 square foot facility in Malvern, Pennsylvania, under a lease that ends in
February 2028, for our corporate headquarters, which includes office and warehouse space. We have an option
to extend the lease for an additional five-year term. We also occupy an approximately 9,600 square foot facility
in Charlotte, North Carolina, under a lease that ends in 2027, which is being used as a training facility for our
NeuroStar Advanced Therapy Systems. We have an option to extend the lease for an additional one-year term.
We believe that our existing facilities are adequate to meet our needs for the foreseeable future.
Item 3. Legal Proceedings.
The Company is subject from time to time to various claims and legal actions arising during the ordinary course
of its business. Management believes that there are currently no claims or legal actions that would reasonably
be expected to have a material adverse effect on the Company’s results of operations, financial condition, or
cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Market Information
Our common stock has been publicly traded on the Nasdaq Global Market under the symbol “STIM” since
June 28, 2018. Prior to that time, there was no public market for our common stock. The shares of our common
stock sold in our IPO on June 27, 2018 were priced at $17.00 per share. The shares of our common stock sold
in our secondary public offering and sale of our common stock on February 2, 2021 were priced at $15.50 per
share.
Holders of Record
As of February 29, 2024, there were approximately 54 holders of record of our common stock, solely based
upon the count our transfer agent provided to us as of that date.
Sales of Unregistered Securities
None.
Equity Compensation Plans
The following table details information regarding our existing equity compensation plans as of December 31,
2023:
Number of
Securities to
be Issued
Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
(in thousands)
(a)
1,270
$
—
$
1,270
Weighted
Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
(b)
3.90
—
3.90
Number of
Securities
Remaining
Available for
Future
Issuance
Under Equity
Compensation
Plans
(Excluding
Securities
reflected
in Column (a)
(in thousands)
(c)
2,028
285
2,313
(1)
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(1) This number includes 284.9 thousand shares available for issuance under the 2020 Inducement Incentive
Plan as of December 31, 2023.
See “Item 15. Exhibits and Financial Statement Schedules — Notes to Financial Statements — Note 13.
Stockholders’ Equity, Note 15. Share-Based Compensation and Note 16. Employee Benefit Plans” for additional
information on compensation plans under which equity securities of the registrant are authorized for issuance
without the approval of stockholders.
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Issuer Purchases of Equity Securities
None
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our audited financial statements and related notes thereto and other financial information
included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, some of
the information contained in the following discussion and analysis contains forward-looking statements that
involve risks, uncertainties and assumptions. You should review the ‘‘Risk Factors’’ section of this Annual
Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially
from the results described in or implied by the forward-looking statements contained in the following discussion
and analysis.
Overview
We are a commercial stage medical technology company focused on designing, developing and marketing
products that improve the quality of life for patients who suffer from neurohealth disorders. Our first commercial
product, the NeuroStar Advanced Therapy System, is a non-invasive and non-systemic office-based treatment
that uses TMS to create a pulsed, MRI-strength magnetic field that induces electrical currents designed to
stimulate specific areas of the brain associated with mood. The system is cleared by the FDA to treat adult
patients with MDD that have failed to achieve satisfactory improvement from prior antidepressant medication in
the current MDD episode. NeuroStar Advanced Therapy System is safe, clinically effective, reproducible and
precise and we believe is supported by the largest clinical data set of any competing TMS system. We believe
we are the market leader in TMS therapy based on the estimated 169,068 global patients treated with over 6.1
million of our treatment sessions through December 31, 2023. We generated revenues of $71.3 million and
$65.2 million for the years ended December 31, 2023 and 2022, respectively.
We designed the NeuroStar Advanced Therapy System as a non-invasive therapeutic alternative to treat
patients who suffer from MDD and to address many of the key limitations of existing treatment options. We
generate revenues from initial capital sales of our systems, sales of our recurring treatment sessions and from
service and repair and extended warranty contracts. We derive the majority of our revenues from recurring
treatment sessions. For the year ended December 31, 2023, revenues from sales of our treatment sessions and
NeuroStar Advanced Therapy Systems represented 73% and 24% of our U.S. revenues, respectively. For
the year ended December 31, 2022, revenues from sales of our treatment sessions and NeuroStar Advanced
Therapy Systems represented 71% and 26% of our U.S. revenues, respectively.
We currently sell our NeuroStar Advanced Therapy System and recurring treatment sessions in the United
States through our sales and customer support team. Our sales force targets an estimated 53,000 psychiatrists
across 26,000 practices. We expect to continue to expand our direct sales and customer support team to further
penetrate the market by demonstrating the benefits of our NeuroStar Advanced Therapy System to psychiatrists
and their MDD patients. Some of our customers have and may purchase more than one NeuroStar Advanced
Therapy System. Based on our commercial data, we believe psychiatrists can recoup their initial capital
investment in our system by providing a standard course of treatment to approximately 12 patients. We believe
psychiatrists can generate approximately $8,500 of average revenue per patient for a standard course of
treatment, which may provide meaningful incremental income to their
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practices. We have a diverse customer base of psychiatrists in group psychiatric practices in the United States.
For the years ended December 31, 2023, 2022 and 2021 one customer accounted for 15%, 17% and 20%
respectively, of the Company’s revenue. Patients are reimbursed by federal healthcare programs and the vast
majority of commercial payors in the United States for treatment sessions utilizing our NeuroStar Advanced
Therapy System.
We market our products in a few select markets outside the United States through independent distributors.
International revenues represented 3% of our total revenues for the years ended December 31, 2023 and 2022,
respectively. In October 2017, we entered into an exclusive distribution agreement with Teijin, for the distribution
of our NeuroStar Advanced Therapy Systems and treatment sessions to customers who will treat patients with
MDD in Japan. We received regulatory approval for our system in Japan in September 2017. We obtained
reimbursement coverage for NeuroStar Advanced Therapy System in Japan, which went into effect on June 1,
2019 and covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in Japan.
We expect our international revenues to be consistent as a percentage of our total revenue.
Our research and development efforts are focused on the following: hardware and software product
developments and enhancements of our NeuroStar Advanced Therapy System and clinical development
relating to additional indications. We outsource the manufacture of components of our NeuroStar Advanced
Therapy Systems that are produced to our specifications, and individual components are either shipped directly
from our third-party contract manufacturers to our customers or consolidated into pallets at our Malvern,
Pennsylvania facility prior to shipment. Final installation of these systems occurs at the customer site.
Our total revenues increased by $6.1 million, or 9%, from $65.2 million for the year ended December 31, 2022
to $71.3 million for the year ended December 31, 2023. For the year ended December 31, 2023, our U.S.
revenues were $69.3 million, compared to $63.4 million for the year ended December 31, 2022, which
represented an increase of 9% period over period. As of December 31, 2023, we had an accumulated deficit of
$376.1 million.
Components of Our Results of Operations
Revenues
To date, we have generated revenues primarily from the capital portion of our business and related sales and
rentals of the NeuroStar Advanced Therapy System and the recurring revenues from our sale of treatment
sessions in the United States.
NeuroStar Advanced Therapy System Revenues. NeuroStar Advanced Therapy System revenues consist
primarily of sales or rentals of a capital component, including equipment upgrades to the initial sale of the
system. NeuroStar Advanced Therapy Systems can be purchased outright or on a rent-to-own basis by certain
customers.
Treatment Session Revenues. Treatment session revenues primarily include sales of NeuroStar Treatment
Sessions and SenStar treatment links. The NeuroStar Treatment Sessions are access codes that are delivered
electronically in the United States. The SenStar treatment links are disposable units containing single-use
access codes that are sold and used outside the United States. Access codes are purchased separately by our
customers, primarily on an as-needed basis, and are required by the NeuroStar Advanced Therapy System in
order to deliver treatment sessions.
Other Revenues. Other revenues are derived primarily from service and repair extended warranty contracts
with our existing customers.
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We refer you to the section titled “Critical Accounting Policies and Use of Estimates—Revenue Recognition”
appearing elsewhere in this Annual Report on Form 10-K for additional information regarding how we account
for revenues.
Sales in the United States represented 97% of our total revenues for the years ending December 31, 2023 and
2022, respectively, and have been generated by our direct sales force. Outside the United States, our sales are
made through local third-party distributors. International revenues were 3% for the years ended December 31,
2023 and 2022, respectively. We expect that both our United States and international revenues will increase in
the near term as we continue to expand active customer sites utilizing our NeuroStar Advanced Therapy
Systems and increase the related patient utilization in the United States, as well as grow our presence in Japan.
We expect our revenues to be positively impacted to the extent our direct sales force is successful in increasing
the rate of adoption and utilization of treatment with TMS Therapy as an alternative to other MDD treatments.
Cost of Revenues and Gross Margin
Cost of revenues primarily consists of the costs of components and products purchased from our third-party
contract manufacturers of our NeuroStar Advanced Therapy Systems as well as the cost of treatment packs for
individual treatment sessions. We use third-party contract manufacturing partners to produce the components
for and assemble the completed NeuroStar Advanced Therapy Systems. Cost of revenues also includes costs
related to personnel, royalties, warranty, shipping, amortization of capitalized software and our operations and
field service departments. We expect our cost of revenues to decrease as our product mix changes and we
realize efficiencies with our new contract manufacturer.
Our gross profit is calculated by subtracting our cost of revenues from our revenues. We calculate our gross
margin as our gross profit divided by our revenues. Our gross margin has been and will continue to be affected
by a variety of factors, primarily product sales mix, pricing and third-party contract manufacturing costs. Our
gross margins on revenues from sales of NeuroStar Advanced Therapy Systems are lower than our gross
margins on revenues from sales of treatment sessions and, as a result, the sales mix between NeuroStar
Advanced Therapy Systems and treatment sessions can affect the gross margin in any reporting period.
Sales and marketing Expenses
Sales and marketing expenses consist of market research and commercial activities related to the sale of our
NeuroStar Advanced Therapy Systems and treatment sessions and salaries and related benefits, sales
commissions and share-based compensation for employees focused on these efforts. Other significant sales
and marketing costs include conferences and trade shows, promotional and marketing activities, including direct
and online marketing, practice support programs, primarily digital media campaigns, travel and training
expenses.
We anticipate that our sales and marketing expenses will remain materially consistent during 2024 compared to
2023 expenses, with the exception of the planned growth in our co-op marketing program.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses, including salaries and related
benefits, share-based compensation and travel expenses, for employees in executive, finance, information
technology, legal and human resource functions. General and administrative expenses also include the cost of
insurance, outside legal fees, accounting and other consulting services, audit fees from our independent
registered public accounting firm, board of directors’ fees and other administrative costs, such as corporate
facility costs, including rent, utilities, depreciation and maintenance not otherwise included in cost of revenues.
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We anticipate that our general and administrative expenses will remain relatively consistent during 2024
compared to our 2023 expenses.
Research and Development Expenses
Research and development expenses consist primarily of personnel expenses, including salaries and related
benefits and share-based compensation for employees in clinical development, product development,
regulatory and quality assurance functions, as well as expenses associated with outsourced professional
scientific development services and costs of investigative sites and consultants that conduct our preclinical and
clinical development programs. We typically use our employee, consultant and infrastructure resources across
our research and development programs.
We plan to incur research and development expenses for the near future as we expect to continue our
development of TMS Therapy for the treatment of additional patient populations and new indications related to
neurohealth disorders, as well as for various hardware and software development projects. As a result, we
expect our research and development expenses to increase during 2024 compared to our 2023 expenses.
Interest Expense
Interest expense consists of cash interest payable under our credit facility and non-cash interest attributable to
the accrual of final payment fees and the amortization of deferred financing costs related to our indebtedness.
Other Income, Net
Other income, net consists primarily of interest income earned on our money market account balances and
notes receivable.
Results of Operations
Comparison of the Years ended December 31, 2023 and 2022
Years ended December 31,
2022
2023
Increase / (Decrease)
Dollars
Percentage
Revenues
Cost of revenues
Gross Profit
Gross Margin
Operating expenses:
Sales and marketing
General and administrative
Research and development
Total operating expenses
Loss from Operations
Other (income) expense:
Interest expense
Other income, net
Net Loss
$
$
(in thousands, except percentages)
$
$
71,348
19,643
51,705
65,206
15,483
49,723
6,142
4,160
1,982
72.5 %
76.3 %
47,318
25,426
9,515
82,259
(30,554)
5,424
(5,789)
(30,189)
$
49,982
25,516
9,336
84,834
(35,111)
4,251
(2,203)
(37,159)
$
(2,664)
(90)
179
(2,575)
4,557
1,173
(3,586)
6,970
70
9 %
27 %
4 %
(5)%
(0)%
2 %
(3)%
13 %
28 %
(163)%
19 %
Table of Contents
United States
International
Total revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total U.S. revenues
Revenues by Geography
Years ended December 31,
2023
2022
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 69,336
2,012
$ 71,348
97 % $ 63,406
3 %
1,800
100 % $ 65,206
97 %
3 %
100 %
U.S. Revenues by Product Category
Years ended December 31,
2023
2022
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 16,460
50,896
1,980
$ 69,336
24 % $ 16,575
73 % 45,077
1,754
100 % $ 63,406
3 %
26 %
71 %
4 %
100 %
United States NeuroStar Advanced Therapy System
Revenues by Type
Years ended December 31,
2023
% of
Amount
Revenues Amount
2022
% of
Revenues
NeuroStar capital
Operating lease
Other
Total United States NeuroStar Advanced Therapy System
revenues
Revenues
(in thousands, except percentages)
$ 15,805
96 % $ 15,792
162
493
1 %
3 %
222
561
95 %
1 %
3 %
16,460
100 % $ 16,575
100 %
Total revenues increased by $6.1 million, or 9%, from $65.2 million for the year ended December 31, 2022 to
$71.3 million for the year ended December 31, 2023. For the period ended December 31, 2023, U.S. revenue
increased by 9% and international revenue increased by 12% over the comparative prior year period. The U.S.
revenue growth was primarily due to an increase in Treatment sessions revenues in connection with the growth
of active customer sites and utilization.
Revenues in the United States increased by $5.9 million, or 9%, from $63.4 million for the year ended
December 31, 2022 to $69.3 million for the year ended December 31, 2023. NeuroStar Advanced Therapy
System revenue in the United States for year ended December 31, 2023 was $16.5 million which was in line
with revenue at December 31, 2022 at $16.6 million. NeuroStar capital sales consisted of 204 units in
NeuroStar Advanced Therapy Systems for the year ended December 31, 2023 compared to 213 units for the
year ended December 31, 2022. The Company expects to recognize future recurring treatment session revenue
related to the sale of 204 NeuroStar Advanced Therapy systems for the year ended December 31, 2023.
Treatment sessions revenues represented 73% and 71% of total revenues in the United States for the years
ended December 31, 2023 and 2022, respectively, and increased by 13% from $45.1 million for the year ended
December 31, 2022 to $50.9 million for the year ended December 31, 2023. The increase in U.S. treatment
session revenue was primarily the result of an increase of 218,244 treatment sessions sold from 572,587 units
for the year ended December 31, 2022 to 791,023 for the year ended December 31, 2023. We
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believe the increase in overall volume of treatment session revenue between these two periods was primarily
due to the growth in active customer sites of 44 from 1,101 as of December 31, 2022 to 1,145 as of December
31, 2023 and increase in overall utilization. Due to the time it takes for the customer sites to become fully
operational, treatment session revenue will lag in the growth of our active customer sites.
Cost of Revenues and Gross Margin
Cost of revenues increased by $4.2 million, or 27%, from $15.5 million for the year ended December 31, 2022
to $19.6 million for the year ended December 31, 2023. This increase was primarily due to the recording of a
$1.9 million inventory impairment for specialized component parts secured for discontinued NeuroStar
Advanced Therapy Systems for which costs exceed net realizable value. Also capitalized software and the
corresponding amortization expense increased by $1.3 million associated with the latest product release. One-
time expense relating to our transition to a new contract manufacturer amounted to $0.7 million. Gross margin
was 72.5% for the year ended December 31, 2023 compared to 76.3% for the year ended December 31, 2022.
The decrease in gross margin was driven by the one-time inventory impairment, the higher operational costs
related to our transition to a new third-party contract manufacturing partner and software amortization expense
from the latest product release.
Sales and marketing Expenses
Sales and marketing expenses decreased by $2.7 million, or 5%, from $50.0 million for the year ended
December 31, 2022 to $47.3 million for the year ended December 31, 2023. The decrease was primarily driven
by the discontinuation of a sales compensation program in 2023. Neuronetics offered a retention program to
sales personnel in 2022 and did not continue the program in 2023, resulting in a decrease in sales personnel
expense. The decrease was partially offset by an increase in marketing program spend, specifically the growth
in the co-op marketing initiative.
General and Administrative Expenses
General and administrative expenses remained relatively consistent at $25.4 million for the year ended
December 31, 2023 compared with $25.5 million for the year ended December 31, 2022.
Research and Development Expenses
Research and development expenses remained relatively consistent at $9.5 million for the year ended
December 31, 2023 compared with $9.3 million for the year ended December 31, 2022
Interest Expense
Interest expense increased by $1.2 million, or 28%, from $4.2 million for the year ended December 31, 2022 to
$5.4 million for the year ended December 31, 2023 due to interest rates and debt balance increases.
Other Income, Net
Other income, net increased by $3.5 million from $2.2 million for the year ended December 31, 2022 to $5.8
million for the year ended December 31, 2023, primarily as a result of the Employee Retention Credit (the
“ERC”) of $2.9 million, increased interest income earned on the Company’s money market accounts and
increase in notes receivable interest.
Comparison of the Years ended December 31, 2022 and 2021
The information required within this section is incorporated by reference to the information set forth in the
section titled “Comparison of the Years ended December 31, 2022 and 2021” in “Management’s Discussion
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and Analysis of our Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K
filed on March 7, 2023.
Liquidity and Capital Resources
Overview
As of December 31, 2023, we had cash and cash equivalents of $59.7 million and an accumulated deficit of
$376.1 million, compared to cash and cash equivalents of $70.3 million and an accumulated deficit of $345.9
million as of December 31, 2022. We incurred negative cash flows from operating activities of $32.0 million and
$30.7 million for the years ended December 31, 2023 and 2022, respectively. We have incurred operating
losses since our inception, and we anticipate that our operating losses will continue in the near term as we seek
to expand our sales and marketing initiatives to support our growth in existing and new markets, invest funds in
additional research and development activities and utilize cash for other corporate purposes. Our primary
sources of capital to date have been from our IPO, private placements of our convertible preferred securities,
borrowings under our credit facility, sales of our products and a secondary public offering of our common stock.
As of December 31, 2023, we had $60.0 million of borrowings outstanding under our credit facility, which has a
final maturity in March 2028. Management believes that the Company’s cash and cash equivalents as of
December 31, 2023 and anticipated revenues from sales of its products are sufficient to fund the Company’s
operations for at least 12 months.
If our cash and cash equivalents and anticipated revenues from sales or our products are insufficient to satisfy
our liquidity requirements, we may seek to sell additional common or preferred equity or debt securities or enter
into a new credit facility or another form of third-party funding or seek other debt financing. If we raise additional
funds by issuing equity or equity-linked securities, our stockholders would experience dilution and any new
equity securities could have rights, preferences and privileges superior to those of holders of our common
stock. Debt financing, if available, may involve covenants restricting our operations or our ability to incur
additional debt. We cannot be assured that additional equity, equity-linked or debt financing will be available on
terms favorable to us or our stockholders, or at all. It is also possible that we may allocate significant amounts of
capital towards products or technologies for which market demand is lower than expected and, as a result,
abandon such efforts. If we are unable to maintain our current financing or obtain adequate additional financing
when we require it, or if we obtain financing on terms which are not favorable to us, or if we expend capital on
products or technologies that are unsuccessful, our ability to continue to support our business growth and to
respond to business challenges could be significantly limited, or we may be required to delay the development,
commercialization and marketing of our products.
Our current and future funding requirements will depend on many factors, including:
● our ability to achieve revenue growth and improve operating margins;
● compliance with the terms and conditions, including covenants, set forth in our credit facility;
● the cost of expanding our operations and offerings, including our sales and marketing efforts;
● our ability to improve or maintain coverage and reimbursement arrangements with domestic third-party
and government payors, particularly in Japan;
● our rate of progress in establishing coverage and reimbursement arrangements from international
commercial third-party and government payors;
● our rate of progress in, and cost of the sales and marketing activities associated with, establishing
adoption of our products and maintaining or improving our sales to our current customers;
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● the cost of research and development activities, including research and development relating to
additional indications of neurohealth disorders;
● the effect of competing technological and market developments;
● costs related to international expansion; and
● the potential cost of and delays in product development as a result of any regulatory oversight
applicable to our products.
The Company’s material cash requirements include the following contractual and other obligations.
Debt
In March 2020, the Company entered into the Solar Facility. As of December 31, 2023, the Company had $60.0
million of borrowings outstanding under the Solar Facility, which has a final maturity in March 2028. The interest
rate on borrowings under the credit facility is variable and resets monthly. The Company will commence
principal payments on the facility starting April 2026 with total borrowings of $60.0 million due at maturity. In
addition, the Company will make a final payment fee of $1.9 million at maturity. Future interest payments related
to the facility total $22.0 million, including $6.7 million due within the next twelve months as of December 31,
2023.
On March 7, 2024, the Company entered into a sixth amendment (the “Solar Sixth Amendment”) to the Solar
Facility.
Under the Solar Sixth Amendment, Solar (i) waived the specified events with respect to the Company’s non-
compliance with the required revenue under the net product revenue covenant and (ii) amended the financial
covenants to reflect current projections.
The foregoing summary of the Solar Sixth Amendment does not purport to be complete and is qualified in its
entirety by reference to the Solar Sixth Amendment, a copy of which is filed as Exhibit 10.9 hereto and
incorporated herein by reference.
Leases
The Company has lease arrangements for equipment and certain facilities, including corporate headquarters
and our warehouse in Malvern, Pennsylvania and a training facility in Charlotte, North Carolina. As of December
31, 2023, the Company had fixed lease payment obligations of $3.7 million, including $0.9 million due within the
next twelve months.
Cash Flows
The following table sets forth a summary of our cash flows for the years ended December 31, 2023, 2022, and
2021:
Net Cash Used in Operating Activities
Net Cash (Used in) Provided by Investing Activities
Net Cash Provided by Financing Activities
Net (Decrease) in Cash and Cash Equivalents
2023
December 31,
2022
2021
$ (32,038)
(1,322)
22,697
$ (10,663)
$ (30,739)
6,731
207
$ (23,801)
$ (27,983)
(9,839)
83,006
45,184
$
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Net Cash Used in Operating Activities
Net cash used in operating activities for 2023 was $32.0 million, consisting primarily of a net loss of $30.2
million and an increase in net operating assets of $14.1 million, partially offset by non-cash charges of $12.3
million. The increase in net operating assets was primarily due to increases in accounts receivable and prepaid
commission expense, and decreases in accrued compensation. Non-cash charges consisted of depreciation
and amortization, inventory impairment, non-cash interest expense, share-based compensation, and the cost of
rental units purchased by customers.
Net cash used in operating activities for 2022 was $30.7 million, consisting primarily of a net loss of $37.2
million and an increase in net operating assets of $4.8 million, partially offset by non-cash charges of $11.2
million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory
and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses
as a result of timing and accrued 2022 compensation and commissions as of December 31, 2022. Non-cash
charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation,
and the cost of rental units purchased by customers.
Net cash used in operating activities for 2021 was $28.0 million, consisting primarily of a net loss of $31.2
million and an increase in net operating assets of $6.6 million, partially offset by non-cash charges of $9.8
million. The increase in net operating assets was primarily due to increases in accounts receivable, inventory
and prepaid commission expense, which were offset by increases in accounts payable and accrued expenses
as a result of timing and accrued 2021 compensation and commissions as of December 31, 2021. Non-cash
charges consisted of depreciation and amortization, non-cash interest expense, share-based compensation,
and the cost of rental units purchased by customers.
Net Cash (Used in) Provided by Investing Activities
Net cash (used in) provided by investing activities for the years ended December 31, 2023, 2022 and 2021 was
$(1.3) million, $6.7 million and $(9.8) million, respectively. Net cash used in investing activities for the year
ended December 31, 2023 was due to payments received on our promissory notes offset partially by purchases
of property and equipment and capitalized software costs. Net cash provided by investing activities for the year
ended December 31, 2022 was attributable to repayment of a promissory note and purchases of property and
equipment and capitalized software costs. Net cash used in investing activities for the year ended December
31, 2021 was attributable to issuance of our promissory note and purchase of property and equipment and
capitalized software costs.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023 was $22.7 million attributable
primarily to additional debt net of final payment and amendment fee paid in connection with the two
amendments of the Solar Facility in 2023.
Net cash provided by financing activities for the year ended December 31, 2022 was $0.2 million attributable
primarily to proceeds related to stock option exercises.
Net cash provided by financing activities for the year ended December 31, 2021 was $83.0 million and primarily
consisted of additional proceeds from our secondary public offering and sale of our common stock on February
2, 2021 and cash proceeds related to stock option exercises.
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Indebtedness
Refer to “Note 12. Debt” in our audited financial statements and related notes thereto appearing elsewhere in
this Annual Report on Form 10-K for information regarding our current Solar Facility.
Solar Credit Facility
The following table sets forth by year our required future principal payments under the term loan portion of the
Solar Facility (as discussed in “Note 12. Debt”) (in thousands):
Year:
2024
2025
2026
2027
2028
Total principal payments
Common Stock Offering
Principal
Payments
—
—
22,500
30,000
7,500
60,000
$
$
On February 2, 2021, we closed a secondary public offering of our common stock in which we issued and sold
5,566,000 shares of our common stock, which included shares pursuant to an option granted to underwriters to
purchase additional shares, at a public offering price of $15.50 per share. We received net proceeds of
approximately $80.6 million after deducting underwriting discounts, commissions and estimated offering
expenses. The Company intends to use the net proceeds of the offering for general corporate purposes,
including working capital, research and development, marketing and evaluating new clinical indications.
Critical Accounting Policies and Use of Estimates
The preparation of our financial statements in accordance with U.S. GAAP and the rules and regulations of the
SEC requires us to make estimates and assumptions, based on judgments considered reasonable, which affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. We base
our estimates and assumptions on historical experience, known trends and events and various other factors
that we believe to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Although we believe our estimates and assumptions are reasonable when made, they are based upon
information available to us at the time they are made. We evaluate our estimates and assumptions on an
ongoing basis and, if necessary, make adjustments. Due to the risks and uncertainties involved in our business
and evolving market conditions and given the subjective element of the estimates and assumptions made,
actual results may differ from estimated results.
We define our critical accounting policies as those accounting policies that are most important to the portrayal of
our financial condition and results of operations and require our most difficult and subjective judgments. While
our significant accounting policies are more fully described in “Note 3. Summary of Significant Accounting
Policies” in our audited financial statements and related notes thereto appearing elsewhere in this Annual
Report on Form 10-K, we believe the following discussion addresses our most critical accounting policies.
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Revenue Recognition
We account for revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from
Contracts with Customers. Under ASC 606, we recognize revenue when control of the promised good or
service is transferred to our customers in an amount that reflects the consideration to which we expect to be
entitled in exchange for those good or services. Accordingly, we determine revenue recognition by applying the
following steps:
● identification of the contract, or contracts, with a customer;
● identification of the performance obligations in the contract;
● determination of the transaction price;
● allocation of the transaction price to the performance obligations in the contract; and
● recognition of revenue when, or as, we satisfy a performance obligation.
We primarily earn revenues from the sale of NeuroStar Advanced Therapy Systems, consumable use treatment
sessions, and accessory products. A contract’s transaction price is allocated to each performance obligation
and recognized as revenue when, or as, the performance obligation is satisfied, which generally is the point in
time when the product is shipped or control is transferred. We sell to end users in the United States and to third-
party distributors outside the United States and do not provide return rights. Sales to distributors outside the
United States are made in U.S. dollars.
Revenue attributable to the NeuroStar Advanced Therapy Systems purchased on a rent-to-own basis are
accounted for either (1) as operating leases and revenue is recognized on a straight-line basis over the term of
the lease; or (2) as a sales-type lease and revenue is recognized upon installation.
Our NeuroStar Advanced Therapy System sales in the United States typically have a post-sale training
obligation. This obligation is fulfilled after product shipment, and we defer recognizing revenue until training
occurs. We defer the fair value attributable to the post shipment training and recognize such revenue when the
obligation is fulfilled. We base the fair value of the training using stand-alone service rates. Our sales to our
third-party distributors outside the United States do not have these post-sale obligations.
In addition, we provide a one-year warranty for systems sold in the United States. Terms of product warranty
differ amongst our third-party distributors outside the United States, but are generally one year. We provide for
the estimated cost to repair or replace products under any warranty at the time of sale. We also offer our
customers in the United States annual service contracts. Revenue from the sale of annual service contracts is
recognized on a straight-line basis over the period of the applicable contract. We also earn revenue from
customers from services outside of their warranty term or annual service contracts. Such service revenue is
recognized as the services are provided.
Recent Accounting Pronouncements
We refer you to “Note 4. Recent Accounting Pronouncements” in our audited financial statements and related
notes thereto included elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our cash is held in an insured cash sweep account at a large financial institution, which manages our risk by
limiting the amount of cash in any one financial institution up to $250,000. These balances are insured by the
Federal Deposit Insurance Corporation (“FDIC”), which provides an insurance coverage limit of $250,000 per
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depositor, per FDIC-insured bank, per ownership category. We have reviewed the financial statements of this
institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of
business with limited credit risk to us.
Financial instruments that potentially subject us to concentrations of credit risk principally consist of cash
equivalents and accounts receivable. We limit our credit risk associated with cash equivalents by placing
investments in highly-rated money market funds. We limit our credit risk with respect to accounts receivable by
performing credit evaluations when deemed necessary, but we do not require collateral to secure amounts
owed to us by our customers.
As discussed in “Note 12. Debt” in our audited financial statements and related notes thereto appearing
elsewhere in of this Annual Report on Form 10-K, our credit facility bears interest which resets monthly and is
equal to the greater of (a) 3.95% or (b) Daily Simple Secured Overnight Financing Rate (“SOFR”) for a term of
one month, plus 5.65%. As a result, a 1% increase in interest would result in approximately $0.6 million in
additional interest expense.
Inflationary factors, such as increases in our cost of revenues and operating expenses, may adversely affect
our operating results. Although we do not believe inflation has had a material impact on our financial condition,
results of operations or cash flows to date, a high rate of inflation in the future may have an adverse effect on
our ability to maintain and increase our gross margin or decrease our operating expenses as a percentage of
our revenues if our selling prices of our products do not increase as much or more than our costs increase.
We do not currently have any exposure to foreign currency fluctuations and do not engage in any hedging
activities as part of our normal course of business.
Item 8. Financial Statements and Supplementary Data.
The financial statements listed in the Index to Financial Statements beginning on page F-1 are filed as part of
this Annual Report on Form 10-K and incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act, refers to controls and procedures that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the company’s management, including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. As required by Rules 13a-15(b) and 15d-
15(b) of the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and
our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
December 31, 2023 at the reasonable assurance level.
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Management’s Report on Internal Control Over Financial Reporting
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief
Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles, and
includes those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets
that could have a material effect on the financial statements.
Internal control over financial reporting may not prevent or detect all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are achieved. Further, the design of a control system must be balanced against
resource constraints, and therefore the benefits of controls must be considered relative to their costs. Given the
inherent limitations in all systems of controls, no evaluation of controls can provide absolute assurance all
control issues and instances of fraud, if any, within a company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty and that breakdowns can occur because of
a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of the controls. The design of any system of
controls is also based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions or the degree of compliance with
policies or procedures may deteriorate. Accordingly, given the inherent limitations in a cost-effective system of
internal control, financial statement misstatements due to error or fraud may occur and may not be detected.
Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance of
achieving their objectives. We conduct periodic evaluations of our systems of controls to enhance, where
necessary, our control policies and procedures.
Management is responsible for establishing and maintaining adequate internal control over our financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the
supervision and with the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting.
Management has used the framework set forth in the report entitled “Internal Control—Integrated Framework
(2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the
effectiveness of our internal control over financial reporting. Based on its evaluation, management has
concluded that our internal control over financial reporting was effective as of December 31, 2023 at the
reasonable assurance level.
This Annual Report on Form 10-K does not include an attestation report of internal control over financial
reporting from our independent registered public accounting firm due to our status as a smaller reporting
company.
Changes in Internal Control over Financial Reporting
During the fourth quarter ended December 31, 2023, there were no changes in our internal control over
financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) which materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this item will be included in the information set forth in the sections titled “Proposal
1 - Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance” and
“Executive Officers of the Company” contained in “Delinquent Section 16(a) Reports” in our 2024 Proxy
Statement.
Item 11. Executive Compensation.
The information required by this item will be included in information set forth in the section titled “Executive
Compensation” in our 2024 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The information required by this item will be included in information set forth in the section titled “Security
Ownership of Certain Beneficial Owners and Management” and “Executive Compensation” in our 2024 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item will be included in information set forth in the section titled “Transactions
with Related Persons” and “Information regarding the Board of Directors and Corporate Governance” in our
2024 Proxy Statement.
Item 14. Principal Accounting Fees and Services.
The information required by this item will be included in information set forth in the section titled “Principal
Accountant Fees and Services” contained in “Proposal 2 – Ratification of Selection of Independent Registered
Public Accounting Firm” in our 2024 Proxy Statement.
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
PART IV
The financial statements listed in the Index to Financial Statements beginning on page F-1 are filed as part of
this Annual Report on Form 10-K.
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(a)(2) Financial Statement Schedules
All schedules have been omitted because they are not required or because the required information is given in
the Financial Statements or Notes listed in the Index to Financial Statements beginning on page F-1.
(b) Exhibits
The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual
Report.
Exhibit
Number
3.1
3.2
3.3
3.4
3.5
4.1
4.2
10.1◊
10.2◊
10.3
10.4
10.5
10.6
Exhibit Index
Description of Exhibit
Ninth Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 to the Form 8-K filed July 6, 2018)
Certificate of Amendment to the Registrant’s Ninth Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Form 8-K filed May 30, 2019)
Fourth Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.1 to
the Form 8-K filed December 29, 2022)
Certificate of Designations of Series A Junior Participating Preferred Stock of Neuronetics, Inc.
(incorporated by reference to Exhibit 3.1 to the Form 8-K filed April 8, 2020)
Certificate of Elimination of Series A Junior Participating Preferred Stock of the Registrant
(incorporated by reference to Exhibit 3.1 to the Form 8-K filed April 9, 2021)
Specimen Stock Certificate evidencing shares of common stock of the Registrant (incorporated by
reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-225307))
Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities
Exchange Act of 1934 (incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report on
Form 10-K filed on March 3, 2020)
Distribution Agreement, by and between the Registrant and Teijin Pharma Limited, dated October 12,
2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-
1 (File No. 333-225307))
Amendment No. 1 to Distribution Agreement, by and between the Registrant and Teijin Pharma
Limited, dated May 31, 2019 (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed August
6, 2019)
Form of Indemnification Agreement between the Registrant and its non-employee directors and
officers (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form
S-1 (File No. 333-225307))
Loan and Security Agreement by and between Solar Capital Ltd., the lenders identified therein and the
Registrant, dated March 2, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed on March 3, 2020)
Second Amendment to Loan and Security Agreement, by and among Solar Capital Ltd., as collateral
agent, the lenders listed on the signature pages thereto, and the Registrant, dated December 2, 2020
(incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
December 8, 2020)
Third Amendment to Loan and Security Agreement, by and among SLR Investment Corp. (formerly
known as Solar Capital Ltd.), as collateral agent, the lenders listed on the signature pages thereto, and
the Registrant, dated February 15, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed on February 22, 2022)
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10.7
10.8
10.9*◊
Fourth Amendment to Loan and Security Agreement, dated March 29, 2023, by and among SLR
Investment Corp. (formerly known as Solar Capital Ltd.), as collateral agent, the lenders listed on the
signature pages thereto, and Neuronetics, Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on April 4, 2023).
Fifth Amendment to Loan and Security Agreement, dated September 29, 2023, by and among SLR
Investment Corp. (formerly known as Solar Capital Ltd.), as collateral agent, the lenders listed on the
signature pages thereto, and Neuronetics, Inc. (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on October 3, 2023).
Sixth Amendment to Loan and Security Agreement, dated March 7, 2024, by and among SLR
Investment Corp. (formerly known as Solar Capital Ltd.), as collateral agent, the lenders listed on the
signature pages thereto, and Neuronetics, Inc.
10.10+ Amended and Restated 2003 Stock Incentive Plan of the Registrant, as amended (incorporated by
10.11+
reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (File No. 333-
225307))
2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.10 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-38546) filed on November 6, 2018)
10.12+ 2018 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.11 to the Registrant’s
10.13
10.14
10.15
Quarterly Report on Form 10-Q (File No. 001-38546) filed on November 6, 2018)
Neuronetics, Inc. 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2021)
Lease Agreement by and between Exeter 3222 Phoenixville, L.P., and the Registrant, dated January
3, 2013 (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1 (File
No. 333-225307))
First Amendment dated March 22, 2019 to Lease Agreement by and between Exeter 3222
Phoenixville, L.P., and the Registrant, dated January 3, 2013 (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1 (File No. 333-225307))
10.16+ Form of Non-Qualified Stock Option Agreement for the Amended and Restated 2003 Stock Incentive
Plan, as amended, of the Registrant (incorporated by reference to Exhibit 10.13 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
10.17+ Form of Incentive Stock Option Agreement for the Amended and Restated 2003 Stock Incentive Plan,
as amended, of the Registrant (incorporated by reference to Exhibit 10.14 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
10.18+ Forms of Grant Notice, Stock Option Agreement and Notice of Exercise under the 2018 Equity
Incentive Plan (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement
on Form S-1 (File No. 333-225307))
10.19+ Forms of Restricted Stock Unit Grant Notice and Award Agreement under the 2018 Equity Incentive
Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-
1 (File No. 333-225307))
10.20+ Form of Severance Agreement (incorporated by reference to Exhibit 10.17 to the Registrant’s
Registration Statement on Form S-1 (File No. 333-225307))
10.21+ Form of Restrictive Covenant and Invention Assignment Agreement (incorporated by reference to
Exhibit 10.18 to the Registrant’s Registration Statement on Form S-1 (File No. 333-225307))
10.22*+ Form of Restrictive Covenant and Severance Agreement
10.23
Non-Employee Director Compensation Policy (incorporated by reference to Exhibit 10.21 to the
Registrant’s Registration Statement on Form S-1 (File No. 333-225307))
10.24+ Employment Offer Letter Agreement between the Registrant and Stephen Furlong dated July 1, 2019
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed July 2, 2019)
10.25+ Employment Agreement, dated July 14, 2020, by and between the Registrant and Keith J. Sullivan,
dated July 14, 2020, (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K
filed on July 17, 2020)
10.26*+ Amended and Restated Employment Agreement, dated November 2, 2023 by and between the
Registrant and Keith J. Sullivan
10.27*+ Amended and Restated Restrictive Covenant and Severance Agreement dated November 2, 2023 by
and between the Registrant and Keith J. Sullivan
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10.28*+◊ Employment Offer Letter Agreement dated November 25, 2019 by and between the Registrant and
Andrew Macan
10.29+ Form of Neuronetics, Inc. Performance Restricted Stock Unit Grant Notice and Award Agreement
under Nasdaq Listing RuIe 5635(c)(4) (incorporated by reference to Exhibit 10.2 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.30+ Form of Neuronetics, Inc. Performance Restricted Stock Unit Grant Notice and Award Agreement
under the 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.31+ Form of Neuronetics, Inc. Restricted Stock Unit Grant Notice and Award Agreement under Nasdaq
Listing Rule 5635(c)(4) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report
on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.32+ Form of Neuronetics, Inc. Stock Option Grant Notice and Agreement (Nonstatutory Stock Option)
under Nasdaq Listing Rule 5635(c)(4) (incorporated by reference to Exhibit 10.5 to the Registrant’s
Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.33+ Performance Restricted Stock Unit Grant Notice and Award Agreement, dated July 14, 2020, by and
between the Registrant and Keith J. Sullivan (incorporated by reference to Exhibit 10.6 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.34+ Restricted Stock Unit Grant Notice and Award Agreement, dated July 14, 2020, by and between the
Registrant and Keith J. Sullivan (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly
Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.35+ Stock Option Grant Notice and Agreement (Nonstatutory Stock Option), dated July 14, 2020, by and
between the Registrant and Keith J. Sullivan (incorporated by reference to Exhibit 10.8 to the
Registrant’s Quarterly Report on Form 10-Q (File No. 001-38546) filed on August 4, 2020)
10.36+ Neuronetics, Inc. 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.37+ Form of Neuronetics, Inc. Performance Restricted Stock Unit Grant Notice and Award Agreement
under the 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.6 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.38+ Form of Neuronetics, Inc. Restricted Stock Unit Grant Notice and Award Agreement under the 2020
Inducement Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on
Form S-8 (File No. 333-252233) filed January 19, 2020)
10.39+ Form of Neuronetics, Inc. Stock Option Grant Notice and Agreement (Nonstatutory Stock Option)
under the 2020 Inducement Incentive Plan (incorporated by reference to Exhibit 10.8 to the
Registration Statement on Form S-8 (File No. 333-252233) filed January 19, 2020)
10.40+ Secured Promissory Note, by and between Check Five LLC d/b/a Success TMS and the Registrant,
10.41
10.42
23.1*
31.1*
31.2*
32.1*
97.1*
101*
dated September 29, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed October 5,
2021)
Secured Promissory Note, by and between Check Five LLC d/b/a Success TMS and the Registrant,
dated September 29, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed October 5,
2021)
Subordination Agreement, by and between ZW Partners, LLC and the Registrant, dated April 29, 2022
(incorporated by reference to Exhibit 10.1 to the Form 8-K filed May 5, 2022)
Consent of KPMG LLP, independent registered public accounting firm
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934
Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-
14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. section 1350.
Clawback Policy
The following materials from the Company’s Annual Report on Form 10-K for the year ended
December 31, 2021, were formatted in Inline XBRL (Extensible Business Reporting Language): (i)
Balance Sheets, (ii) Statements of Operations, (iii) Statements of Changes in Stockholders’ Equity, (iv)
Statements of Cash Flows, and (v) Notes to Financial Statements. The instance document does
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not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document
Cover Page Interactive Data File (embedded within the Inline XBRL document)
104*
*
Filed herewith
+ Indicates management contract or compensatory plan.
◊ Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential
treatment. The Company will furnish copies of any such information to the Securities and Exchange
Commission upon request.
Item 16. Form 10-K Summary
Not applicable.
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NEURONETICS, INC.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 185)
Balance Sheets
Statements of Operations
Statements of Changes in Stockholders’ Equity
Statements of Cash Flows
Notes to Financial Statements
F-1
Page
F-2
F-4
F-5
F-6
F-7
F-8
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Neuronetics, Inc.:
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Neuronetics, Inc. (the Company) as of
December 31, 2023 and 2022, the related statements of operations, changes in stockholders’ equity, and cash
flows for each of the years in the three-year period ended December 31, 2023, and the related notes
(collectively, the financial statements). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its
operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in
conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement, whether due to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express
no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates
to accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in
any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or
disclosures to which it relates.
Sufficiency of audit evidence obtained over revenue
As discussed in Note 3 to the financial statements, the Company recorded $71.3 million of revenue for the year
ended December 31, 2023. The majority of the Company’s revenue contracts are comprised of the following
performance obligations: (1) NeuroStar Advanced Therapy Systems (the System), (2) NeuroStar Treatment
Sessions, (3) separately priced extended warranties and when-and-if-available upgrade rights, and
F-2
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(4) system clinical and reimbursement training. The Company also offers certain customers the option to lease
the System. Additionally, the Company has an exclusive distribution agreement with a foreign entity.
We identified the evaluation of the sufficiency of audit evidence obtained over revenue as a critical audit matter.
Evaluating the sufficiency of audit evidence obtained required subjective auditor judgment due to the number of
revenue streams involved in the process. This included determining the revenue streams over which
procedures were performed and evaluating the nature and extent of evidence obtained over each revenue
stream.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor
judgment to determine the nature and extent of procedures to be performed over revenue, including the
determination of the revenue streams over which procedures were to be performed. For certain revenue
streams, we evaluated the design and implementation of certain internal controls over the Company’s revenue
process. For each revenue stream for which procedures were performed, we assessed the recorded revenue
by selecting a sample of revenue transactions and comparing the amounts recognized for consistency with
relevant underlying documentation, including payment received, delivery confirmation, and/or external
confirmation. We evaluated the sufficiency of audit evidence obtained over revenue by assessing the results of
the procedures performed, including the appropriateness of the nature and extent of such evidence.
/s/ KPMG LLP
We have served as the Company’s auditor since 2003.
Philadelphia, Pennsylvania
March 7, 2024
F-3
Table of Contents
NEURONETICS, INC.
Balance Sheets
(In thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventory
Current portion of net investments in sales-type leases
Current portion of prepaid commission expense
Current portion of notes receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Net investments in sales-type leases
Prepaid commission expense
Long-term notes receivable
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Current portion of operating lease liabilities
Current portion of long-term debt, net
Total current liabilities
Long-term debt, net
Deferred revenue
Operating lease liabilities
Total liabilities
Commitments and contingencies (Note 18)
Stockholders’ equity:
Preferred stock, $0.01 par value: 10,000 shares authorized; no shares issued or
outstanding on December 31, 2023 and December 31, 2022
Common stock, $0.01 par value: 200,000 shares authorized; 29,092 and 27,268
shares issued and outstanding on December 31, 2023 and December 31, 2022,
respectively
Additional paid-in capital
Accumulated deficit
Total Stockholders' equity
Total liabilities and Stockholders’ equity
December 31,
2023
2022
$
59,677
15,782
8,093
905
2,514
2,056
4,766
93,793
2,009
2,773
661
8,370
3,795
4,430
$ 115,831
$
70,340
13,591
8,899
1,538
1,997
230
2,174
98,769
1,991
3,327
1,222
7,568
362
3,645
$ 116,884
$
$
4,752
12,595
1,620
845
—
19,812
59,283
200
2,346
81,641
—
2,433
14,837
1,980
824
13,125
33,199
22,829
829
2,967
59,824
—
—
—
291
409,980
(376,081)
34,190
$ 115,831
273
402,679
(345,892)
57,060
$ 116,884
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
Revenues
Cost of revenues
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Research and development
Total operating expenses
Loss from operations
Other (income) expense:
Interest expense
Other income, net
Net loss
NEURONETICS, INC.
Statements of Operations
(In thousands, except per share data)
$
Years ended December 31,
2022
65,206 $
15,483
49,723
2023
71,348 $
19,643
51,705
2021
55,312
11,653
43,659
47,318
25,426
9,515
82,259
(30,554)
49,982
25,516
9,336
84,834
(35,111)
5,424
(5,789)
$ (30,189)
(1.05)
$
28,658
4,251
(2,203)
$ (37,159)
(1.38)
$
26,900
$
$
37,746
25,554
7,923
71,223
(27,564)
4,019
(390)
(31,193)
(1.22)
25,479
Net loss per share of common stock outstanding, basic and diluted
Weighted-average common shares outstanding, basic and diluted
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
NEURONETICS, INC.
Statements of Changes in Stockholders’ Equity
(In thousands)
Balance at December 31, 2020
Share-based awards and options exercises
Issuance of common stock, net of issuance
costs of $401
Share-based compensation expense
Net loss
Balance at December 31, 2021
Share-based awards and options exercises
Share-based compensation expense
Net loss
Balance at December 31, 2022
Share-based awards and options exercises
Share-based compensation expense
Net loss
Balance at December 31, 2023
Common Stock
Shares Amount
191
17
19,114
1,715
$
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
$ 302,842
2,418
$ (277,540) $
—
25,493
2,435
5,566
—
—
26,395
873
—
—
27,268
1,824
—
—
$
29,092
56
—
—
264
9
—
—
273
18
—
—
393,644
289
8,746
402,679
(18)
7,319
80,515
7,869
—
—
—
(31,193)
(308,733)
—
(37,159)
(345,892)
—
—
—
—
291
$ 409,980
—
(30,189)
$ (376,081) $
80,571
7,869
(31,193)
85,175
298
8,746
(37,159)
57,060
—
7,319
(30,189)
34,190
The accompanying notes are an integral part of these financial statements.
F-6
Table of Contents
NEURONETICS, INC.
Statements of Cash Flows
(In thousands)
Years ended December 31,
2022
2021
2023
Cash flows from Operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
$ (30,189)
$ (37,159)
$ (31,193)
Depreciation and amortization
Allowance for credit losses
Inventory impairment
Share-based compensation
Non-cash interest expense
Cost of rental units purchased by customers
Changes in certain assets and liabilities:
Accounts receivable, net
Inventory
Net investments in sales-type leases
Prepaid commission expense
Prepaid expenses and other assets
Accounts payable
Accrued expenses
Deferred revenue
Net Cash used in Operating activities
Cash flows from Investing activities:
Purchases of property and equipment and capitalized software
Repayment (issuance) of notes receivable
Net Cash (used in) provided by Investing activities
Cash flows from Financing activities:
Payments of debt issuance costs
Proceeds from issuance of long-term debt
Repayment of long-term debt
Proceeds from the issuance of common stock
Payments of common stock offering issuance cost
Proceeds from exercises of stock options
Net Cash provided by Financing activities
Net (decrease) increase in Cash and Cash equivalents
Cash and Cash equivalents, Beginning of Period
Cash and Cash equivalents, End of Period
Supplemental disclosure of cash flow information:
Cash paid for interest
Transfer of inventory to property and equipment
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment and capitalized software in accounts
payable and accrued expenses
Reduction of accounts receivable in current and long-term notes receivable
2,006
390
1,905
7,319
634
—
(8,831)
(1,098)
1,193
(1,319)
(2,845)
2,029
(2,243)
(989)
(32,038)
1,648
341
—
8,746
709
92
(6,658)
(2,587)
1,114
(1,243)
786
(1,968)
6,604
(1,164)
(30,739)
(2,369)
1,047
(1,322)
(3,269)
10,000
6,731
(1,104)
25,000
(1,200)
—
—
1
22,697
(10,663)
70,340
59,677
4,790
210
239
6,468
$
$
$
$
$
(91)
—
—
—
—
298
207
(23,801)
94,141
70,340
3,543
250
103
432
$
$
$
$
$
$
$
$
$
$
1,060
763
—
7,869
715
203
(3,817)
(3,444)
324
(1,926)
62
276
910
215
(27,983)
(2,353)
(7,486)
(9,839)
—
—
—
80,972
(401)
2,435
83,006
45,184
48,957
94,141
3,304
601
273
2,514
The accompanying notes are an integral part of these financial statements.
F-7
Table of Contents
1. DESCRIPTION OF BUSINESS
Neuronetics, Inc. (the “Company”) is a commercial stage medical technology company focused on designing,
developing and marketing products that improve the quality of life for patients who suffer from neurohealth
disorders. The Company’s first commercial product, the NeuroStar Advanced Therapy System, is a non-
invasive and non-systemic office-based treatment that uses transcranial magnetic stimulation, (“TMS”), to
create a pulsed, MRI-strength magnetic field that induces electrical currents designed to stimulate specific
areas of the brain associated with mood. The system was cleared in 2008 by the FDA to treat adult patients
with MDD who have failed to achieve satisfactory improvement from prior antidepressant medication in the
current MDD episode. The NeuroStar Advanced Therapy System is also available in other parts of the world,
including Japan, where it is listed under Japan’s national health insurance. The Company intends to continue to
pursue development of its NeuroStar Advanced Therapy System for additional indications.
Liquidity
As of December 31, 2023, the Company had cash and cash equivalents of $59.7 million and an accumulated
deficit of $376.1 million. The Company incurred negative cash flows from operating activities of $32.0 million,
$30.7 million and $28.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. The
Company has incurred operating losses since its inception, and management anticipates that its operating
losses will continue in the near term as the Company continues to invest in sales and marketing and product
development activities. The Company’s primary sources of capital to date have been from its initial public
offering (“IPO”), private placements of its convertible preferred securities, borrowings under its credit facility,
proceeds from its secondary public offering of common stock, and revenues from sales of its products. As of
December 31, 2023, the Company had $60.0 million of borrowings outstanding under its credit facility, which
matures in March 2028. Management believes that the Company’s cash and cash equivalents as of
December 31, 2023 and anticipated revenues from sales of our products are sufficient to fund the Company’s
operations for at least the next 12 months from the issuance of these financial statements.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with U.S. GAAP. Any reference in
these notes to applicable guidance is meant to refer to U.S. GAAP as found in the Accounting Standards
Codification (“ASC”), and Accounting Standards Updates (“ASUs”), promulgated by the Financial Accounting
Standards Board (“FASB”).
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP and the rules and regulations of the
SEC, requires the use of estimates and assumptions, based on judgments considered reasonable, which affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. The
Company bases its estimates and assumptions on historical experience, known trends and events and various
other factors that management believes to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent
from other sources. Although management believes its estimates and assumptions are reasonable when made,
they are based upon information available at the time they are made. Management evaluates the estimates and
assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties
involved in the Company’s business and evolving market conditions and given the subjective element of the
estimates and assumptions made, actual results may differ from estimated results.
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Table of Contents
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less
to be cash equivalents. As of December 31, 2023 and 2022, cash equivalents consisted of money market
funds.
Concentrations of Credit Risk
The Company’s cash is held on deposit in demand accounts at large financial institutions in amounts in excess
of the FDIC insurance coverage limit of $250,000 per depositor, per FDIC-insured bank, per ownership
category.
Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of
cash equivalents and accounts receivable. The Company limits its credit risk associated with cash equivalents
by placing investments in highly-rated money market funds. The Company limits its credit risk with respect to
accounts receivable by performing credit evaluations when deemed necessary, but it does not require collateral
to secure amounts owed by its customers.
Allowance for Credit Losses
The Company adopted ASC Topic 326, Financial Instruments-Credit losses on January 1, 2023, see note 6
Accounts Receivable for further discussion. The Company monitors accounts receivable and long-term notes
receivable and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses
are based on historical collection experience and other factors, including those related to current market
conditions and events.
Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases (“Topic 842”). The Company
determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the
customer the right to control the use of identified property, plant, or equipment for a period of time in exchange
for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the
contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the
right to control the use of the identified asset.
The Company leases warehouse, office space, a training facility and office equipment pursuant to net operating
leases. Operating leases where the Company is the lessor are included in revenue on the Statements of
Operations.
From time to time the Company enters into sales-type lease arrangements that include a lessee obligation to
purchase the leased equipment at the end of the lease term, automatic transfer of ownership of the leased
equipment at the end of the lease, a lessee purchase option reasonably certain to be exercised, or provides for
minimum lease payments with a present value equal to or exceeding substantially all of the fair value of the
underlying leased equipment at the date of lease inception. Sales-type leases where the Company is the lessor
are included in revenue on the Statements of Operations.
Operating leases where the Company is the lessee are included in operating lease right-of-use assets and
operating lease liabilities on the Balance Sheets. The lease liabilities are initially measured at the present value
of the unpaid lease payments at the lease commencement date.
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Table of Contents
The Company uses the following inputs in its lease calculations under Topic 842: (1) the discount rate the
Company uses to discount the unpaid lease payments to present value, (2) lease term, and (3) lease payments.
(1) Topic 842 requires a lessor to discount its unpaid lease payments using the interest rate implicit in the
lease and a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or,
if that rate cannot be readily determined, its incremental borrowing rate. As the rate implicit in the
Company’s lease is not readily determinable, the Company uses the incremental borrowing rate based
on the information available at commencement date in determining the present value of lease
payments. The incremental borrowing rate for a lease is the rate of interest the Company would have to
pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
The Company uses the implicit rate when readily determinable.
(2) The lease term for all leases includes the noncancelable period of the lease plus any additional periods
covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably
certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
(3) Lease payments included in the measurement of the lease asset or liability comprise the following:
fixed payments (including in-substance fixed payments), and the exercise price of a lessee option to
purchase the underlying asset if the lessee is reasonably certain to exercise.
For operating leases where the Company is the lessor, the Company continues recognizing the underlying
asset and depreciating it over its estimated useful life. Lease income from lessees is recognized on a straight-
line basis over the terms of the relevant lease agreement in revenue. Operating leases for equipment with fixed
rentals and step rentals are recognized on a straight-line basis over the term of the lease, assuming no
renewals, in revenue. Revenue is not recognized when collection is not reasonably assured. When collectability
is not reasonably assured, the customer is placed on non-accrual status and revenue is recognized when cash
payments are received.
The lease asset for sales-type leases is initially measured as the total net investment in the lease, which
comprises the initial amount of the lease receivable plus the deferred initial direct costs.
The lease asset for sales-type leases is subsequently measured throughout the lease term at the carrying
amount of the net investment in the lease which is increased by interest income and reduced by lease
payments collected. The lease payments are segregated into principal and interest components similar to a
loan. Equipment leasing revenues are recognized on an effective interest method over the lease term. The
principal component of the lease payment is reflected as a reduction to the net investment in the lease.
For operating leases where the Company is the lessee, the right-of-use (“ROU”), asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the
lease commencement date, plus any initial direct costs incurred less any lease incentives received. The ROU
asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus
initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease
incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease
term.
Lease assets for sales-type leases where the Company is the lessor and ROU assets for operating leases
where the Company is the lessee are periodically reduced by impairment losses. The Company uses the loans
impairment guidance in ASC Subtopic 330-10, Receivables, and the long-lived assets impairment guidance in
ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether a lease asset or a ROU
asset, respectively, is impaired, and if so, the amount of the impairment loss to recognize. For the years ended
December 31, 2023 and 2022 the Company did not recognize any impairment losses. The
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Company recognized $0.1 million in impairment losses which is included within sales and marketing expense
on the Statement of Operations for the year ended December 31, 2021.
The Company monitors for events or changes in circumstances that require a reassessment of its leases. When
a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the
carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the
ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a
negative ROU asset balance is recorded in profit or loss.
The Company has elected not to recognize ROU assets and lease liabilities for all short-term leases that have a
lease term of 12 months or less. The Company recognizes the lease payments associated with the short-term
leases as an expense on a straight-line basis over the lease term. Variable lease payments associated with
these leases are recognized and presented in the same manner as for all other leases. The Company has
elected to exclude sales and other similar taxes from lease payments in arrangements where the Company is a
lessor.
Inventory
Inventory is stated at the lower of cost and net realizable value, with cost being determined on a first in, first out
basis. The Company’s inventory is primarily comprised of finished goods and work-in-process. For the year
ended December 31, 2023, the Company recorded a $1.9 million inventory impairment within cost of revenue
on the Statements of Operations for a specialized component part secured for discontinued NeuroStar
Advanced Therapy Systems to which such cost exceeds net realizable value.
Property and Equipment and Capitalized Software
Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and
costs of improvements and renewals are capitalized. Depreciation and amortization are recognized using the
straight-line method based on the estimated useful lives of the related assets. The Company uses an estimated
useful life of three years for computers and software, five years for laboratory, auto and office equipment,
six years for devices in the rental agreement program and the lesser of five years or the remaining life of the
underlying facility lease for leasehold improvements.
Software development costs relating to assets to be sold in the normal course of business are included in
research and development and are expensed as incurred until technological feasibility is established. After
technological feasibility is established, software development costs are capitalized. The Company uses an
estimated useful life of two years for capitalized software and amortizes these costs beginning at the product
release.
Impairment of Long-Lived Assets
Long-lived assets, such as property and equipment, are tested for impairment when events or changes in
circumstances indicate that the carrying value of the asset may not be recoverable. Impairment testing requires
management to estimate the future net undiscounted cash flows of an asset using assumptions believed to be
reasonable. Actual cash flows may differ from the estimates used in the impairment testing. If such assets are
considered to be impaired, the Company recognizes an impairment loss when and to the extent that the
estimated fair value of an asset is less than its carrying value. The Company has not recorded any impairment
of its long-lived assets for the years ended December 31, 2023, 2022 and 2021.
Notes Receivable
Notes receivable are reported on the Company’s Balance Sheet at amortized cost basis. The Company
recognizes interest income within other income, net within the Statements of Operations.
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Table of Contents
Notes receivables are periodically reviewed to determine whether a note receivable is impaired, and if so, the
amount of the impairment loss to recognize. For the years ended December 31, 2023 and 2022, there were no
impairment charges. For the year ended December 31, 2021, the Company recognized $0.1 million in
impairment charges which is included within sales and marketing expense on the Statements of Operations.
Deferred Debt Issuance Costs
The Company capitalizes direct costs incurred to obtain debt financing and amortizes these costs to interest
expense over the term of the debt using the effective interest method. These costs are recorded as a debt
discount and are netted against the related debt on the Company’s Balance Sheets.
Revenue Recognition
ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”) is principles-based and provides a five-
step model to determine when and how revenue is recognized. The core principle is that an entity should
recognize revenue when it transfers promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services.
Sales and usage-based taxes are excluded from revenues.
Contract Formation
The Company accounts for a contract with a customer when there is a legally enforceable contract between the
Company and the customer, the rights of the parties are identified, the contract has commercial substance, and
collectability of the contract consideration is probable. For all sales, the Company uses either a signed
agreement or a binding purchase order as evidence of an arrangement.
Performance Obligations
The unit of account for Topic 606 is the performance obligation. A performance obligation is a promise in a
contract to transfer a distinct good or service to the customer or a series of distinct goods or services that are
substantially the same and have the same pattern of transfer. A contract’s transaction price is allocated to each
performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The
majority of the Company’s contracts are comprised of the following performance obligations:
(1) The NeuroStar TMS Therapy System (the “System”) which includes a chair, an electromagnet coil, a
monitoring console and accessories. The various components are inputs that function together to
deliver a combined output and together form one performance obligation (a NeuroStar Advanced
Therapy System). Revenues from the sale of the System are satisfied at the point-in-time when
shipped from our premises.
(2) NeuroStar Treatment Session (the “Treatment Session”) is a single use consumable that is delivered
via an encrypted activation code and is required in order for a clinician to perform TMS therapy.
Revenues from the sale of the Treatment Sessions are satisfied at the point-in-time when delivered to
the customer. The Company determined that sales of Treatment Sessions are not part of the
enforceable rights and obligations of the System sales, except when sold with System sales.
(3) Separately priced extended warranties and when-and-if-available upgrade rights are considered
service-type warranties. Warranty services are considered stand-ready obligations satisfied over-time
and recognized using a straight-line time-based measurement toward completion.
(4) The System clinical and reimbursement training enable the clinician to provide patient treatment. The
trainings are not required in order to operate the System but are required in order to receive a
certification from the Company and accordingly are not essential to the functionality of other
F-12
Table of Contents
performance obligations. Training services are recognized at a point-in-time when training is complete,
typically simultaneous to or near the time of delivery of the System.
In addition, the Company has determined that there are various perfunctory deliverables such as installation of
the System, the technical support hotline and marketing materials which the Company does not separately
recognize as revenue nor does the Company accrue the estimated cost of providing these goods and services
because they are not material. The Company provides a one-year warranty on all new System sales which
were determined to be assurance-type warranties and thus not considered a separate performance obligation.
The Company accrues the cost of providing these warranties.
There is no right of return or refund for any of the Company’s products or services and the Company has
elected to treat shipping and handling as a fulfillment activity and expenses the costs as incurred.
Sales Type Lease
The System is typically purchased but the Company does offer certain customers the option to lease instead.
The Company accounts for these leases are typically accounted for as a sales-type lease which results in the
derecognition of the underlying asset, the recognition of profit or loss on the sale, and the recognition of an
investment in sales-type lease. The investment is periodically increased for interest earned and reduced as
lease payments are received.
Distribution Agreement
The Company has an exclusive distribution agreement that began in October 2017 with a foreign entity for a
period of 7 ½ years with two 2 year renewal options. As consideration for the right to be the sole distributor of
the Company’s products and use of the Company’s intellectual property in the foreign territory, the distributor is
required to make certain fixed milestone payments upon contract execution and regulatory approval. In addition,
the distributor is required to make variable milestone payments depending upon regulatory reimbursement
rates. Furthermore, the distributor is required to make certain minimum purchases based upon sales history and
forecasts subject to a ceiling and floor. The Company assessed the potential performance obligations in this
contract and concluded that the contract contained the following performance obligations:
● Exclusive distribution and intellectual property license
● NeuroStar TMS Therapy System
● NeuroStar Treatment Session
The distribution agreement contains pricing for the Company’s products and services. The contractual purchase
prices were determined to be at the standalone selling prices based on the expected sales volumes of this
customer type and thus the Company concluded that this agreement did not contain a separate performance
obligation for the material right to discounted Systems and Treatments Sessions. The Company allocated the
transaction price through a combination of the cost plus a margin approach and the residual method. For the
System and Treatment Sessions the Company maximized the use of observable inputs by beginning with
average historical contractual selling prices and adjusting on a consistent and rational basis for pricing trends,
the customer type and expected sales volumes and the Company’s changing cost and margins. Since it was
determined that the contractual selling prices for the Company’s products and services in the distribution
agreement were at the standalone selling prices, the residual consideration which is made up of the fixed and
variable milestone payments was allocated to the exclusive distribution and intellectual property license. The
exclusive distribution and intellectual property rights were determined to be symbolic IP and thus recognized
over time. The System and Treatment Sessions were determined to be performance obligations recognized at a
point-in-time when delivered to the distributor.
F-13
Table of Contents
Contract Estimates
Accounting for the Company’s contracts involves the use of significant judgments and estimates including
determining the separate performance obligations, allocating the transaction price to the different performance
obligations and determining the method to measure the entity’s performance toward satisfaction of performance
obligations that most faithfully depicts when control is transferred to the customer. The Company allocates the
contract’s transaction price to each performance obligation using the Company’s best estimate of the
standalone selling price for each distinct good or service in the contract. The Company maximizes the use of
observable inputs by beginning with average historical contractual selling prices and adjusting as necessary
and on a consistent and rational basis for other inputs such as pricing trends, customer types, volumes and
changing cost and margins.
Contract Balances
Payment terms typically require payment upon shipment of the System and additional payments as access
codes are delivered, which can span several years after the System is first delivered and installed. The timing of
revenue recognition compared to billings and cash collections typically results in accounts receivable. However,
sometimes customer advances and deposits might be required for certain customers and are recorded as
contract liabilities. Changes in the contract asset and liability balances during the years ended December 31,
2023 and 2022 were not materially impacted by any other factors.
As of December 31, 2023, the Company expects to recognize approximately the following percentages of
deferred revenue by year:
Year:
2024
2025
2026
2027
2028
Total
Revenue
Recognition
85 %
13 %
2 %
— %
— %
100 %
Revenue recognized for the years ended December 31, 2023 and 2022 that was included in the contract liability
balance at the beginning of the year was $2.0 million and $2.5 million, respectively, and primarily represented
revenue earned from separately priced extended warranties, rent-to-own revenue, milestone revenue, and
clinical training.
Customers
Significant customers are those which represent more than 10% of the Company’s total revenue. For the years
ended December 31, 2023, 2022 and 2021, one customer accounted for 15%, 17% and 20%, respectively, of
the Company’s revenue.
Accounts receivable outstanding related to the customer was $1.9 million and $5.2 million as of December 31,
2023 and 2022, respectively.
Notes receivable outstanding related to the customer was $5.2 million and $0 million as of December 31, 2023
and 2022, respectively.
F-14
Table of Contents
Geographical Information
The following geographic data includes revenue generated from the Company’s third-party distributors. The
Company’s revenue was generated in the following geographic regions and by product line for the periods
indicated (in thousands):
U.S.
International
Total revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total U.S. revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total International revenues
United States
International
Total revenues
Revenues by Geography
Year ended December 31,
2023
2022
Amount
% of
Revenues
Amount
% of
Revenues
$ 69,336
(in thousands, except percentages)
97 % $ 63,406
2,012
$ 71,348
3 %
1,800
100 % $ 65,206
97 %
3 %
100 %
U.S. Revenues by Product Category
Year ended December 31,
2023
2022
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 16,460
50,896
1,980
$ 69,336
24 % $ 16,575
73 % 45,077
1,754
100 % $ 63,406
3 %
26 %
71 %
3 %
100 %
International Revenues by Product Category
Year ended December 31,
2023
2022
Amount
% of
Revenues
Amount
% of
Revenues
$
629
754
629
$ 2,012
(in thousands, except percentages)
31 % $
38 %
31 %
811
354
635
100 % $ 1,800
45 %
20 %
35 %
100 %
Revenues by Geography
Year ended December 31,
2022
2021
Amount
% of
Revenues
Amount
% of
Revenues
(in thousands, except percentages)
$ 63,406
1,800
$ 65,206
97 % $ 53,447
1,865
100 % $ 55,312
3 %
97 %
3 %
100 %
F-15
Table of Contents
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total U.S. revenues
NeuroStar Advanced Therapy System
Treatment sessions
Other
Total International revenues
Research and Development Expenses
U.S. Revenues by Product Category
Year ended December 31,
2022
% of
2021
% of
Amount
Revenues
Amount
Revenues
(in thousands, except percentages)
$ 16,575
45,077
1,754
$ 63,406
26 % $ 9,760
71 % 41,933
1,754
100 % $ 53,447
3 %
18 %
78 %
4 %
100 %
International Revenues by Product Category
Year ended December 31,
2022
% of
Amount
Revenues Amount
2021
% of
Revenues
$
811
354
635
$ 1,800
(in thousands, except percentages)
45 % $ 1,108
20 %
35 %
264
493
100 % $ 1,865
59 %
14 %
27 %
100 %
Research and development activities are expensed as incurred. Costs incurred in obtaining technology licenses
are charged immediately to research and development expense if the technology licensed has not reached
technological feasibility and has no alternative future uses.
Share-based Compensation
The Company recognizes the grant-date fair value of share-based awards issued as compensation as expense
on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The
fair value of restricted stock units is estimated at the time of grant, based on the grant date fair value of the
Company’s common stock. The fair value of performance restricted stock units (“PRSUs”) is estimated at the
time of grant and is determined using a risk neutral Monte Carlo simulation valuation model, which requires the
use of inputs and assumptions such as the fair value of the underlying common stock, risk free interest rate,
and expected volatility. The PRSUs generally vest based on appreciation of the Company’s common stock to a
certain price as determined by the Company’s board of directors measured using a trailing 30-day “volume-
weighted” average price of a share of the Company’s common stock. The fair value of stock options is
estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs
and assumptions such as the fair value of the underlying common stock, exercise price of the option, expected
term, risk-free interest rate, expected volatility and dividend yield.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that
includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
F-16
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Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not
been recognized in the financial statements. The Company recognizes the benefit of an income tax position
only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination,
based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits
recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement. The Company accrues interest and related penalties are classified as income tax
expense in the Statements of Operations. The Company does not anticipate significant changes in the amount
of unrecognized income tax benefits over the next year.
4. RECENT ACCOUNTING PRONOUNCEMENTS
New Accounting Standards Not Yet Adopted by the Company
In November 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-07, Improvements to
Reportable Segment Disclosures (“ASU 2023-07”), which requires public companies to disclose for each
reportable segment the significant expense categories and amounts for such expenses. ASU 2023-07 is
effective for annual periods beginning December 15, 2023, and for interim periods within fiscal years beginning
after December 15, 2024. This ASU will be effective for our annual period ended December 31, 2024. The
Company is currently evaluating the guidance to determine the impact on its disclosures.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”),
which requires public business entities to disclose specific categories in the rate reconciliation and provide
additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 is effective for
annual periods beginning after December 15, 2023. This ASU will be effective for our annual period ended
December 31, 2024. The Company is currently evaluating the impacts of ASU 2023-09 on its disclosures.
Other than the items noted above, there have been no new accounting pronouncements not yet effective or
adopted in the current year that we believe have a material impact, or potential material impact, to our financial
statements.
5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable, prepaid and other current assets, and accounts
payable on the Company’s Balance Sheets approximated their fair values as of December 31, 2023 and 2022
due to their short-term nature. The carrying values of the Company’s current credit facility approximated its fair
value as of December 31, 2023 and 2022 due to its variable interest rate. The carrying value of the Company’s
notes receivable approximated its fair value as of December 31, 2023 and 2022 due to its variable interest rate.
Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that
prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and
minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
Level 1:
Inputs are quoted prices for identical instruments in active markets.
Level 2: Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; or model-derived valuations whose inputs are observable
or whose significant value drivers are observable.
Level 3:
Inputs are unobservable and reflect the Company’s own assumptions, based on the best information
available, including the Company’s own data.
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The following tables set forth the carrying amounts and fair values of the Company’s financial instruments as
December 31, 2023 and 2022 (in thousands):
December 31, 2023
Carrying
Amount
Fair Value
Fair Value Measurement Based on
Significant
other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Quoted
Prices In
Active
Markets
(Level 1)
Assets
Money market funds (cash equivalents)
$ 27,507
$ 27,507
$ 27,507
$
— $
—
December 31, 2022
Carrying
Amount
Fair Value
Fair Value Measurement Based on
Significant
other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Quoted
Prices In
Active
Markets
(Level 1)
Assets
Money market funds (cash equivalents)
6. ACCOUNTS RECEIVABLE
$ 68,002
$ 68,002
$ 68,002
$
— $
—
The following table presents the composition of accounts receivable, net as of December 31, 2023 and 2022 (in
thousands):
Gross accounts receivable - trade
Less: Allowances for credit losses
Accounts receivable, net
December 31,
2023
16,577
(795)
15,782
$
$
2022
15,239
(1,648)
13,591
$
$
The following table presents a rollforward of the allowance for credit losses (in thousands):
Year ended December 31, 2021
Year ended December 31, 2022
Year ended December 31, 2023
Balance at
Beginning of
Period
Bad Debt
Expense
Write-offs of
Uncollectible
Recognized Balances
$
$
$
(1,012)
(1,462)
(1,648)
(763)
(341)
(390)
313
155
1,243
Balance at
End of
Period
$ (1,462)
$ (1,648)
(795)
$
F-18
Table of Contents
7. PROPERTY AND EQUIPMENT AND CAPITALIZED SOFTWARE
The following table presents the composition of property and equipment, net as of December 31, 2023 and
2022 (in thousands):
Laboratory equipment
Office equipment
Auto
Computer equipment and software
Manufacturing equipment
Leasehold improvements
Rental equipment
Property and equipment, gross
Less: Accumulated depreciation
Property and equipment, net
December 31,
2023
2022
$
$
702
495
23
1,082
551
1,436
542
4,831
(2,822)
2,009
$
$
462
508
—
1,758
343
1,435
542
5,048
(3,057)
1,991
As of December 31, 2023 and 2022, the Company had capitalized software costs, net of $4.2 million and $3.6
million, respectively, which are included in other assets on the Balance Sheets. During the year ended
December 31, 2023, the Company disposed of $0.9 million of fully depreciated property and equipment.
Depreciation and amortization expense was $2.0 million, $1.6 million, and $1.1 million for the years ended
December 31, 2023, 2022 and 2021, respectively.
8. NOTES RECEIVABLE
Greenbrook TMS Inc.
On March 31, 2023, the Company entered into a Secured Promissory Note and Guaranty Agreement (the
“Promissory Note”) with TMS Neurohealth Centers Inc. (the “Maker”) and Greenbrook TMS Inc. and its
subsidiaries, excluding the Maker (the “Guarantors”), in the principal amount of $6.0 million for a period of four
years.
The Promissory Note will bear interest at a rate equal to the sum of (a) the floating interest rate of daily secured
overnight financing rate as administered by the Federal Reserve Bank of New York on its website (“SOFR”) plus
(b) 7.65%.
Pursuant to the terms of the Promissory Note, in the event of an event of default thereunder, the Maker will be
required to issue common share purchase warrants to the Company equal to (i) 200% of the unpaid amount of
any delinquent amount or payment due and payable under the Promissory Note, together with all outstanding
and unpaid accrued interest, fees, charges and costs, divided by (ii) the exercise price of the warrants, which
will represent a 20% discount to the 30-day volume-weighted average closing price of Greenbrook TMS Inc.’s
common shares traded on the Nasdaq Stock Market (“Nasdaq”) prior to the date of issuance (subject to any
limitations that may be required by Nasdaq).
Under the Promissory Note and related loan documents, the Maker and the Guarantors have granted to the
Company a security interest in substantially all of the Maker’s and the Guarantors’ assets and the Guarantors
have guaranteed the Maker’s obligations under the Promissory Note. The Company’s security interest pursuant
to the Promissory Note and related loan documents ranks pari passu with the Maker’s senior lender, Madryn
Fund Administration, LLC, and is subject to an intercreditor agreement.
F-19
Table of Contents
Success TMS
On September 29, 2021, the Company entered into an exclusive, five-year master sales agreement with Check
Five, LLC d/b/a Success TMS (“Success TMS”). In connection with the Commercial Agreement, the Company
agreed to loan Success TMS the principal amount of $10.0 million for a period of five years pursuant to a
secured promissory note (the “Note”).
On July 14, 2022, Success TMS repaid in full the Note with a cash payment of $10.5 million, which included all
outstanding principal, prepayment premium and accrued but unpaid interest. The repayment extinguished the
Note in its entirety and terminated the Subordination Agreement entered into by the Company.
Interest income recognized by the Company related to notes receivable was $0.6 million, $1.0 million and $0.2
million for the years ended December 31, 2023, 2022 and 2021, respectively, and is included within other
income, net on the Statements of Operations.
9. LEASES
Lessee:
The Company has operating leases for its corporate headquarters, a training facility and office equipment,
including copiers. The Company leases an approximately 32,000 square foot facility in Malvern, Pennsylvania
for its corporate headquarters, which includes office and warehouse space. In the first quarter of 2019, the
Company signed a lease modification for its Malvern facility that extended the lease through February 2028 and
included approximately 10,000 square foot of additional premises. The Company has an option to extend the
lease on its combined 42,000 square foot facility for an additional five-year term; however, the Company has
determined it is not reasonably certain to exercise the option at this time after assessing contract, asset, entity
and market conditions present upon lease commencement.
The Company leases an approximately 9,600 square foot facility in Charlotte, North Carolina as a training
facility for its NeuroStar Advanced Therapy Systems. The lease ends in September 2027. The Company has an
option to extend the lease on its training facility for an additional one-year term; however, the Company has
determined it is not reasonably certain to exercise the option at this time after assessing contract, asset, entity
and market conditions present upon lease commencement.
Operating lease rent expense was $0.8 million, $0.8 million, and $0.7 million for the years ended December 31,
2023, 2022 and 2021, respectively. As of December 31, 2023, the weighted-average remaining lease term of
operating leases was 4.1 years and the weighted-average discount rate was 7.2%.
The following table presents the supplemental cash flow information as a lessee related to leases for the years
ended December 31, 2023 and 2022 (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
Year ended
Year ended
December 31, 2023 December 31, 2022
$
$
1,077
$
— $
892
—
F-20
Table of Contents
The following table sets forth by year the required future payments of operating lease liabilities as of
December 31, 2023 (in thousands):
2024
2025
2026
2027
2028
Total lease payments
Less imputed interest
Present value of operating lease liabilities
Lessor sales-type leases:
Year ended
December 31, 2023
876
898
921
882
116
3,693
(503)
3,190
$
$
Certain costumers have purchased NeuroStar Advanced Therapy Systems on a rent-to-own basis. The lease
term is three or four years with a customer option to purchase the NeuroStar Advanced Therapy System at the
end of the lease or automatic transfer of ownership of the NeuroStar Advanced Therapy System at the end of
the lease.
The following table sets forth the profit recognized on sales-type leases (in thousands):
Year ended December 31,
2022
2023
Profit recognized at commencement, net
Interest income
Total sales-type lease income
$
$
129
$
—
$
129
478
—
478
The following table sets forth a maturity analysis of the undiscounted lease receivables related to sales-type
leases as of December 31, 2023 (in thousands):
2024
2025
2026
2027
Total sales-type lease receivables
December 31,
2023
915
442
118
91
1,566
$
$
As of December 31, 2023 and 2022, the carrying amount of the lease receivables is $1.6 million and $2.8
million, respectively. The Company does not have any unguaranteed residual assets.
Lessor operating leases:
NeuroStar Advanced Therapy Systems sold on a rent-to-own basis prior to January 1, 2019 are accounted for
as operating leases. NeuroStar Advanced Therapy Systems sold subsequent to January 1, 2019 for which
collection is not probable are also accounted for as operating leases. For the years ended December 31, 2023,
2022 and 2021, the Company recognized operating lease income of $0.2 million, $0.2 million and $0.3 million,
respectively.
The Company maintained rental equipment, net of $0.3 million and $0.5 million, as of December 31, 2023 and
2022, respectively, which are included in Property and equipment, net on the Balance Sheets. Rental
F-21
Table of Contents
equipment depreciation expense was $0.09 million, $0.10 million and $0.05 million for the years ended
December 31, 2023, 2022 and 2021, respectively.
10. PREPAID COMMISSION EXPENSE
The Company pays a commission on both NeuroStar Advanced Therapy System sales and Treatment Session
sales. Since the commission paid for NeuroStar Advanced Therapy System sales is not commensurate with the
commission paid for Treatment Sessions, the Company capitalizes commission expense associated with
NeuroStar Advanced Therapy System commissions paid that is incremental to specifically anticipated future
Treatment Session orders. In developing this estimate, the Company considered its historical Treatment
Session sales and customer retention rates, as well as technology development life cycles and other industry
factors. These costs are periodically reviewed for impairment.
NeuroStar Advanced Therapy System commissions are deferred and amortized on a straight-line basis over a
seven year period equal to the average customer term, which the Company deems to be the expected period of
benefit for these costs.
On the Company’s Balance Sheets, the current portion of capitalized contract costs is represented by the
current portion of prepaid commission expense, while the long-term portion is included in prepaid commission
expense. Amortization expense was $2.3 million and $1.8 million for the years ended December 31, 2023 and
December 31, 2022, respectively, and presented within sales and marketing in the Statements of Operations.
11. ACCRUED EXPENSES
The following table presents the composition of accrued expenses as of December 31, 2023 and 2022 (in
thousands):
Compensation and related benefits
Consulting and professional fees
Research and development expenses
Sales and marketing expenses
Warranty
Sales and other taxes payable
Other
Accrued expenses
12. DEBT
December 31, December 31,
2023
2022
$
$
8,003
488
260
1,760
213
818
1,053
12,595
$
$
11,201
761
678
410
328
659
800
14,837
The following table presents the composition of debt as of December 31, 2023 and 2022 (in thousands):
Outstanding principal
Accrued final payment fees
Less debt discounts
Total debt, net
Less current portion
Long-term debt, net
$
December 31,
2023
60,000
1,856
(2,573)
59,283
—
$
59,283
$
December 31,
2022
35,000
1,925
(971)
35,954
(13,125)
22,829
$
F-22
Table of Contents
For the year ended December 31, 2023, the Company recognized interest expense of $5.4 million, of which
$4.8 million was cash and $0.6 million was non-cash interest expense related to the amortization of deferred
debt issuance costs and accrual of final payment fees.
For the year ended December 31, 2022, the Company recognized interest expense of $4.3 million, of which
$3.6 million was cash and $0.7 million was non-cash interest expense related to the amortization of deferred
debt issuance costs and accrual of final payment fees.
For the year ended December 31, 2021, the Company recognized interest expense of $4.0 million, of which
$3.3 million was cash and $0.7 million was non-cash interest expense related to the amortization of deferred
debt issuance costs and accrual of final payment fees.
Solar Credit Facility
Solar Facility Fourth and Fifth Amendments
On September 29, 2023, the Company entered into the Solar Fifth Amendment. The Solar Fifth Amendment
allowed the Company to draw on the $22.5 million Term C Loan portion of the Solar Facility and revise the
required testing levels of the net product revenue and minimum liquidity covenants for certain testing periods.
On October 3, 2023, the Company borrowed an aggregate amount of $22.5 million under the Term C Loan
portion of the Solar Facility.
On March 29, 2023, the Company entered into a fourth amendment (the “Solar Fourth Amendment”) to Solar
Facility.
The Solar Fourth Amendment increased the borrowings by $2.5 million, extended the interest only period from
March 2023 to March 2026 and extended the maturity date from February 2025 to March 2028. In addition the
amendment changed the basis of the interest expense from LIBOR to SOFR.
The Solar Facility is $60.0 million and consists of three tranches of term loans, a “Term A Loan” in an aggregate
amount of $35.0 million, a “Term B Loan” in an aggregate amount of $2.5 million, and a “Term C Facility”
(collectively with the Term A Loan and Term B Loan, the “Loans”) in an aggregate principal amount equal to
$22.5 million. The Term A Loan was fully drawn prior to the effectiveness of the Solar Fourth Amendment. On
March 29, 2023, the Company borrowed an amount of $2.5 million under the Term B Loan.
On October 3, 2023, the Company borrowed an amount of $22.5 million under the Term C Facility (the “Term C
Funding Date”). The maturity date of the Loans is March 29, 2028. Prior to the effectiveness of the Solar Fourth
Amendment, the maturity date of the Term A Loan was February 28, 2025.
The Loans accrue interest from the date of borrowing through the date of repayment at a floating per annum
rate of interest, which resets monthly and is equal to the greater of 5.65% plus (a) 3.95% or (b) daily simple
SOFR for a term of one month. Only interest is required to be paid on the Loans until March 1, 2026. Prior to
the effectiveness of the Solar Fourth Amendment, the interest only period with respect to the Term A Loan
expired on March 1, 2023. Commencing April 1, 2026, the Company will be required to make monthly payments
of principal and interest on the Loans.
In addition to the principal and interest payments due under the Solar Facility, the Company is required to pay a
final payment fee to Solar upon the earlier of prepayment, acceleration or the maturity date of the Loans equal
to 4.95% of the principal amount of the term loans actually funded. If the Company prepays the Loans prior to
their respective scheduled maturities, the Company will also be required to pay prepayment fees to Solar equal
to 3% of the principal amount of such term loan then-prepaid if prepaid on or before the first anniversary of the
Term C Funding Date, 2% of the principal amount of such term loan then-prepaid if prepaid
F-23
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after the first anniversary and on or before the second anniversary of the Term C Funding Date, or 1% of the
principal amount of such term loan then-prepaid if prepaid after the second anniversary of the Term C Funding
Date.
The Company is also required to pay Solar an exit fee upon the occurrence of (a) any liquidation, dissolution or
winding up of the Company, (b) any transaction that results in a person obtaining control over the Company, (c)
the Company achieving $100 million in trailing twelve-month net product revenue or (d) the Company achieving
$125 million in trailing twelve-month net product revenue. The exit fee for liquidation, dissolution, winding up or
change of control of the Company is equal to 2% of the principal amount of the term loans actually funded. The
exit fee for achieving either $100 million or $125 million in trailing twelve-month net product revenue is equal to
1% of the principal amount of the term loans actually funded or, if both net product revenue milestones are
achieved, 2% of the principal amount of the term loans actually funded. The exit fee is capped at 2% of the
principal amount of the term loans actually funded.
On December 31, 2023, January 31, 2024 and February 29, 2024, the Company was not in compliance with its
minimum net product revenue covenant under the Solar Facility. Subsequently, the Company was granted a
waiver from Solar for the covenant violations that occurred. The amount of borrowings affected by this non
compliance was $60 million, see “Note 22. Subsequent Event” for further discussion on the waiver.
The following table sets forth by year our required future principal payments under the term loan portion of the
Solar Facility:
Year:
2024
2025
2026
2027
2028
Total principal payments
13. STOCKHOLDERS’ EQUITY
Common Stock Offering
Principal
Payments
—
—
22,500
30,000
7,500
60,000
$
$
On February 2, 2021, the Company closed on their secondary public offering and sale (the “Offering”) of their
common stock in which the Company issued and sold 5,566,000 shares of our common stock, which included
shares pursuant to an option granted to underwriters to purchase additional shares, at a public offering price of
$15.50 per share. The Company received net proceeds of $80.6 million after deducting underwriting discounts,
commissions and offering expenses.
Common Stock
The Company’s amended and restated certificate of incorporation as of December 31, 2020 authorized the
issuance of 200.0 million shares of common stock, $0.01 par value per share, of which 29.1 million were issued
and outstanding as of December 31, 2023.
F-24
Table of Contents
The following table summarizes the total number of shares of the Company’s common stock issued and
reserved for issuance as of December 31, 2023 and 2022 (in thousands):
Shares of common stock issued
Shares of common stock reserved for issuance for:
Common stock warrants outstanding
Stock options outstanding
Restricted stock units outstanding
Shares available for grant under stock incentive plans
Shares available for sale under employee stock purchase plan
Total shares of common stock issued and reserved for issuance
December 31, 2023 December 31, 2022
27,268
29,092
41
1,270
3,360
978
1,335
36,076
61
1,301
3,901
1,140
1,063
34,734
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s
stockholders. Holders of common stock are entitled to receive any dividends that the Company’s board of
directors may declare out of funds legally available for that purpose on a non-cumulative basis. The Company
has never paid, and for the foreseeable future does not expect to pay, a dividend on its common stock.
Common Stock Warrants
The following table summarizes the Company’s outstanding common stock warrants as of December 31, 2023
and 2022 (in thousands):
December 31, 2023
Warrants
Outstanding
(in thousands)
December 31, 2022
Warrants
Outstanding
(in thousands)
Exercise Price
9.73
9.73
Expiration Date
Mar-2024
Dec-2024
Exercise Price
9.73
9.73
9.73
Expiration Date
Aug-2023
Mar-2024
Dec-2024
$
$
$
$
$
20
21
41
20
20
21
61
14. LOSS PER SHARE
The Company’s basic loss per common share is computed by dividing the net loss by the weighted-average
number of shares of common stock outstanding during the period. The Company’s restricted stock awards
(non-vested shares) are issued and outstanding at the time of grant but are excluded from the Company’s
computation of weighted-average shares outstanding in the determination of basic loss per share until vesting
occurs.
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Table of Contents
A net loss cannot be diluted, so when the Company is in a net loss position, basic and diluted loss per common
share are the same. If in the future the Company achieves profitability, the denominator of a diluted earnings
per common share calculation will include both the weighted-average number of shares outstanding and the
number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive.
Dilutive common stock equivalents potentially include warrants, stock options, non-vested restricted stock
awards and non-vested performance restricted stock units using the treasury stock method, along with the
effect, if any, from the potential conversion of outstanding securities, such as convertible preferred stock.
The following potentially dilutive securities outstanding as of December 31, 2023, 2022 and 2021 have been
excluded from the denominator of the diluted loss per share of common stock outstanding calculation (in
thousands):
Stock options
Non-vested PRSUs
Non-vested restricted stock units
Common stock warrants
15. SHARE-BASED COMPENSATION
2023
1,270
395
2,965
41
December 31,
2022
1,301
395
3,506
61
2021
1,499
395
1,729
75
The amount of share-based compensation expense recognized by the Company by location in its Statements of
Operations for the years ended December 31, 2023, 2022 and 2021 is as follows (in thousands):
Cost of revenues
Sales and marketing
General and administrative
Research and development
Total
2018 Equity Incentive Plan
Years ended December 31,
2022
2021
2023
$
$
140
2,330
4,172
677
7,319
$
$
130
4,286
3,868
462
8,746
$
$
79
2,096
5,496
198
7,869
In June 2018, the Company adopted the 2018 Plan, which authorized the issuance of up to 1.4 million shares,
subject to an annual 4% increase based on the number of shares of common stock outstanding, in the form of
restricted stock, stock appreciation rights and stock options to the Company’s directors, employees and
consultants. The amount and terms of grants are determined by the Company’s board of directors. All stock
options granted to date have had exercise prices equal to the fair value, as determined by the closing price as
reported by the Nasdaq Global Market, of the underlying common stock on the date of grant. The contractual
term of stock options is up to 10 years, and stock options are exercisable in cash or as otherwise determined by
the board of directors. Generally, stock options vest 25% upon the first anniversary of the date of grant and the
remainder ratably monthly thereafter for 36 months. Restricted stock units generally vest ratably in three equal
installments on the first, second and third anniversaries of the grant date. PRSUs generally vest based on
appreciation of the Company’s common stock to a certain price as determined by the Company’s board of
directors measured using a trailing 30-day volume weighted average price of a share of the Company’s
common stock. The fair value of the PRSU awards are determined using a risk neutral Monte Carlo simulation
valuation model. As of December 31, 2023, there were 0.7 million shares available for future issuance under the
2018 Plan.
2020 Inducement Incentive Plan
In December 2020, the Company adopted the 2020 Inducement Incentive Plan, which authorized the issuance
of up to 0.4 million shares in the form of stock options, stock appreciation rights, restricted stock
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awards, restricted stock unit awards, performance stock awards and other stock awards to eligible employees
who satisfy the standards for inducement grants under Nasdaq global market rules. In March 2022, the
Company’s board of directors approved an additional 0.5 million shares for issuance under the plan. An
individual who previously served as an employee or director of the Company is not eligible to receive awards
under this plan. The amount and terms of grants are determined by the Company’s board of directors. As of
December 31, 2023, there were 0.3 million shares available for future issuance under the 2020 Inducement
Incentive Plan.
Stock Options
The following table summarizes the Company’s stock option activity for the years ended December 31, 2023,
2022 and 2021:
Outstanding at December 31, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
Granted
Exercised
Forfeited
Outstanding at December 31, 2022
Granted
Exercised
Forfeited
Outstanding at December 31, 2023
Exercisable at December 31, 2023
Vested and expected to vest at December 31, 2023
Number of
Shares under
Option
(in thousands)
2,365
Weighted-
Aggregate
Weighted-
average
Exercise Price
per Option
average
Remaining
Contractual
Life (in years)
average
Intrinsic
Value
(in thousands)
1,499
$
— $
(698) $
(168) $
$
— $
(168) $
(30) $
$
— $
(1) $
(30) $
$
$
$
1,270
1,123
1,270
1,301
4.62
—
4.01
14.32
4.01
—
1.77
13.81
4.07
—
1.63
11.67
3.90
4.15
3.90
6.0 $
6.0 $
6.0 $
862
728
862
The Company recognized share-based compensation expense related to stock options of $0.4 million, $0.7
million and $0.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of
December 31, 2023, there was $0.1 million of total unrecognized compensation cost related to non-vested stock
options which the Company expects to recognize over a weighted-average period of 0.5 years. The total
intrinsic value of stock options exercised during the years ended December 31, 2023, 2022 and 2021 was $0.0
million, $0.2 million, and $8.2 million, respectively.
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Table of Contents
Restricted Stock Units
The following table summarizes the Company’s restricted stock unit and performance restricted stock unit
activity for the years ended December 31, 2023, 2022 and 2021:
Non-vested Weighted-
Non-vested Weighted-
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Granted
Vested
Forfeited
Non-vested at December 31, 2022
Granted
Vested
Forfeited
Non-vested at December 31, 2023
Restricted
Stock Units
(in thousands)
1,860
1,008
1,729
2,902
$
$
(780) $
(359) $
$
$
(705) $
(420) $
$
3,506
1,674
$
(1,823) $
(392) $
$
2,965
average
Grant-date
Fair Value
3.58
11.51
3.63
7.86
7.29
3.36
7.32
5.35
4.29
4.68
4.32
5.50
4.37
PRSUs
395
(in thousands)
$
500
145
$
(250) $
— $
$
— $
— $
— $
$
— $
— $
— $
$
395
395
average
Grant-date
Fair Value
1.71
15.59
1.77
—
6.77
—
—
—
6.77
—
—
—
6.77
The Company recognized share-based compensation expense related to restricted stock units and
performance restricted stock units of $6.9 million, $8.1 million, and $7.1 million during the years ended
December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, there was $7.7 million of
unrecognized compensation cost related to non-vested restricted stock units and performance restricted stock
units that the Company expects to recognize over a weighted-average period of 1.7 years. The total fair value at
the vesting date of restricted stock units and performance restricted stock units vested during the years ended
December 31, 2023, 2022 and 2021 was $8.6 million, $2.5 million, and $14.1 million, respectively.
The Company did not grant performance restricted stock units during the years ended December 31, 2023
and 2022. For the year ended December 31, 2021, the grant-date fair value of the performance restricted
stock units was estimated at the time of grant using the following inputs and assumptions in the Monte Carlo
simulation valuation model:
Closing price of common stock
Risk-free interest rate
Expected volatility
16. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
2021
$
15.92
1.15 %
99.7 %
The Company maintains a 401(k) defined contribution retirement plan which covers all of its employees.
Employees are eligible to participate on the first of the month following their date of hire. Under the 401(k) plan,
participating employees may defer up to 100% of their pre-tax salary but not more than statutory limits. As of
December 31, 2023, the Company contributes 3% of employee salary to the participant’s defined contribution
plan, which vests immediately. Employee contributions also vest immediately.
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2018 Employee Stock Purchase Plan
In July 2018, the Company adopted the 2018 Employee Stock Purchase Plan ("2018 ESPP") with an initial 0.2
million share reserve, subject to automatic annual increases on January 1st of each year for a period of up to
ten years, as defined in the plan document. The purpose of the 2018 ESPP is to enhance employee interest in
the success and progress of the Company by encouraging employee ownership of common stock of the
Company. The 2018 ESPP provides the opportunity to purchase the Company’s common stock at a 15%
discount to the market price through payroll deductions or lump sum cash investments. As of December 31,
2023, the Company had not yet approved any offering under the plan and 1.3 million shares were reserved for
issuance.
17. INCOME TAXES
The Company’s loss before income taxes was $30.2 million, $37.2 million, $31.2 million for the years ended
December 31, 2023, 2022, and 2021, respectively, and was generated entirely in the United States. The
Company did not record current or deferred income tax expense or benefit during the years ended December
31, 2023, 2022, and 2021.
A reconciliation of the statutory United States federal income tax rate to the Company’s effective tax rate is as
follows:
Tax Year ended December 31,
2022
2021
2023
U.S. federal statutory income tax rate
State and local taxes, net of federal benefit
Nondeductible expenses
Research and development credits
Tax rate change and true-up
Net operating loss
Change in valuation allowance
Effective income tax rate
21.0 %
4.2 %
0.5 %
(0.3)%
0.8 %
(0.6)%
(25.6)%
— %
21.0 %
(0.9)%
(2.3)%
— %
(1.5)%
—
(16.3)%
— %
21.0 %
5.5 %
10.6 %
— %
0.8 %
—
(37.9)%
— %
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The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as
follows (in thousands):
December 31,
2023
2022
Deferred tax assets:
Net operating loss carryforwards
Research and development credits
Share-based compensation
Accruals
Interest expense
Lease liability
Capitalized start-up costs
Capitalized R&D costs
Other temporary differences
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Capitalized software
Right-of-use asset
Prepaid commission
Gross deferred tax liabilities
Net deferred taxes
$ 82,179
2,923
2,538
1,161
4,451
782
3,790
1,032
98,856
(94,473)
4,383
$
$ 76,013
3,008
2,273
1,379
3,807
929
215
2,165
1,000
90,789
(86,733)
4,056
$
—
$
$ (1,038)
(679)
(2,666)
(4,383)
$
— $
(894)
(816)
(2,346)
(4,056)
—
In assessing the realizability of the net deferred tax asset, the Company considers all relevant positive and
negative evidence in determining whether it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several
factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss
carryforwards. The Company believes that it is more likely than not that the Company’s deferred income tax
asset associated with its net operating losses will not be realized in the immediate future. As such, there is a full
valuation allowance against the net deferred tax assets as of December 31, 2023 and 2022. The valuation
allowance increased by $7.7 million and $6.1 million during the years ended December 31, 2023 and 2022,
respectively, due primarily to the generation of net operating losses and the federal tax rate reduction during the
periods. The changes in the valuation allowance were as follows (in thousands):
Balance at the beginning of the year
Amounts charged to expense
Balance at the end of the year
Year ended December 31,
2023
86,733
7,739
94,472
$
$
2022
80,663
6,070
86,733
$
$
The following table summarizes carryforwards of federal net operating losses and tax credits as of
December 31, 2023 (in thousands):
Federal net operating losses
State net operating losses
Research and development credits
Expiration
Amount
$ 338,027
$ 217,071
2,923
$
Beginning in
2024
2024
2024
Under the Tax Reform Act of 1986 (the “Act”), the net operating loss and tax credit carryforwards are subject to
review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating
F-30
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loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative
changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent,
as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state
provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable
income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company
immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in
future years. The Company has not done an analysis to determine whether or not ownership changes, as
defined by the Act, have occurred since inception.
The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As
of December 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions and
no amounts have been recognized in the Company’s Statements of Operations. Due to net operating loss and
tax credit carry forwards that remain unutilized, income tax returns for tax years from inception through 2022
remain subject to examination by the taxing jurisdictions.
18. COMMITMENTS AND CONTINGENCIES
Executive Employment Agreements
The Company has entered into an employment agreement and offer letters with certain key executives,
providing for compensation and severance in certain circumstances, as defined in the agreements.
On November 2, 2023, the Company’s board of directors directed the Company to: (A) amend its employment
agreement with Keith J. Sullivan, the Company’s President and Chief Executive Officer, to: (i) extend, from 18
months to 24 months, the duration of Mr. Sullivan’s severance benefits if the Company terminates Mr. Sullivan’s
employment without cause, or if Mr. Sullivan resigns for good reason, within 12 months of a change in control;
and (ii) reflect Mr. Sullivan’s current annual base salary, as approved by the Company’s board of directors via
unanimous written consent on February 8, 2023, in lieu of the outdated annual base salary as reflected in such
employment agreement prior to such amendment; and (B) take any other actions necessary to effectuate such
amendments, which may include an amendment to any ancillary agreements by and between Mr. Sullivan and
the Company regarding any such severance benefits.
Legal Matters
The Company is subject from time to time to various claims and legal actions arising during the ordinary course
of its business. Management believes that there are currently no claims or legal actions that would reasonably
be expected to have a material adverse effect on the Company’s results of operations, financial condition or
cash flows.
19. DISTRIBUTION AGREEMENT WITH TEIJIN PHARMA LIMITED
In October 2017, the Company entered into a distribution agreement with Teijin for the exclusive distribution of
its NeuroStar Advanced Therapy System to customers who will treat patients with MDD in Japan. Under the
distribution agreement, Teijin is generally restricted from selling competing products in Japan. The distribution
agreement provides that the Company will have primary responsibility for obtaining reimbursement approval for
use of NeuroStar Advanced Therapy System for the treatment of MDD in Japan, and Teijin will promote the
sales of NeuroStar Advanced Therapy System for treatment of MDD in Japan. The Company has agreed to
provide sales and technical support training to Teijin for its NeuroStar Advanced Therapy Systems. Teijin is
required to purchase minimum dollar values of NeuroStar Advanced Therapy Systems and treatment sessions
from the Company.
In 2017, under the distribution agreement with Teijin, the Company received an upfront payment of $0.75 million
and a milestone payment of $2.0 million following the Japanese Ministry of Health, Labour and Welfare’s, or
JMHLW, approval of marketing the NeuroStar Advanced Therapy System for the treatment of
F-31
Table of Contents
MDD in Japan. In the second quarter of 2019, under the distribution agreement with Teijin, the Company earned
a second milestone payment of $0.7 million, following Japan’s Central Social Insurance Medical Council
(Chuikyo) approval of the recommendation by JMHLW’s expert review panel to provide reimbursement for
NeuroStar Advanced Therapy for the treatment of MDD in adults. The reimbursement went into effect on
June 1, 2019 and covers patients who are treated in the largest inpatient and outpatient psychiatric facilities in
Japan at the rate of JPY12,000 per treatment session. These upfront and subsequent milestone payments have
been deferred and are being recognized as revenue over term of the agreement.
In May 2019, the Company and Teijin entered into an amendment to the distribution agreement, which among
other things finalized transfer prices, forecasting and minimum purchases, and made certain clarifications to the
agreement.
The distribution agreement is scheduled to expire on March 31, 2027, subject to earlier termination if the
Company or Teijin breach the agreement, Teijin fails to maintain distributor-level permits and approvals, Teijin
fails to purchase from the Company specified dollar values of its sales forecasts, reimbursement for treatment
of MDD using the NeuroStar Advanced Therapy System is not obtained from JMHLW by specified dates or such
reimbursement is below specified minimums, Teijin reasonably believes that it is not commercially reasonable to
continue distributing the NeuroStar Advanced Therapy System in Japan or bankruptcy related events occur.
The term of the distribution agreement will be automatically extended for two years unless either party gives the
other party at least two years’ prior written of notice of non-renewal, except that the Company cannot decline to
renew the agreement if Teijin has purchased 100% of its sales forecasts over the term of the agreement.
20. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise about which separate discrete information is
available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company currently operates in one business segment
as it is managed and operated as one business. A single management team that reports to the chief operating
decision maker comprehensively manages the entire business. The Company does not operate any material
separate lines of business or separate business entities with respect to its products or product development.
21. GOVERNMENT ASSISTANCE
Employee Retention Credit
The Coronavirus Aid, Relief and Economic Security Act provided an Employee Retention Credit (the “ERC”),
which was a refundable tax credit related to certain payroll taxes. The Company applied the grant model and
determined that the criteria for recognition of the ERC was met during the year ended December 31, 2023
based on the Company’s determination of eligibility and filing of the ERC claim. As of December 31, 2023, the
$2.9 million ERC receivable is reported within prepaid expenses and other current assets on the Company’s
Balance Sheet. The credit is reported within other income, net in the Company’s Statement of Operation for the
year ended December 31, 2023.
22. SUBSEQUENT EVENTS
As disclosed in “Note 12. Debt”, the Company was not in compliance with its minimum net product revenue
covenant for certain periods, including January 31, 2024 and February 29, 2024 under the Solar Facility. On
March 7, 2024, the Company entered into the Solar Sixth Amendment.
F-32
Table of Contents
Under the Solar Sixth Amendment, Solar (i) waived the specified events with respect to the Company’s non-
compliance with the required revenue under the net product revenue covenant and (ii) revised the required
testing levels of the net product revenue and minimum liquidity covenants for certain future testing periods.
F-33
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
NEURONETICS, INC.
By:
/s/ Keith J. Sullivan
Keith J. Sullivan
President, Chief Executive Officer and Director
Date:March 7, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
/s/ Keith J. Sullivan
Keith J. Sullivan
/s/ Stephen Furlong
Stephen Furlong
/s/ Robert Cascella
Robert Cascella
/s/ John Bakewell
John Bakewell
/s/ Sheryl Conley
Sheryl Conley
/s/ Megan Rosengarten
Megan Rosengarten
/s/ Wilfred Jaeger, M.D.
Wilfred Jaeger, M.D.
/s/ Glenn Muir
Glenn Muir
/s/ Joseph H. Capper
Joseph H. Capper
President, Chief Executive Officer and Director
(Principal Executive Officer)
Executive VP, Chief Financial Officer and
Treasurer
(Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
F-34
Date
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
March 7, 2024
Exhibit 10.9
CERTAIN INFORMATION IDENTIFIED WITH THE MARK “[***]” HAS BEEN EXCLUDED
FROM THIS EXHIBIT BECAUSE SUCH INFORMATION IS BOTH (I) NOT MATERIAL AND
(II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.
SIXTH AMENDMENT TO THE LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as the same may be amended, restated,
modified, or supplemented from time to time, this “Agreement”) dated as of March 2, 2020 (the “Effective
Date”) among Solar Capital Ltd., a Maryland corporation with an office located at 500 Park Avenue, 3rd
Floor, New York, NY 10022 (“Solar”), as collateral agent (in such capacity, together with its successors and
assigns in such capacity, “Collateral Agent”), and the lenders listed on Schedule 1.1 hereof or otherwise a
party hereto from time to time including Solar in its capacity as a Lender (each a “Lender” and collectively,
the “Lenders”), and Neuronetics, Inc., a Delaware corporation with offices located at 3222 Phoenixville
Pike, Malvern, Pennsylvania (individually and collectively, jointly and severally, “Borrower”), provides the
terms on which the Lenders shall lend to Borrower and Borrower shall repay the Lenders. The parties agree
as follows:
1.
DEFINITIONS AND OTHER TERMS
1.1
Terms. Capitalized terms used herein shall have the meanings set forth in Section 1.4 to
the extent defined therein. All other capitalized terms used but not defined herein shall have the meaning
given to such terms in the Code. Any accounting term used but not defined herein shall be construed in
accordance with GAAP and all calculations shall be made in accordance with GAAP. If at any time any
change in GAAP would affect the computation of any financial requirement set forth in any Loan
Document, and either Borrower or the Collateral Agent shall so request, the Collateral Agent and Borrower
shall negotiate in good faith to amend such requirement to preserve the original intent thereof in light of
such change in GAAP; provided, that, until so amended, such requirement shall continue to be computed in
accordance with GAAP prior to such change therein. For the avoidance of doubt, leases shall be classified
and accounted for on a basis consistent with GAAP as in effect on the Effective Date (which shall include
FASB ASC 842) for all purposes of this agreement. The term “financial statements” shall include the
accompanying notes and schedules.
1.2
Section References. Any section, subsection, schedule or exhibit references are to this
Agreement unless otherwise specified.
1.3
Divisions. For all purposes under the Loan Documents, in connection with any division or
plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if
any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a
different Person, then it shall be deemed to have been transferred from the original Person to the subsequent
Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been
organized on the first date of its existence by the holders of its equity interests at such time.
1.4
opposite such terms:
Definitions. The following terms are defined in the Sections or subsections referenced
“Agreement”
“Approved Lender”
“Borrower”
“Claims”
“Collateral Agent”
Preamble
Section 12.1
Preamble
Section 12.2
Preamble
US-DOCS\149068676.3
“Collateral Agent Report”
“Communications”
“Connection Income Taxes”
“Default Rate”
“Effective Date”
“Event of Default”
“Excluded Taxes”
“FATCA”
“Indemnified Person”
“Indemnified Taxes”
“Lender” and “Lenders”
“Lender Transfer”
“New Subsidiary”
“Non-Funding Lender”
“Open Source Licenses”
“Other Connection Taxes”
“Other Lender”
“Other Taxes”
“Perfection Certificate” and
“Perfection Certificates”
“Participant Register”
“Recipient”
“Register”
“Solar”
“Term A Loan”
“Term B Loan”
“Term C Loan”
“Term C Loan Funding Date”
“Termination Date”
“Term Loan”
“Transfer”
“U.S.
Certificate”
“Withholding Agent”
Tax
Compliance
Exhibit B, Section 5
Section 10
Exhibit C, Section 1
Section 2.3(b)
Preamble
Section 8
Exhibit C, Section 1
Exhibit C, Section 1
Section 12.2
Exhibit C, Section 1
Preamble
Section 12.1
Section 6.10
Exhibit B, Section 10(c)(ii)
Section 5.2(f)
Exhibit C, Section 1
Exhibit B, Section 10(c)(ii)
Exhibit C, Section 1
Section 5.1
Section 12.1
Exhibit C, Section 1
Section 12.1
Preamble
Section 2.2(a)(i)
Section 2.2(a)(ii)
Section 2.2(a)(iii)
Section 3.4(a)
Exhibit B, Section 8
Section 2.2(a)(iii)
Section 7.1
Exhibit C, Section 7(b)(ii)(C)
Exhibit C, Section 1
In addition to the terms defined elsewhere in this Agreement, the following terms have the
following meanings:
“Account” is any “account” as defined in the Code with such additions to such term as may
hereafter be made under the Code, and includes, without limitation, all accounts receivable and other sums
owing to Borrower.
“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term
as may hereafter be made under the Code.
“ACH Letter” is ACH debit authorization in the form of Exhibit I hereto.
“Affiliate” of any Person is a Person that owns or controls directly or indirectly the Person, any
Person that controls or is controlled by or is under common control with the Person, and each of that
Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company,
that Person’s managers and members.
US-DOCS\149068676.3
2
“Amortization Date” is March 1, 2026.
“Anti-Terrorism Laws” are any laws, rules, regulations or orders relating to terrorism or money
laundering, including without limitation Executive Order No. 13224 (effective September 24, 2001), the
USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered
by OFAC.
“Applicable Rate” means the greater of (a) 3.95% and (b) SOFR for a term of one month, which
determination by Collateral Agent shall be conclusive in the absence of manifest error.
“Approved Fund” is any (i) investment company, fund, trust, securitization vehicle or conduit that
is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and
similar extensions of credit in the ordinary course of its business or (ii) any Person (other than a natural
person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause
(i) and that, with respect to each of the preceding clauses (i) and (ii), is administered or managed by (a) a
Lender, (b) an Affiliate of a Lender or (c) a Person (other than a natural person) or an Affiliate of a Person
(other than a natural person) that administers or manages a Lender.
“Blocked Person” is any Person: (a) listed in the annex to, or is otherwise subject to the provisions
of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any
Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224,
(c) a Person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by
any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports
“terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated
national” or “blocked person” on the most current list published by OFAC or other similar list.
“Borrower’s Books” are Borrower’s or any of its Subsidiaries’ books and records including
ledgers, federal, state, local and foreign tax returns, records regarding Borrower’s or its Subsidiaries’ assets
or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage
or any equipment containing such information.
“Business Day” is any day that is not a Saturday, Sunday or a day on which commercial banks in
New York, New York are required or authorized to be closed.
“Cash Equivalents” are (a) marketable direct obligations issued or unconditionally guaranteed by
the United States or any agency or any State thereof having maturities of not more than one (1) year from
the date of acquisition and having the highest rating from either Standard & Poor’s Ratings Group or
Moody’s Investors Service, Inc.; (b) commercial paper maturing no more than one (1) year after its creation
and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service,
Inc., (c) certificates of deposit maturing no more than one (1) year after issue provided that the account in
which any such certificate of deposit is maintained is subject to a Control Agreement in favor of Collateral
Agent, and (d) any money market or similar funds that exclusively hold any of the foregoing.
“Cash Reserve Account” shall have the meaning given to it in the HCA Agreement.
“Capital Lease” means, as applied to any Person, any lease of any property by that Person as lessee
which, in accordance with GAAP, is required to be accounted for as a finance lease on the balance sheet of
that Person.
“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in
effect in the State of New York; provided, that, to the extent that the Code is used to define any term herein
or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code,
US-DOCS\149068676.3
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the definition of such term contained in Article or Division 9 shall govern; provided further, that in the
event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of,
or remedies with respect to, Collateral Agent’s Lien on any Collateral is governed by the Uniform
Commercial Code in effect in a jurisdiction other than the State of New York, the term “Code” shall mean
the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the
provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of
definitions relating to such provisions.
“Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.
“Collateral Account” is any Deposit Account, Securities Account, or Commodity Account, or any
other bank account maintained by Borrower or any Subsidiary at any time.
“Collateral Agent” is Solar, not in its individual capacity, but solely in its capacity as collateral
agent on behalf of and for the ratable benefit of the Secured Parties.
“Commitment Percentage” is, as to a Lender, the percentage set forth opposite such Lender’s
name in Schedule 1.1, as amended from time to time.
“Commodity Account” is any “commodity account” as defined in the Code with such additions to
such term as may hereafter be made under the Code.
“Compliance Certificate” is that certain certificate in substantially the form attached hereto as
Exhibit E.
“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of
that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an
obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that
Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of
credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity
swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to
protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but
“Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of
a Contingent Obligation is the stated or determined amount of the primary obligation for which the
Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it
determined by the Person in good faith in accordance with GAAP; but the amount may not exceed the
maximum of the obligations under any guarantee or other support arrangement.
“Control Agreement” is any control agreement entered into among the depository institution at
which Borrower or any of its Subsidiaries maintains a Deposit Account or the securities intermediary or
commodity intermediary at which Borrower or any of its Subsidiaries maintains a Securities Account or a
Commodity Account, Borrower or such Subsidiary, as applicable, and Collateral Agent pursuant to which
Collateral Agent, for the ratable benefit of the Secured Parties, obtains “control” (within the meaning of the
Code) over such Deposit Account, Securities Account, or Commodity Account.
“Copyrights” are any and all copyright rights, copyright applications, copyright registrations and
like protections in each work or authorship and derivative work thereof, whether published or unpublished
and whether or not the same also constitutes a trade secret.
“Deposit Account” is any “deposit account” as defined in the Code with such additions to such
term as may hereafter be made under the Code.
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“Designated Deposit Account” is Borrower’s Deposit Account, account number XXXXXX[***],
maintained at PNC Bank, National Association.
“Dollars,” “dollars” and “$” each mean lawful money of the United States.
“Eligible Assignee” is (i) a Lender, (ii) an Affiliate of a Lender, (iii) an Approved Fund and (iv) any
commercial bank, savings and loan association or savings bank or any other entity which is an “accredited
investor” (as defined in Regulation D under the Securities Act of 1933, as amended) and which extends
credit or buys loans as one of its businesses, including insurance companies, mutual funds, lease financing
companies and commercial finance companies, in each case, which either (A) has a rating of BBB or higher
from Standard & Poor’s Rating Group and a rating of Baa2 or higher from Moody’s Investors Service, Inc.
at the date that it becomes a Lender or (B) has total assets in excess of One Billion Dollars
($1,000,000,000.00); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include,
unless an Event of Default has occurred and is continuing, (i) Borrower or any of Borrower’s Affiliates or
Subsidiaries, (ii) a then-current direct competitor of Borrower, as determined by Collateral Agent in its
reasonable discretion, (iii) vulture funds or distressed debt funds, as determined by Collateral Agent in its
reasonable discretion, and (iv) natural persons. Notwithstanding the foregoing, (x) in connection with any
assignment by a Lender as a result of a forced divestiture at the request of any regulatory agency, the
restrictions set forth herein shall not apply and Eligible Assignee shall mean any Person or party and (y) in
connection with a Lender’s own financing or securitization transactions, the restrictions set forth herein
shall not apply and Eligible Assignee shall mean any Person or party providing such financing or formed to
undertake such securitization transaction and any transferee of such Person or party upon the occurrence of
a default, event of default or similar occurrence with respect to such financing or securitization transaction;
provided that no such sale, transfer, pledge or assignment under this clause (y) shall release such Lender
from any of its obligations hereunder or substitute any such Person or party for such Lender as a party
hereto until Collateral Agent shall have received and accepted an effective assignment agreement from such
Person or party in form satisfactory to Collateral Agent executed, delivered and fully completed by the
applicable parties thereto, and shall have received such other information regarding such Eligible Assignee
as Collateral Agent reasonably shall require.
“Equipment” is all “equipment” as defined in the Code with such additions to such term as may
hereafter be made under the Code, and includes without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of the foregoing.
“Equity Interests” means, with respect to any Person, collectively, any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in such Person (other than a corporation), including partnership interests and
membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights
to acquire (by purchase, conversion, dividend, distribution or otherwise) any of the foregoing (and all other
rights, powers, privileges, interests, claims and other property in any manner arising therefrom or relating
thereto).
“ERISA” is the Employee Retirement Income Security Act of 1974, as amended, and its
regulations.
“Excluded Accounts” means (i) Deposit Accounts exclusively used for payroll, payroll Taxes and
other employee wage and benefit payments to or for the benefit of Borrower’s, or any Guarantor’s,
employees and identified to Collateral Agent by Borrower as such in the Perfection Certificate, provided
that the amount deposited therein shall not exceed the amount reasonably expected to be due and payable
for the next two (2) succeeding pay periods and (ii) the Cash Reserve Account.
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“Exigent Circumstance” means any event or circumstance that, in the reasonable judgment of
Collateral Agent, imminently threatens the ability of Collateral Agent to realize upon all or any material
portion of the Collateral, such as, without limitation, fraudulent removal, concealment, or abscondment
thereof, destruction or material waste thereof, or failure of Borrower or any of its Subsidiaries after
reasonable demand to maintain or reinstate adequate casualty insurance coverage, or which, in the judgment
of Collateral Agent, could reasonably be expected to result in a material diminution in value of the
Collateral.
“Exit Fee Agreement” is that certain Exit Fee Agreement, dated as of the Effective Date, as
amended by the First Amendment to Exit Fee Agreement, dated as of the Fourth Amendment Effective
Date, by and among Collateral Agent, as agent, Borrower and the Lenders, as amended, amended and
restated, supplemented or otherwise modified from time to time.
“FDA” means the U.S. Food and Drug Administration or any successor thereto.
“Fee Letter” means that certain Fee Letter dated as of the Effective Date, between Borrower and
Solar, as amended and restated as of the Fourth Amendment Effective Date and as may be further amended
as amended, amended and restated, supplemented or otherwise modified from time to time.
“Fifth Amendment” means that certain Fifth Amendment to Loan and Security Agreement, dated
as of the Fifth Amendment Effective Date, by and among Borrower, Collateral Agent and Lender.
“Fifth Amendment Effective Date” means September 29, 2023.
“First Amendment” means that certain First Amendment to Loan and Security Agreement, dated
as of the First Amendment Effective Date, by and among Borrower, Collateral Agent and Lender.
“First Amendment Effective Date” means April 21, 2020.
“Foreign Currency” means lawful money of a country other than the United States.
“Fourth Amendment” means that certain Fourth Amendment to Loan and Security Agreement,
dated as of the Fourth Amendment Effective Date, by and among Borrower, Collateral Agent and Lender.
“Fourth Amendment Effective Date” means March 29, 2023.
“Fourth Amendment Exit Fee Agreement” is that certain Fourth Amendment Exit Fee
Agreement, dated as of the Fourth Amendment Effective Date, by and among Collateral Agent, as agent,
Borrower and the Lenders, as amended, amended and restated, supplemented or otherwise modified from
time to time.
“Funding Date” is any date on which a Term Loan is made to or on account of Borrower which
shall be a Business Day.
“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in such other statements by
such other Person as may be approved by a significant segment of the accounting profession in the United
States, which are applicable to the circumstances as of the date of determination, applied consistently with
Borrower’s publicly filed financial statements.
“General Intangibles” are all “general intangibles” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made under the Code, and includes without
US-DOCS\149068676.3
6
limitation, all copyright rights, copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service
marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not,
any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone
numbers, domain names, claims, income and other tax refunds, security and other deposits, options to
purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in
contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of any kind.
“Governmental Approval” is any consent, authorization, approval, order, license, franchise,
permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in
respect of, any Governmental Authority.
“Governmental Authority” is any federal, state, municipal, national or other government,
governmental department, commission, board, bureau, court, agency or instrumentality or political
subdivision thereof (including the FDA) or any entity or officer exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to any government or any court, in each case whether
associated with a state or locality of the United States, the United States, or a foreign government.
“Guarantor” is any Person providing a Guaranty in favor of Collateral Agent for the benefit of the
Secured Parties (including without limitation pursuant to Section 6.10).
“Guaranty” is any guarantee of all or any part of the Obligations, as the same may from time to
time be amended, restated, modified or otherwise supplemented.
“HCA” means Hitachi Capital America Corp., a Delaware corporation.
“HCA Agreement” means that certain that certain Vendor Program Agreement, dated as of March
27, 2020, by and between Borrower and HCA, as in effect on the First Amendment Effective Date.
“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or
services, such as reimbursement and other obligations for surety bonds and letters of credit, where such
deferred purchase price becomes due and payable solely upon the passage of time or that has become due
and payable and is not satisfied within 60 days thereafter; (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) Capital Lease obligations, (d) non-contingent obligations of such
Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker’s
acceptance or similar instrument, (e) equity securities of such Person subject to repurchase or redemption
other than at the sole option of such Person, (f) obligations secured by a Lien on any asset of such Person,
whether or not such obligation is otherwise an obligation of such Person, (g) “earnouts”, purchase price
adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment
obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts,
(h) all Indebtedness of others guaranteed by such Person, (i) off-balance sheet liabilities and/or pension plan
or multiemployer plan liabilities of such Person, (j) obligations arising under non-compete agreements, and
(k) Contingent Obligations. For the avoidance of doubt, “Indebtedness” shall not include leases supporting
obligations related to the rental of real property and improvements thereon.
“Insolvency Proceeding” is any proceeding by or against any Person under the United States
Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of
creditors, compositions or proceedings seeking reorganization, arrangement, or other relief.
“Insolvent” means not Solvent.
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“Intellectual Property” means all of Borrower’s or any of its Subsidiaries’ right, title and interest
in and to the following:
(a)
(b)
its Copyrights, Trademarks and Patents;
any and all trade secrets and trade secret rights, including, without limitation, any
rights to unpatented inventions, know-how, operating manuals;
(c)
(d)
any and all source code;
any and all design rights which may be available to Borrower;
(e)
any and all claims for damages by way of past, present and future infringement of
any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use
or infringement of the Intellectual Property rights identified above; and
(f)
all amendments, renewals and extensions of any of the Copyrights, Trademarks or
Patents.
“Intellectual Property Security Agreement” means that certain Intellectual Property Security
Agreement dated as of the Effective Date between Borrower and Collateral Agent, as the same may from
time to time be amended, restated, modified or otherwise supplemented.
“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.
“Inventory” is all “inventory” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made under the Code, and includes without limitation all
merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished
products, including without limitation such inventory as is temporarily out of any Person’s custody or
possession or in transit and including any returned goods and any documents of title representing any of the
above.
“Investment” is any beneficial ownership interest in any Person (including stock, partnership
interest or other securities), and any loan, advance or capital contribution to any Person.
“IRS” means the United States Internal Revenue Service.
“Key Person” is each of Borrower’s (i) President and Chief Executive Officer, who is Keith
Sullivan as of the Fourth Amendment Effective Date and (ii) Chief Financial Officer, who is Steve Furlong
as of the Fourth Amendment Effective Date.
“Knowledge” means the actual knowledge, after reasonable investigation, of the Responsible
Officers.
“Lender” is any one of the Lenders.
“Lenders” are the Persons identified on Schedule 1.1 hereto and each assignee that becomes a party
to this Agreement pursuant to Section 12.1.
“Lenders’ Expenses” are (a) all reasonable audit fees and expenses, costs, and expenses (including
reasonable and invoiced out-of-pocket attorneys’ fees and expenses, as well as appraisal fees, fees incurred
on account of lien searches, inspection fees, and filing fees) for preparing, amending, negotiating and
administering the Loan Documents, and (b) all fees and expenses (including reasonable and invoiced out-
US-DOCS\149068676.3
8
of-pocket attorneys’ fees and expenses, as well as appraisal fees, fees incurred on account of lien searches,
inspection fees, and filing fees) for defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred by
Collateral Agent and/or the Lenders in connection with the Loan Documents.
“Lien” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest, or other
encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against
any property.
“Loan Documents” are, collectively, this Agreement, the Fee Letter, the Fourth Amendment Exit
Fee Agreement, each Control Agreement, the Exit Fee Agreement, the Intellectual Property Security
Agreement, the Perfection Certificates, each Compliance Certificate, the ACH Letter, each Loan Payment
Request Form, any Guarantees, any subordination agreements, any note, or notes or guaranties executed by
Borrower or any other Person, any agreements creating or perfecting rights in the Collateral (including all
insurance certificates and endorsements, landlord consents and bailee consents) and any other present or
future agreement entered into by Borrower, any Guarantor or any other Person for the benefit of the Lenders
and Collateral Agent, as applicable, in connection with this Agreement; all as amended, restated, or
otherwise modified.
“Loan Payment Request Form” is that certain form attached hereto as Exhibit D.
“Loan Party” means, individually, and “Loan Parties” means, collectively, Borrower and any
Guarantors.
“Loss Reserve” shall have the meaning given to it in the HCA Agreement.
“Material Adverse Change” is (a) a material adverse change in the business, operations or
condition (financial or otherwise) of Borrower and its Subsidiaries, when taken as a whole; or (b) a material
impairment of (i) the prospect of repayment of any portion of the Obligations, (ii) the legality, validity or
enforceability of any Loan Document, (iii) the rights and remedies of Collateral Agent or Lenders under any
Loan Document except as the result of the action or inaction of the Collateral Agent or Lenders or (iv) the
validity, perfection or priority of any Lien in favor of Collateral Agent for the benefit of the Secured Parties
on any of the Collateral except as the result of the action or inaction of the Collateral Agent or Lenders.
“Material Agreement” is any license, agreement or other contractual arrangement whereby
Borrower or any of its Subsidiaries is reasonably likely to be required to transfer, either in-kind or in cash,
prior to the Maturity Date, assets or property valued (book or market) at more than One Million Dollars
($1,000,000.00) in the aggregate per year.
“Maturity Date” is, for each Term Loan, March 29, 2028.
“Net Product Revenue” means, with respect to Borrower and its Subsidiaries who are Guarantors
(including Subsidiaries acquired by Borrower who become Guarantors in connection with a Permitted
Investment), product revenue (determined under GAAP) of Borrower’s and such Subsidiaries’ sale (either
directly or through a lease or distribution arrangement and solely to the extent reported as revenue on
Borrower’s consolidated financial statements) to non-Affiliates in the ordinary course of business of its
products and related services directly sold in connection with such products, including, for the avoidance of
doubt revenue in connection with NeuroStar® Advanced Therapy Systems and upgrades thereto, NeuroStar
Treatment Sessions (whether on a “per click” or capitated basis), TrakStar Cloud and service contracts, but
excluding, in each case, revenue (a) in connection with any one time or extraordinary transactions, (b)
attributable to licensing, collaboration or similar arrangements (including for the avoidance
US-DOCS\149068676.3
9
of doubt Permitted Licenses), (c) related to the sale of assets other than products in the ordinary course of
business, (d) any revenue related to the leasing or distribution of products and services other than in each
case the sale of inventory and related services through leasing or distribution arrangements that would
otherwise constitute ordinary course of business sales of such products and services, (e) from any royalty,
collaboration, commission or similar arrangement, and (f) without duplication, any other transaction (unless
specifically specified in this proviso) that would not be an arms-length sales transaction entered into in the
ordinary course of business. For the avoidance of doubts, Transfers of products and services to HCA under
the HCA Agreement are deemed to be a sale to a Non-Affiliate in the ordinary course of business.
“Obligations” are all of Borrower’s obligations to pay when due any debts, principal, interest,
Lenders’ Expenses, the Prepayment Premium, all fees under the Fee Letter, the Exit Fee Agreement, and the
Fourth Amendment Exit Fee Agreement, and any other amounts Borrower owes the Collateral Agent or the
Lenders now or later, in connection with, related to, following, or arising from, out of or under, this
Agreement or, the other Loan Documents, or otherwise, and including interest accruing after Insolvency
Proceedings begin (whether or not allowed) and debts, liabilities, or obligations of Borrower assigned to the
Lenders and/or Collateral Agent in connection with this Agreement and the other Loan Documents, and the
performance of Borrower’s duties under the Loan Documents.
“OFAC” is the U.S. Department of Treasury Office of Foreign Assets Control.
“OFAC Lists” are, collectively, the Specially Designated Nationals and Blocked Persons List
maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or
any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations
of OFAC or pursuant to any other applicable Executive Orders.
“Operating Documents” are, for any Person, such Person’s formation documents, as certified by
the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization on a date that is
no earlier than thirty (30) days prior to the Sixth Amendment Effective Date, and, (a) if such Person is a
corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability
company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership
agreement (or similar agreement), each of the foregoing with all current amendments or modifications
thereto.
“Patents” means all patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, re-examination certificates, utility models,
extensions and continuations-in-part of the same.
“Paycheck Protection Program” means the Paycheck Protection Program established pursuant to
Title I (Keeping American Workers Paid and Employed Act) of the Coronavirus Aid, Relief, and Economic
Security Act enacted on March 27, 2020, as amended.
“Payment Date” is the first (1st) calendar day of each calendar month, commencing on April 1,
2020.
“Permitted Indebtedness” is:
(a)
Borrower’s Indebtedness to the Lenders and Collateral Agent under this Agreement and the
other Loan Documents;
(b)
(c)
Indebtedness existing on the Effective Date and disclosed on the Perfection Certificate;
Subordinated Debt;
US-DOCS\149068676.3
10
(d)
unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e)
Indebtedness consisting of Capital Lease obligations and purchase money Indebtedness, in
each case incurred by Borrower or any of its Subsidiaries to finance the acquisition, repair, improvement or
construction of fixed or capital assets of such person, provided that (i) the aggregate outstanding principal
amount of all such Indebtedness does not exceed One Hundred Thousand Dollars ($100,000.00) at any time
and (ii) the principal amount of such Indebtedness does not exceed the lower of the cost or fair market value
of the property so acquired or built or of such repairs or improvements financed with such Indebtedness
(each measured at the time of such acquisition, repair, improvement or construction is made);
(f)
(g)
Indebtedness by any Loan Party to any other Loan Party.
Indebtedness incurred as a result of endorsing negotiable instruments received in the
ordinary course of Borrower’s business;
(h)
unsecured Indebtedness in an aggregate amount not to exceed Two Hundred Fifty Thousand
Dollars ($250,000) at any time incurred under insurance premium financing in the ordinary course of
business;
(i)
Indebtedness in an amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000)
incurred under a standby letter of credit issued on Borrower’s behalf in favor of Borrower’s landlord;
(j)
Indebtedness in connection with corporate credit cards, purchasing cards or bank card
products in an aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) at any
time; and
(k)
extensions, refinancings, modifications, amendments and restatements of any items of
Permitted Indebtedness (a) through (f) above, provided that the principal amount thereof is not increased or
the terms thereof are not modified to impose materially more burdensome terms upon Borrower, or its
Subsidiary, as the case may be.
(l)
to the extent constituting Indebtedness, obligations to fund the Loss Reserve pursuant to the
terms of the HCA Agreement;
(m)
to the extent constituting Indebtedness, the indemnification and repurchase obligations of
Borrower in favor of HCA pursuant to Section 11(a) of the HCA Agreement; and
(n)
loans under Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) under the Paycheck
Protection Program; provided that (i) such loans shall be unsecured and shall not contain any terms or
conditions that are adverse to Collateral Agent's and the Lenders' rights hereunder, including with respect to
collateral, priority, preference and repayment terms and (ii) any material modification to such loans adverse
to the Collateral Agent or the Lenders shall be subject to Collateral Agent's written approval.
“Permitted Investments” are:
(a)
Investments disclosed on the Perfection Certificate and existing on the Effective Date;
(b)
(i) Investments consisting of cash and Cash Equivalents, and (ii) any Investments permitted
by Borrower’s investment policy, as amended from time to time, provided that such investment policy (and
any such amendment thereto) has been approved in writing by Collateral Agent;
(c)
Investments consisting of the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of Borrower;
US-DOCS\149068676.3
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(d)
Investments consisting of Deposit Accounts in which Collateral Agent has a perfected Lien
(subject to the terms of this Agreement) for the ratable benefit of the Secured Parties;
(e)
Investments in connection with Transfers permitted by Section 7.1;
(f)
Investments consisting of (i) travel advances and employee relocation loans and other
employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee
stock purchase plans or agreements approved by Borrower’s board of directors; not to exceed One Hundred
Thousand Dollars ($100,000.00) in the aggregate for (i) and (ii) in any fiscal year;
(g)
Investments (including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes
with, customers or suppliers arising in the ordinary course of business;
(h)
Investments consisting of notes receivable of, or prepaid royalties and other credit
extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided
that this paragraph (h) shall not apply to Investments of Borrower in any Subsidiary;
(i)
non-cash Investments in joint ventures or strategic alliances in the ordinary course of
Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology
or the providing of technical support; provided that any cash Investments by Borrower do not exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate in any fiscal year;
(j)
Investments by any Loan Party in any other Loan Party;
(k)
repurchases of capital stock of former employees, directors, officers or consultants pursuant
to stock repurchase agreements so long as an Event of Default does not exist at the time of any such
repurchase and would not exist after giving effect to any such repurchase; provided that the aggregate
amount of all such repurchases does to exceed Two Hundred Fifty Thousand Dollars ($250,000) in any
fiscal year;
(l)
Investments consisting of loans pursuant to one or more promissory notes to Greenbrook
TMS Inc., an Ontario corporation (or a wholly-owned subsidiary thereof) in an aggregate original principal
amount not to exceed Six Million Dollars ($6,000,000); provided, that in connection with any such
Investment, Collateral Agent shall have received possession of all original notes or other instruments
evidencing such Investment, together with all allonges and any other documents reasonably requested by
Collateral Agent; and
(m)
other Investments in an aggregate amount at any time not to exceed One Hundred Fifty
Thousand Dollars ($150,000).
“Permitted Licenses” are (A) licenses of over-the-counter software that is commercially available
to the public, and (B) non-exclusive licenses for the use of the Intellectual Property of Borrower or any of
its Subsidiaries entered into in the ordinary course of business, provided, that, with respect to each such
license described in clause (B), the license constitutes an arms-length transaction, the terms of which, on
their face, do not provide for a sale or assignment of any Intellectual Property and do not restrict the ability
of Borrower or any of its Subsidiaries, as applicable, to pledge, grant a security interest in or lien on, or
assign or otherwise Transfer any Intellectual Property, and (C) exclusive licenses for the use of the
Intellectual Property of Borrower or any of its Subsidiaries entered into in the ordinary course of business,
provided, that, with respect to each such license described in this clause (C), the license (i) constitutes an
arms-length transaction, the terms of which, on their face, do not provide for a sale or assignment of any
US-DOCS\149068676.3
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Intellectual Property and do not restrict the ability of Borrower or any of its Subsidiaries, as applicable, to
pledge, grant a security interest in or lien on, or assign or otherwise Transfer any Intellectual Property, (ii) is
limited in territory with respect to a specific geographic country or region (i.e. Japan, Germany, northern
China) outside of the United States, and (iii) if requested by Collateral Agent, Borrower has used
commercially reasonable efforts to obtain the consent and acknowledgement of the counterparty to such
license for the collateral assignment of such license to the Collateral Agent for the benefit of the Lenders.
“Permitted Liens” are:
(a)
Liens existing on the Effective Date and disclosed on the Perfection Certificate or arising
under this Agreement and the other Loan Documents;
(b)
Liens for Taxes, fees, assessments or other government charges or levies, either (i) not due
and payable or (ii) being contested in good faith by appropriate proceedings diligently conducted and for
which Borrower maintains adequate reserves on Borrower’s Books in accordance with GAAP, provided that
no notice of any such Lien has been filed or recorded under the Internal Revenue Code and the Treasury
Regulations adopted thereunder;
(c)
Liens securing Indebtedness permitted under clause (e) of the definition of “Permitted
Indebtedness,” provided that (i) such liens exist prior to the acquisition of, or attach substantially
simultaneous with, or within twenty (20) days after the, acquisition, lease, repair, improvement or
construction of, such property financed or leased by such Indebtedness and (ii) such liens do not extend to
any property of Borrower other than the property (and proceeds thereof) acquired, leased or built, or the
improvements or repairs, financed by such Indebtedness;
(d)
Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature
arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities
in the aggregate amount not to exceed Five Hundred Thousand Dollars ($500,000.00), and which are not
delinquent or remain payable without penalty or which are being contested in good faith and by appropriate
proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject
thereto;
(e)
Liens to secure payment of workers’ compensation, employment insurance, old-age
pensions, social security and other like obligations incurred in the ordinary course of business (other than
Liens imposed by ERISA);
(f)
Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens
described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the indebtedness may not increase;
(g)
leases or subleases of real property granted in the ordinary course of Borrower’s business
(or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases,
non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the
ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such
Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Collateral
Agent or any Lender a security interest therein;
(h)
banker’s liens, rights of setoff and Liens in favor of financial institutions incurred in the
ordinary course of business arising in connection with Borrower’s deposit accounts or securities accounts
held at such institutions solely to secure payment of fees and similar costs and expenses and provided such
accounts are maintained in compliance with Section 6.6(a) hereof;
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(i)
Liens arising from judgments, decrees or attachments in circumstances not constituting an
Event of Default under Section 8.4 or 8.7;
(j)
deposits with landlords to secure performance of lease obligations, or to secure letters of
credit in favor of landlords, not exceeding Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate at any given time; and
(k)
(l)
Permitted Licenses.
to the extent constituting a Lien, the interests granted by Borrower to HCA in the Cash
Reserve Account pursuant to HCA Agreement.
“Permitted Transfers” means:
(a)
Transfers of Inventory in the ordinary course of business;
(b)
Transfers of surplus, damaged, worn out or obsolete equipment that is, in the reasonable
judgment of Borrower exercised in good faith, no longer economically practicable to maintain or useful in
the ordinary course of business consistent with past practice, and Transfers of other properties or assets in
lieu of any pending or threatened institution of any proceedings for the condemnation or seizure of such
properties or assets or for the exercise of any right of eminent domain;
(c)
to the extent constituting Transfers Permitted Liens, Permitted Indebtedness or Permitted
Investments;
(d)
Transfers of cash and Cash Equivalents in a manner that is not prohibited by the terms of
this Agreement or the other Loan Documents;
(e)
Transfers between or among Loan Parties, provided that, with respect to any properties or
assets constituting Collateral under the Loan Documents, any and all steps as may be required to be taken in
order to create and maintain a first priority security interest in and Lien upon such properties and assets in
favor and for the benefit of Collateral Agent and the other Secured Parties are taken contemporaneously
with the completion of any such transfer;
(f)
the sale or issuance of Equity Interests of any Subsidiary of Borrower to any Loan Party or
Subsidiary that does not violate Section 7.2 or any other term herein or in any Loan Document, provided,
that any such sale or issuance by a Loan Party shall be to another Loan Party;
(g)
any abandonment, cancellation, non-renewal or discontinuance of use or maintenance of
Intellectual Property that Borrower reasonably determines in good faith (i) is no longer economically
practicable to maintain or useful in the ordinary course of business consistent with past practice and that (ii)
would not reasonably be expected to be adverse to the rights, remedies and benefits available to, or
conferred upon, Collateral Agent and Lenders under any Loan Document in any material respect; and
(h)
other Transfers of assets (other than Intellectual Property) not to exceed One Hundred Fifty
Thousand Dollars ($150,000) in the aggregate.
(i)
(j)
Agreement.
Transfers of Inventory to HCA pursuant to the HCA Agreement; and
Transfers of Cash to fund the Cash Reserve Account pursuant to the terms of the HCA
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“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture,
company, trust, unincorporated organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
“Prepayment Premium” is, with respect to any Term Loan subject to prepayment, refinancing,
substitution or replacement prior to the Maturity Date, whether by mandatory or voluntary prepayment,
acceleration or otherwise (including, but not limited to, upon the occurrence of a bankruptcy or insolvency
event (including the acceleration of claims by operation of law)), an additional fee payable to the Lenders in
amount equal to:
(a)
for a prepayment, refinancing, substitution or replacement made on or after the Term C
Loan Funding Date through and including the first anniversary of the Term C Loan Funding Date, three
percent (3.00%) of the principal amount of such Term Loan prepaid;
(b)
for a prepayment, refinancing, substitution or replacement made after the date which is after
the first anniversary of the Term C Loan Funding Date through and including the second anniversary of the
Term C Loan Funding Date, two percent (2.00%) of the principal amount of the Term Loans prepaid; and
(c)
for a prepayment, refinancing, substitution or replacement made after the date which is after
the second anniversary of the Term C Loan Funding Date and prior to the Maturity Date, one percent
(1.00%) of the principal amount of the Term Loans prepaid.
Notwithstanding the foregoing, Solar agrees to waive the Prepayment Premium if Solar or any Affiliate of
Solar (in their sole and absolute discretion) agree in writing to refinance the Term Loans prior to the
Maturity Date.
“Product Revenue Milestone” is the achievement, on or prior to May 20, 2021, of Net Product
Revenue greater than or equal to [***], calculated on a trailing twelve-month basis, subject to verification
(including supporting documents) reasonably satisfactory to Collateral Agent.
“Property” means any interest in any kind of property or asset, whether real, personal or mixed,
and whether tangible or intangible.
“Pro Rata Share” is, as of any date of determination, with respect to each Lender, a percentage
(expressed as a decimal, rounded to the ninth decimal place) determined by dividing the outstanding
principal amount of Term Loans held by such Lender by the aggregate outstanding principal amount of all
Term Loans.
“Qualified Cash” means the amount of Borrower’s cash and Cash Equivalents held in accounts
subject to a Control Agreement in favor of Collateral Agent.
“Qualified Cash A/P Amount” means the amount of Borrower’s accounts payable that have not
been paid within ninety (90) days from the invoice date of the relevant account payable (other than accounts
that are subject to good faith disputes as permitted herein and for which Borrower maintains adequate
reserves in accordance with GAAP).
“Registered Organization” is any “registered organization” as defined in the Code with such
additions to such term as may hereafter be made under the Code.
“Registration” means any registration, authorization, approval, license, permit, clearance,
certificate, and exemption issued or allowed by the FDA or state pharmacy licensing authorities (including,
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without limitation, new drug applications, abbreviated new drug applications, biologics license applications,
investigational new drug applications, over-the-counter drug monograph, device pre-market approval
applications, device pre-market notifications, investigational device exemptions, product recertifications,
manufacturing approvals, registrations and authorizations, CE Marks, pricing and reimbursement approvals,
labeling approvals or their foreign equivalent, controlled substance registrations, and wholesale distributor
permits).
“Regulatory Action” means an administrative, regulatory, or judicial enforcement action,
proceeding, investigation or inspection, FDA Form 483 notice of inspectional observation, warning letter,
untitled letter, other notice of violation letter, recall, seizure, Section 305 notice or other similar written
communication, injunction or consent decree, issued by the FDA or a federal or state court.
“Related Persons” means, with respect to any Person, each Affiliate of such Person and each
director, officer, employee, agent, trustee, representative, attorney, accountant and each insurance,
environmental, legal, financial and other advisor and other consultants and agents of or to such Person or
any of its Affiliates.
“Relevant Governmental Body” means the Federal Reserve Board, the Federal Reserve Bank of
New York, and/or a committee officially endorsed or convened by the Federal Reserve Board and/or the
Federal Reserve Bank of New York, or any successor thereto.
“Required Lenders” means (i) for so long as all of the Persons that are Lenders on the Sixth
Amendment Effective Date (each an “Original Lender”) have not assigned or transferred any of their
interests in their Term Loan other than to an Affiliate of such Lender, Lenders holding one hundred percent
(100%) of the aggregate outstanding principal balance of the Term Loan, or (ii) at any time from and after
any Original Lender has assigned or transferred any interest in its Term Loan, Lenders holding at least sixty
six percent (66%) of the aggregate outstanding principal balance of the Term Loan and, in respect of this
clause (ii), (A) each Original Lender that has not assigned or transferred any portion of its Term Loan, (B)
each assignee or transferee of an Original Lender’s interest in the Term Loan, but only to the extent that
such assignee or transferee is an Affiliate or Approved Fund of such Original Lender, and (C) any Person
providing financing to any Person described in clauses (A) and (B) above; provided, however, that this
clause (C) shall only apply upon the occurrence of a default, event of default or similar occurrence with
respect to such financing.
“Requirement of Law” is as to any Person, the organizational or governing documents of such
Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
“Responsible Officer” is any of the President, Chief Executive Officer, or Chief Financial Officer
of Borrower acting alone.
“Second Amendment Effective Date” shall mean December 2, 2020
“Second Draw Conditions” are satisfaction of each of the following: (a) no Event of Default has
occurred and (b) Borrower has achieved the Product Revenue Milestone.
“Second Draw Period” is the period commencing on the date occurring on or after the Second
Amendment Effective Date in which Borrower satisfies the Second Draw Conditions and ending on the
earlier of (a) June 20, 2021, and (b) the occurrence of an Event of Default.
“Secured Parties” means the Collateral Agent and the Lenders.
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“Securities Account” is any “securities account” as defined in the Code with such additions to such
term as may hereafter be made under the Code.
“Sixth Amendment” means that certain Sixth Amendment and Waiver to Loan and Security
Agreement, dated as of the Sixth Amendment Effective Date, by and among Borrower, Collateral Agent and
Lender.
“Sixth Amendment Effective Date” means March 7, 2024.
“SOFR” means the daily Secured Overnight Financing Rate provided by the Federal Reserve Bank
of New York as the administrator of the benchmark (or a successor administrator) on the Federal Reserve
Bank of New York’s Website.
“Solvent” means, with respect to any Person, that (a) the fair salable value of such Person’s
consolidated assets (including goodwill minus disposition costs) exceeds the fair value of such Person’s
liabilities, (b) such Person is not left with unreasonably small capital giving effect to the transactions
contemplated by this Agreement and the other Loan Documents, and (c) such Person is able to pay its debts
(including trade debts) as they mature in the ordinary course (without taking into account any forbearance
and extensions related thereto).
“Subordinated Debt” is indebtedness incurred by Borrower or any of its Subsidiaries subordinated
to all Indebtedness of Borrower and/or its Subsidiaries to the Lenders (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to Collateral Agent and the
Required Lenders entered into between Collateral Agent, Borrower, and/or any of its Subsidiaries, and the
other creditor), on terms acceptable to Collateral Agent and the Required Lenders.
“Subsidiary” is, with respect to any Person, any Person of which more than fifty percent (50%) of
the voting stock or other Equity Interests is owned or controlled, directly or indirectly, by such Person or
through one or more intermediaries.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings
(including backup withholding), assessments, fees or other charges imposed by any Governmental
Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan Commitment” is, for any Lender, the obligation of such Lender to make a Term
Loan, up to the principal amount shown opposite such Lender’s name on Schedule 1.1.
“Third Amendment” means that certain Third Amendment to Loan and Security Agreement,
dated as of the Third Amendment Effective Date, by and among the Borrower, Collateral Agent and Lender.
“Third Amendment Effective Date” means February 15, 2022.
“Third Amendment Specified Default” means the Specified Default (as defined in the Third
Amendment).
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications
to register and registrations of the same and like protections, and the entire goodwill of the business of
Borrower and each of its Subsidiaries connected with and symbolized by such trademarks.
“Unqualified Opinion” means an opinion on financial statements from an independent certified
public accounting firm acceptable to Collateral Agent in its reasonable discretion which opinion shall not
include any qualifications or any going concern limitations.
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2.
LOANS AND TERMS OF PAYMENT
2.1
Promise to Pay. Borrower hereby unconditionally promises to pay each Lender, the
outstanding principal amount of all Term Loans advanced to Borrower by such Lender and accrued and
unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this
Agreement.
2.2
Term Loans.
(a)
Availability. (i) Subject to the terms and conditions of this Agreement, the Lenders
agree, severally and not jointly, to make term loans to Borrower on the Effective Date in an aggregate
principal amount of Thirty Five Million Dollars ($35,000,000.00) according to each Lender’s Term A Loan
Commitment as set forth opposite such Lender’s name on Schedule 1.1 hereto (such term loans are
hereinafter referred to singly as a “Term A Loan”, and collectively as the “Term A Loans”). After
repayment, no Term A Loan may be re-borrowed.
(ii)
Subject to the terms and conditions of this Agreement and the Fourth Amendment,
the Lenders agree, severally and not jointly, to make term loans to Borrower on the Fourth Amendment
Effective Date in an aggregate principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00) according to each Lender’s Term B Loan Commitment as set forth on Schedule 1.1 hereto
(such term loans are hereinafter referred to singly as a “Term B Loan” and collectively as the “Term B
Loans”). After repayment, no Term B Loan may be re-borrowed.
(iii)
Subject to the terms and conditions of this Agreement and the Fifth Amendment,
the Lenders agree, severally and not jointly, after the Fifth Amendment Effective Date, so long as requested
by the Borrower to be funded on or prior to October 6, 2023, to make term loans to Borrower in an
aggregate principal amount of up to Twenty Two Million Five Hundred Thousand Dollars ($22,500,000)
(such term loans are hereinafter referred to singly as a “Term C Loan” and collectively as the “Term C
Loans”; each of the Term A Loans, the Term B Loans and the Term C Loans are hereinafter referred to
collectively as the “Term Loans”). After repayment, no Term C Loan may be re-borrowed.
(b)
Repayment. Borrower shall make monthly payments of interest only commencing
on the first (1st) Payment Date following the Funding Date of each Term Loan, and continuing on the
Payment Date of each successive month thereafter through and including the Payment Date immediately
preceding the Amortization Date. Borrower agrees to pay, on the Funding Date of each Term Loan, any
initial partial monthly interest payment otherwise due for the period between the Funding Date of such Term
Loan and the first Payment Date after such Funding Date. Commencing on the Amortization Date, and
continuing on the Payment Date of each month thereafter, Borrower shall (i) make monthly payments of
interest, to each Lender in accordance with its Pro Rata Share, as calculated by Collateral Agent (which
calculations shall be deemed correct absent manifest error) based upon the effective rate of interest
applicable to the Term Loan, as determined in Section 2.3(a) plus (ii) make consecutive equal monthly
payments of principal to each Lender in accordance with its Pro Rata Share, as calculated by Collateral
Agent (which calculations shall be deemed correct absent manifest error) based upon: (A) the respective
principal amounts of such Lender’s Term Loans outstanding, and (B) a repayment schedule equal to the
number of months remaining from the Amortization Date until the Maturity Date. All unpaid principal and
accrued and unpaid interest with respect to each such Term Loan is due and payable in full on the Maturity
Date. The Term Loans may only be prepaid in accordance with Sections 2.2(c) and 2.2(d).
(c)
Mandatory Prepayments. If the Term Loans are accelerated (including, but not
limited to, upon the occurrence of a bankruptcy or insolvency event (including the acceleration of claims by
operation of law)), Borrower shall immediately pay to Lenders, payable to each Lender in accordance with
its respective Pro Rata Share, an amount equal to the sum of: (i) all outstanding principal of the Term
US-DOCS\149068676.3
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Loans plus accrued and unpaid interest thereon through the prepayment date, (ii) any fees payable under the
Fee Letter by reason of such prepayment, (iii) the Prepayment Premium, plus (iv) all other Obligations that
are due and payable, including Lenders’ Expenses and interest at the Default Rate with respect to any past
due amounts. Notwithstanding (but without duplication with) the foregoing, on the Maturity Date, if any
fees payable under the Fee Letter by reason of such prepayments had not previously been paid in full in
connection with the prepayment of the Term Loans in full, Borrower shall pay to each Lender in accordance
with the terms of the Fee Letter. The Prepayment Premium shall also be payable in the event the
Obligations (and/or this Agreement) are satisfied or released by foreclosure (whether by power of judicial
proceeding), deed in lieu of foreclosure or by any other means. EACH BORROWER AND GUARANTOR
EXPRESSLY WAIVES (TO THE FULLEST EXTENT IT MAY LAWFULLY DO SO) THE
PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR LAW THAT PROHIBITS OR MAY
PROHIBIT THE COLLECTION OF THE FOREGOING PREPAYMENT PREMIUM IN CONNECTION
WITH ANY SUCH ACCELERATION.
(d)
Permitted Prepayment of Term Loans. Borrower shall have the option to prepay
all, but not less than all of the outstanding principal balance of the Term Loans advanced by the Lenders
under this Agreement, provided Borrower (i) provides written notice to Collateral Agent of its election to
prepay the Term Loans at least five (5) Business Days prior to such prepayment, and (ii) pays to the Lenders
on the date of such prepayment, payable to each Lender in accordance with its respective Pro Rata Share, an
amount equal to the sum of (A) the outstanding principal of the Term Loans plus accrued and unpaid
interest thereon through the prepayment date, (B) any fees payable under the Fourth Amendment Exit Fee
Letter or under Section 2.4 hereof by reason of such prepayment, (C) the Prepayment Premium, plus (D) all
other Obligations that are due and payable on such prepayment date, including any Lenders’ Expenses and
interest at the Default Rate (if any) with respect to any past due amounts.
2.3
Payment of Interest on the Term Loans.
(a)
Interest Rate. Subject to Section 2.3(b), the principal amount outstanding under the
Term Loans shall accrue interest at a floating per annum rate equal to the Applicable Rate in effect from
time to time plus 5.65%, which aggregate interest rate shall be determined by Collateral Agent on the third
Business Day prior to the Funding Date of the applicable Term Loan and on the date occurring on the first
Business Day of the month prior to each Payment Date occurring thereafter, which interest shall be payable
monthly in arrears in accordance with Sections 2.2(b) and 2.3(e). Except as set forth in Section 2.2(b), such
interest shall accrue on each Term Loan commencing on, and including, the Funding Date of such Term
Loan, and shall accrue on the principal amount outstanding under such Term Loan through and including
the day on which such Term Loan is paid in full (or any payment is made hereunder).
(b)
Default Rate. Immediately upon the occurrence and during the continuance of an
Event of Default, all Obligations shall accrue interest at a fixed per annum rate equal to the rate that is
otherwise applicable thereto plus five percentage points (5.00%) (the “Default Rate”). Payment or
acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to
timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Collateral Agent.
(c)
360-Day Year. Interest shall be computed on the basis of a three hundred sixty
(360) day year for the actual number of days elapsed.
(d)
Debit of Accounts. Collateral Agent and each Lender may debit (or ACH) any
deposit accounts, maintained by Borrower or any of its Subsidiaries, including the Designated Deposit
Account, for principal and interest payments or any other amounts Borrower owes the Lenders under the
Loan Documents when due. Any such debits (or ACH activity) shall not constitute a set-off.
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(e)
Payments. Except as otherwise expressly provided herein, all payments by
Borrower under the Loan Documents shall be made to the respective Lender to which such payments are
owed, at such Person’s office in immediately available funds on the date specified herein. Unless otherwise
provided, interest is payable monthly on the Payment Date of each month. Payments of principal and/or
interest received after 2:00 p.m. Eastern time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next
Business Day and additional fees or interest, as applicable, shall continue to accrue until paid. All payments
to be made by Borrower hereunder or under any other Loan Document, including payments of principal and
interest, and all fees, expenses, indemnities and reimbursements, shall be made without set-off, recoupment
or counterclaim, in lawful money of the United States and in immediately available funds. Collateral Agent
may at its discretion and with prior notice of at least one (1) Business Day, initiate debit entries to the
Borrower’s account as authorized on the ACH Letter (i) on each payment date of all Obligations then due
and owing, (ii) at any time any payment due and owing with respect to Lender Expenses, and (iii) upon an
Event of Default, any other Obligations outstanding.
2.4
Fees. Borrower shall pay to Collateral Agent and/or Lenders (as applicable) the following
fees, which shall be deemed fully earned and non-refundable upon payment:
(a)
Fee Letter. When due and payable under the terms of the Fee Letter, to Collateral
Agent and each Lender, as applicable, the fees set forth in the Fee Letter.
(b)
Prepayment Premium. The Prepayment Premium, when due hereunder, to be
shared between the Lenders in accordance with their respective Pro Rata Shares. Borrower expressly agrees
(to the fullest extent that each may lawfully do so) that: (i) the Prepayment Premium is reasonable and is the
product of an arm’s length transaction between sophisticated business people, ably represented by counsel;
(ii) the Prepayment Premium shall be payable notwithstanding the then prevailing market rates at the time
payment is made; (iii) there has been a course of conduct between Collateral Agent, Lenders and Borrower
giving specific consideration in this transaction for such agreement to pay the Prepayment Premium and (iv)
Borrower shall be estopped hereafter from claiming differently than as agreed to in this paragraph.
Borrower expressly acknowledges that its agreement to pay the Prepayment Premium to Lenders as herein
described is a material inducement to Lenders to provide the Term Loan Commitments and make the Term
Loans.
(c)
Lenders’ Expenses. All Lenders’ Expenses (including reasonable attorneys’ fees
and expenses for documentation and negotiation of this Agreement) incurred through and after the Effective
Date, when due.
2.5
Taxes; Increased Costs. Borrower, Collateral Agent and the Lenders each hereby agree to
the terms and conditions set forth on Exhibit C attached hereto.
3.
CONDITIONS OF LOANS
3.1
Conditions Precedent to Initial Term Loan. Each Lender’s obligation to make a Term A
Loan is subject to the condition precedent that Collateral Agent and each Lender shall consent to or shall
have received, in form and substance satisfactory to Collateral Agent and each Lender, such documents, and
completion of such other matters, as Collateral Agent and each Lender may reasonably deem necessary or
appropriate, including, without limitation:
(a)
copies of the Loan Documents, each duly executed by Borrower and each
Subsidiary, as applicable, with originals to promptly follow;
(b)
a completed Perfection Certificate for Borrower and each of its Subsidiaries;
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(c)
a duly executed Fee Letter;
(d)
the Operating Documents and good standing certificates of Borrower and its
Subsidiaries certified by the Secretary of State (or equivalent agency) of Borrower’s and such Subsidiaries’
jurisdiction of organization or formation and each jurisdiction in which Borrower and each Subsidiary is
qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;
(e)
a certificate of Borrower and each Guarantor in form and substance reasonably
satisfactory to the Collateral Agent executed by the Secretary (or similar officer) of Borrower with
appropriate insertions and attachments, including with respect to (i) the Operating Documents of Borrower
and each Guarantor (which Certificate of Incorporation of Borrower and each Guarantor shall be certified
by the Secretary of State of the State of such entity’s jurisdiction of formation) and (ii) the resolutions
adopted by Borrower’s and each Guarantor’s board of directors or a committee thereof for the purpose of
approving the transactions contemplated by the Loan Documents;
(f)
certified copies, dated as of date no earlier than thirty (30) days prior to the
Effective Date, of financing statement searches, as Collateral Agent shall request, accompanied by written
evidence (including any UCC termination statements) that the Liens indicated in any such financing
statements either constitute Permitted Liens or have been or, in connection with the initial Term Loan, will
be terminated or released;
(g)
a duly executed legal opinion of counsel to Borrower and each Guarantor dated as
of the Effective Date;
(h)
evidence satisfactory to Collateral Agent and the Lenders that the insurance
policies required by Section 6.5 hereof are in full force and effect;
(i)
a payoff letter in form and substance satisfactory to Agent and the Lenders
evidencing the repayment in full and release of liens with respect to Borrower’s existing Indebtedness;
(j)
no later than five (5) days prior to the Effective Date, projections of Borrower’s Net
Product Revenue for 2020, 2021 and 2022 in form and substance acceptable to Collateral Agent; and
(k)
payment of the fees payable under the terms of the Fee Letter and Lenders’
Expenses then due as specified in Section 2.4 hereof.
3.2
Conditions Precedent to all Term Loans. The obligation of each Lender to extend each
Term Loan, including the initial Term Loan, is subject to the following conditions precedent:
(a)
receipt by Collateral Agent of an executed Loan Payment Request Form in the form
of Exhibit D attached hereto;
(b)
the representations and warranties in Section 5 hereof shall be true, accurate and
complete in all material respects on the Funding Date of each Term Loan; provided, however, that such
materiality qualifier shall not be applicable to any representations and warranties that already are qualified
or modified by materiality in the text thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in all material respects as of such
date, and no Event of Default shall have occurred and be continuing or result from the funding of such Term
Loan;
(c)
there has not been any Material Adverse Change;
US-DOCS\149068676.3
21
(d)
Event of Default, shall exist; and
no Event of Default or an event that with the passage of time could result in an
(e)
payment of the fees and Lenders’ Expenses then due as specified in Section 2.4
hereof.
3.3
Conditions Precedent to Term B Loans. The obligation of each Lender to extend the
Term B Loan is subject to the following conditions precedent:
(a)
a duly executed Fourth Amendment by Borrower and each Subsidiary, with original
signature pages thereto to promptly follow;
(b)
(c)
(d)
(e)
a duly executed Amended and Restated Fee Letter;
an updated Perfection Certificate for Borrower and each of its Subsidiaries;
a duly executed Fourth Amendment Exit Fee Agreement;
a duly executed First Amendment to Exit Fee Agreement;
(f)
and each applicable Guarantor;
a duly executed, updated Intellectual Property Security Agreement by Borrower
(g)
[reserved];
(h)
the Operating Documents and good standing certificates of Borrower and its
Subsidiaries certified by the Secretary of State (or equivalent agency) of Borrower’s and such Subsidiaries’
jurisdiction of organization or formation and each jurisdiction in which Borrower and each Subsidiary is
qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Fourth
Amendment Effective Date;
(i)
a certificate of Borrower and each Guarantor in form and substance reasonably
satisfactory to the Collateral Agent executed by the Secretary (or similar officer) of Borrower with
appropriate insertions and attachments, including with respect to (i) the Operating Documents of Borrower
and each Guarantor (which Certificate of Incorporation of Borrower and each Guarantor shall be certified
by the Secretary of State of the State of such entity’s jurisdiction of formation) and (ii) the resolutions
adopted by Borrower’s and each Guarantor’s board of directors or a committee thereof for the purpose of
approving the transactions contemplated by the Fourth Amendment;
(j)
certified copies, dated as of date no earlier than thirty (30) days prior to the Fourth
Amendment Effective Date, of financing statement searches, as Collateral Agent shall request;
(k)
a duly executed legal opinion of counsel to Borrower and each Guarantor dated as
of the Fourth Amendment Effective Date; and
(l)
payment of the fees and Lenders’ Expenses then due as specified in Section 3 of the
Fourth Amendment.
3.4
Conditions Precedent to Term C Loans. The obligation of each Lender to extend the
Term C Loan is subject to the following conditions precedent:
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(a)
receipt by Collateral Agent of an executed Loan Payment Request Form in the form
of Exhibit D attached hereto, at least two (2) Business Days prior to the requested funding date of Term C
Loans (such date, the “Term C Loan Funding Date”);
(b)
the Operating Documents and good standing certificates of Borrower and its
Subsidiaries certified by the Secretary of State (or equivalent agency) of Borrower’s and such Subsidiaries’
jurisdiction of organization or formation and each jurisdiction in which Borrower and each Subsidiary is
qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Term C Loan
Funding Date; and
(c)
payment of the fees and Lenders’ Expenses then due in accordance with Section
2.4 hereof.
3.5
Covenant to Deliver. Borrower agrees to deliver to Collateral Agent and the Lenders each
item required to be delivered to Collateral Agent under this Agreement as a condition precedent to funding
any Term Loan. Borrower expressly agrees that a Term Loan made prior to the receipt by Collateral Agent
or any Lender of any such item shall not constitute a waiver by Collateral Agent or any Lender of
Borrower’s obligation to deliver such item, and any such Term Loan in the absence of a required item shall
be made in each Lender’s sole discretion.
3.6
Procedures for Borrowing. Subject to the prior satisfaction of all other applicable
conditions to the making of a Term Loan set forth in this Agreement, to obtain a Term Loan (other than the
Term Loan funded on the Effective Date), Borrower shall notify the Lenders (which notice shall be
irrevocable) by electronic mail, facsimile, or telephone by 12:00 noon New York City time three (3)
Business Days prior to the date the Term Loan is to be made. Together with any such electronic, facsimile
or telephonic notification, Borrower shall deliver to Collateral Agent by electronic mail or facsimile a
completed Loan Payment Request Form executed by a Responsible Officer or his or her designee. The
Collateral Agent may rely on any telephone notice given by a person whom Collateral Agent reasonably
believes is a Responsible Officer or designee. On the Funding Date related to any Term Loan, each Lender
shall credit and/or transfer (as applicable) to the Designated Deposit Account, an amount equal to its Term
Loan Commitment in respect of such Term Loan.
3.7
Post-Closing Obligations. Notwithstanding any provision herein or in any other Loan
Document to the contrary, to the extent not actually delivered on or prior to the Effective Date, Borrower
will, and will cause of its applicable Subsidiaries to:
(a)
deliver to Collateral Agent duly executed Control Agreements with respect to any
Collateral Accounts maintained by Borrower or any of its Subsidiaries no later than two (2) Business Days
after the Effective Date;
(b)
deliver to Collateral Agent a landlord’s consent executed in favor of Collateral
Agent in respect of all of Borrower’s and each Subsidiaries’ leased locations no later than thirty (30) days
after the Effective Date (or such later date as Collateral Agent may agree, in each case, not to exceed sixty
(60) days thereafter);
(c)
deliver a bailee waiver executed in favor of Collateral Agent in respect of each
third party bailee where Borrower or any Subsidiary maintains Collateral having a book value in excess of
One Hundred Thousand Dollars ($100,000.00) no later than thirty (30) days after the Effective Date (or
such later date as Collateral Agent may agree, in each case, not to exceed sixty (60) days thereafter); and
US-DOCS\149068676.3
23
(d)
with respect to the insurance policies required by Section 6.5 hereof, deliver to
Collateral Agent appropriate evidence showing loss payable and/or additional insured clauses or
endorsements in favor of Collateral Agent, for the ratable benefit of the Secured Parties.
(e)
deliver to Collateral Agent (i) duly executed Control Agreements with respect to
any Collateral Accounts maintained by Borrower or any of its Subsidiaries, (ii) an ACH Letter, each by no
later than ten (10) Business Days after the Fourth Amendment Effective Date, and (iii) duly executed
Control Agreement with respect to any Collateral Accounts maintained by Borrower or any of its
Subsidiaries as disclosed on the Perfection Certificate delivered to Collateral Agent on the Fifth
Amendment Effective Date, no later than five (5) Business Days after the Fifth Amendment Effective Date.
4.
CREATION OF SECURITY INTEREST
4.1
Grant of Security Interest. Borrower hereby grants Collateral Agent, for the ratable
benefit of the Secured Parties, to secure the payment and performance in full of all of the Obligations, a
continuing first priority security interest in, and pledges to Collateral Agent, for the ratable benefit of the
Secured Parties, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and
all proceeds and products and supporting obligations (as defined in the Code) in respect thereof. If
Borrower shall acquire any commercial tort claim (as defined in the Code), Borrower shall grant to
Collateral Agent, for the ratable benefit of the Secured Parties, a first priority security interest therein and in
the proceeds and products and supporting obligations (as defined in the Code) thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably satisfactory to Collateral Agent.
If this Agreement is terminated, Collateral Agent’s Lien in the Collateral shall continue until the
Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in
cash of the Obligations (other than inchoate indemnity obligations) and at such time as the Lenders’
obligation to extend Term Loans has terminated, Collateral Agent shall, at the sole cost and expense of
Borrower, release its Liens in the Collateral and all rights therein shall revert to Borrower.
4.2
Authorization to File Financing Statements. Borrower hereby authorizes Collateral
Agent to file financing statements or take any other action required to perfect Collateral Agent’s security
interests in the Collateral (held for the ratable benefit of the Secured Parties), without notice to Borrower,
with all appropriate jurisdictions to perfect or protect Collateral Agent’s interest or rights under the Loan
Documents.
5.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Collateral Agent and the Lenders as follows:
5.1
Due Organization, Authorization: Power and Authority. Borrower and each of its
Subsidiaries is duly existing and in good standing as a Registered Organization in its jurisdictions of
organization or formation and Borrower and each of its Subsidiaries is qualified and licensed to do business
and is in good standing in any jurisdiction in which the conduct of its businesses or its ownership of
property requires that it be so qualified except where the failure to do so could not reasonably be expected
to have a Material Adverse Change. In connection with this Agreement, Borrower and each of its
Subsidiaries has delivered to Collateral Agent a completed perfection certificate and any updates or
supplements thereto on, before or after the Effective Date (each a “Perfection Certificate” and collectively,
the “Perfection Certificates”). Borrower represents and warrants that all the information set forth on the
Perfection Certificates pertaining to Borrower and each of its Subsidiaries is accurate and complete.
US-DOCS\149068676.3
24
The execution, delivery and performance by Borrower and each of its Subsidiaries of the Loan
Documents to which it is, or they are, a party have been duly authorized, and do not (i) conflict with any of
Borrower’s or such Subsidiaries’ organizational documents, including its respective Operating Documents,
(ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law
applicable thereto, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction,
decree, determination or award of any Governmental Authority by which Borrower or such Subsidiary, or
any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or
qualification with, or Governmental Approval from, any Governmental Authority (except such
Governmental Approvals which have already been obtained and are in full force and effect) or are being
obtained pursuant to Section 6.1(b), or (v) constitute an event of default under any material agreement by
which Borrower, any of its Subsidiaries or any of their respective properties, is bound. Neither Borrower
nor any of its Subsidiaries is in default under any agreement to which it is a party or by which it or any of its
assets is bound in which such default could reasonably be expected to have a Material Adverse Change.
5.2
Collateral.
(a)
Borrower and each its Subsidiaries have good title to, have rights in, and the power
to transfer each item of the Collateral upon which it purports to grant a Lien under the Loan Documents,
free and clear of any and all Liens except Permitted Liens, and neither Borrower nor any of its Subsidiaries
have any Deposit Accounts, Securities Accounts, Commodity Accounts or other investment accounts other
than the Collateral Accounts or the other investment accounts, if any, described in the Perfection
Certificates delivered to Collateral Agent in connection herewith in respect of which Borrower or such
Subsidiary has given Collateral Agent notice and taken such actions as are necessary to give Collateral
Agent a perfected security interest therein as required under this Agreement. The Accounts are bona fide,
existing obligations of the Account Debtors.
(b)
The security interest granted herein is and shall at all times continue to be a first
priority perfected security interest in the Collateral, subject only to Permitted Liens that, under applicable
law, have priority over Collateral Agent’s Lien.
(c)
On the Fourth Amendment Effective Date, and except as disclosed on the
Perfection Certificate (i) the Collateral is not in the possession of any third party bailee, and (ii) no such
third party bailee possesses components of the Collateral in excess of One Hundred Thousand Dollars
($100,000.00).
(d)
quality, free from material defects.
All Inventory and Equipment is in all material respects of good and marketable
(e)
Borrower and each of its Subsidiaries is the sole owner of the Intellectual Property
each respectively purports to own, free and clear of all Liens other than Permitted Liens. Except as noted
on the Perfection Certificate (which, upon the consummation of a transaction not prohibited by this
Agreement, may be updated to reflect such transaction), neither Borrower nor any of its Subsidiaries is a
party to, nor is bound by, any Material Agreement.
(f)
None of Borrower or any of its Subsidiaries has used any software or other
materials that are subject to an open-source or similar license (including the General Public License, Lesser
General Public License, Mozilla Public License, or Affero License) (collectively, “Open Source Licenses”)
in a manner that would cause any software or other materials owned by any Borrower or used in any
Borrower products to have to be (i) distributed to third parties at no charge or a minimal charge, (ii) licensed
to third parties for the purpose of creating modifications or derivative works, or (iii) subject to the terms of
such Open Source License.
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25
5.3
Litigation. Except as disclosed on the Perfection Certificate, there are no actions, suits,
investigations, or proceedings pending or, to the Borrower’s Knowledge, threatened in writing by or against
Borrower or any of its Subsidiaries involving more than One Hundred Fifty Thousand Dollars
($150,000.00).
5.4
No Material Adverse Change; Financial Statements. All consolidated financial
statements for Borrower and its consolidated Subsidiaries, delivered to Collateral Agent fairly present, in
conformity with GAAP, and in all material respects the consolidated financial condition of Borrower and its
consolidated Subsidiaries, and the consolidated results of operations of Borrower and its consolidated
Subsidiaries. Since December 31, 2018, there has not been a Material Adverse Change.
5.5
whole, are Solvent.
Solvency. Borrower is Solvent. Borrower and each of its Subsidiaries, when taken as a
5.6
Regulatory Compliance. Neither Borrower nor any of its Subsidiaries is an “investment
company” or a company “controlled” by an “investment company” under the Investment Company Act of
1940, as amended. Neither Borrower nor any of its Subsidiaries is engaged as one of its important activities
in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of
Governors). Borrower and each of its Subsidiaries has complied in all material respects with the Federal
Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an
“affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is
defined and used in the Public Utility Holding Company Act of 2005. Neither Borrower nor any of its
Subsidiaries has violated any laws, ordinances or rules, the violation of which could reasonably be expected
to have a Material Adverse Change. Neither Borrower’s nor any of its Subsidiaries’ properties or assets has
been used by Borrower or such Subsidiary or, to Borrower’s Knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than in material compliance with
applicable laws. Borrower and each of its Subsidiaries has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices to, all Governmental
Authorities that are necessary to continue their respective businesses as currently conducted.
None of Borrower, any of its Subsidiaries, or any of Borrower’s or its Subsidiaries’ Affiliates or any
of their respective agents acting or benefiting in any capacity in connection with the transactions
contemplated by this Agreement is (i) in violation of any Anti-Terrorism Law, (ii) engaging in or conspiring
to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding or attempts to
violate, any of the prohibitions set forth in any Anti-Terrorism Law, or (iii) is a Blocked Person. None of
Borrower, any of its Subsidiaries, or to the Knowledge of Borrower and any of their Affiliates or agents,
acting or benefiting in any capacity in connection with the transactions contemplated by this Agreement, (x)
conducts any business or engages in making or receiving any contribution of funds, goods or services to or
for the benefit of any Blocked Person, or (y) deals in, or otherwise engages in any transaction relating to,
any property or interest in property blocked pursuant to Executive Order No. 13224, any similar executive
order or other Anti-Terrorism Law.
5.7
Investments. Neither Borrower nor any of its Subsidiaries owns any stock, shares,
partnership interests or other equity securities except for Permitted Investments.
5.8
Tax Returns and Payments; Pension Contributions. Borrower and each of its
Subsidiaries have timely filed all required tax returns and reports, and Borrower and each of its Subsidiaries
have timely paid all foreign, federal, state, and local Taxes, assessments, deposits and contributions owed by
Borrower and such Subsidiaries in an amount greater than Ten Thousand Dollars ($10,000), in all
jurisdictions in which Borrower or any such Subsidiary is subject to Taxes, including the United States,
unless such Taxes are being contested in accordance with the next sentence. Borrower and each of its
Subsidiaries may defer payment of any contested Taxes, provided that Borrower or such Subsidiary, (a) in
US-DOCS\149068676.3
26
good faith contests its obligation to pay the Taxes by appropriate proceedings promptly and diligently
instituted and conducted; (b) notifies Collateral Agent of the commencement of, and any material
development in, the proceeding; and (c) maintains adequate reserves or other appropriate provisions on its
books in accordance with GAAP, provided, further, that such action would not involve, in the reasonable
judgment of Collateral Agent, any risk of the sale, forfeiture or loss of any material portion of the Collateral.
Neither Borrower nor any of its Subsidiaries is aware of any claims or adjustments proposed for any of
Borrower’s or such Subsidiary’s prior Tax years which could result in additional Taxes becoming due and
payable by Borrower or its Subsidiaries. Borrower and each of its Subsidiaries have paid all amounts
necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with
their terms, and neither Borrower nor any of its Subsidiaries has withdrawn from participation in, has
permitted partial or complete termination of, or has permitted the occurrence of any other event with respect
to, any such plan which could reasonably be expected to result in any liability of Borrower or its
Subsidiaries, including any liability to the Pension Benefit Guaranty Corporation or its successors or any
other Governmental Authority.
5.9
Use of Proceeds. Borrower shall use the proceeds of the Term Loans to repay all
outstanding obligations under Borrower’s existing debt facility with Oxford Finance LLC, as working
capital and to fund its general business requirements and other general corporate purposes and to pay any
fees and expenses relating to this Agreement and the transactions contemplated hereby, and not for personal,
family, household or agricultural purposes.
5.10
Full Disclosure. No written representation, warranty or other statement of Borrower or any
of its Subsidiaries in any certificate or written statement, when taken as a whole, given to Collateral Agent
or any Lender, as of the date such representation, warranty, or other statement was made, taken together
with all such written certificates and written statements given to Collateral Agent or any Lender, contains
any untrue statement of a material fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading (it being recognized that projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that
actual results during the period or periods covered by such projections and forecasts may differ from the
projected or forecasted results).
6.
AFFIRMATIVE COVENANTS
Borrower shall, and shall cause each of its Subsidiaries to, do all of the following:
6.1
Government Compliance.
(a)
Other than specifically permitted hereunder, maintain its and all its Subsidiaries’
legal existence and good standing in their respective jurisdictions of organization and maintain qualification
in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material
Adverse Change. Comply with all laws, ordinances and regulations to which Borrower or any of its
Subsidiaries is subject, the noncompliance with which could reasonably be expected to have a Material
Adverse Change.
(b)
Obtain and keep in full force and effect, all of the material Governmental
Approvals necessary for the performance by Borrower and its Subsidiaries of their respective businesses
and obligations under the Loan Documents and the grant of a security interest to Collateral Agent for the
ratable benefit of the Secured Parties, in all of the Collateral.
6.2
Financial Statements, Reports, Certificates; Notices.
(a)
Deliver to Collateral Agent:
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27
(i)
as soon as available, but no later than thirty (30) days after the last day of each
month, a company prepared consolidated and, if prepared by Borrower or if reasonably requested by the
Lenders, consolidating balance sheet, income statement and cash flow statement covering the consolidated
operations of Borrower and its consolidated Subsidiaries for such month certified by a Responsible Officer
and in a form reasonably acceptable to the Collateral Agent;
(ii)
as soon as available, but no later than forty-five (45) days after the last day of each
of the first three (3) of Borrower’s fiscal quarters, a company prepared consolidated and, if prepared by
Borrower or if reasonably requested by the Lenders, consolidating balance sheet, income statement and cash
flow statement covering the consolidated operations of Borrower and its consolidated Subsidiaries for such
fiscal quarter certified by a Responsible Officer (provided, however, that such certification by a Responsible
Officer of Borrower shall be deemed to have made if a similar certification is required under the Sarbanes-
Oxley Act of 2002 and such certification shall have been made available within the time period specified
above on the SEC’s EDGAR system (or any successor system adopted by the SEC) and in a form
reasonably acceptable to the Collateral Agent).
(iii)
as soon as available, but no later than ninety (90) days after the last day of
Borrower’s fiscal year or within five (5) days of filing of the same with the SEC, audited consolidated
financial statements covering the consolidated operations of Borrower and its consolidated Subsidiaries for
such fiscal year, prepared under GAAP, consistently applied, together with an Unqualified Opinion on the
financial statements;
(iv)
as soon as available after approval thereof by Borrower’s board of directors, but no
later than the earlier of (x) ten (10) days’ after such approval and (y) sixty days after the start of the then-
current calendar year, Borrower’s annual financial projections for the entire then-next or current, as
applicable, fiscal year as approved by Borrower’s board of directors; provided that, any revisions to such
projections approved by Borrower’s board of directors shall be delivered to Collateral Agent and the
Lenders no later than seven (7) days after such approval);
(v)
within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission;
(vi)
as soon as available, but no later than thirty (30) days after the last day of each
month, copies of the month-end account statements for each Collateral Account maintained by Borrower or
its Subsidiaries, which statements may be provided to Collateral Agent and each Lender by Borrower or
directly from the applicable institution(s);
(vii)
prompt delivery of (and in any event within five (5) days after the same are sent or
received) copies of all material correspondence, reports, documents and other filings with any
Governmental Authority that could reasonably be expected to result in a Material Adverse Change;
(viii)
prompt notice of any event that (A) could reasonably be expected to materially and
adversely affect the value of the Intellectual Property or (B) could reasonably be expected to result in a
Material Adverse Change;
(ix)
written notice delivered at least ten (10) days’ prior to Borrower’s creation of a New
Subsidiary in accordance with the terms of Section 6.10;
(x)
written notice delivered at least ten (10) days’ prior to Borrower’s (A) adding any
new offices or business locations, including warehouses (unless such new offices or business locations
contain less than Two Hundred Thousand Dollars ($200,000.00) in assets or property of Borrower or any of
its Subsidiaries) (it being understood that this clause shall not apply to assets or property in transit), (B)
US-DOCS\149068676.3
28
changing its respective jurisdiction of organization, (C) changing its organizational structure or type, (D)
changing its respective legal name, or (E) changing any organizational number(s) (if any) assigned by its
respective jurisdiction of organization;
(xi)
upon Borrower becoming aware of the existence of any Event of Default or event
which, with the giving of notice or passage of time, or both, would constitute an Event of Default, prompt
(and in any event within three (3) Business Days) written notice of such occurrence, which such notice shall
include a reasonably detailed description of such Event of Default or event which, with the giving of notice
or passage of time, or both, would constitute an Event of Default, and Borrower’s proposal regarding how to
cure such Event of Default or event;
(xii)
immediate notice if Borrower or such Subsidiary has Knowledge that Borrower, or
any Subsidiary or Affiliate of Borrower, is listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo
contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or
predicate crimes to money laundering;
(xiii)
notice of any commercial tort claim (as defined in the Code) or letter of credit rights
(as defined in the Code) held by Borrower or any Guarantor, in each case in an amount greater than One
Hundred Thousand Dollars ($100,000.00) and of the general details thereof;
(xiv)
if Borrower or any of its Subsidiaries is not now a Registered Organization but later
becomes one, written notice of such occurrence and information regarding such Person’s organizational
identification number within ten (10) days of receiving such organizational identification number;
(xv)
prompt notice of the execution of any Material Agreement or any amendment to,
modification of, termination of or waiver under any Material Agreement; and
(xvi)
other information as reasonably requested by Collateral Agent or any Lender.
Notwithstanding the foregoing, the financial statements or other reports required to be delivered pursuant to
clauses (ii), (iii) and (iv) above may be delivered electronically and if so delivered, shall be deemed to have
been delivered on the date on which Borrower posts such documents, or provides a link thereto, on
Borrower’s website on the internet at Borrower’s website address.
(b)
the delivery of
Concurrently with
in
Section 6.2(a)(i) above for each March, June, September and December, but no later than thirty (30) days
after the last day of each such month, deliver to each Lender (x) an updated Perfection Certificate to reflect
any amendments, modifications and updates, if any, to certain information in the Perfection Certificate after
the Effective Date to the extent such amendments, modifications and updates are permitted by one or more
specific provisions in this agreement or (y) a certificate of a Responsible Officer certifying that there has
been no change in such information from the most recent Perfection Certificate delivered to Collateral
Agent.
the financial statements specified
(c)
in
Section 6.2(a)(i) above but no later than thirty (30) days after the last day of each month, deliver to each
Lender:
the financial statements specified
Concurrently with
the delivery of
(i)
(ii)
Subsidiaries;
US-DOCS\149068676.3
a duly completed Compliance Certificate signed by a Responsible Officer;
copies of any material Governmental Approvals obtained by Borrower or any of its
29
(iii)
written notice of the commencement of, and any material development in, the
proceedings contemplated by Section 5.8 hereof;
(iv)
prompt written notice of any litigation or governmental proceedings pending or
threatened (in writing) against Borrower or any of its Subsidiaries, which could reasonably be expected to
result in damages or costs to Borrower or any of its Subsidiaries of One Hundred Fifty Thousand Dollars
($150,000.00); and
(v)
written notice of all returns, recoveries, disputes and claims regarding Inventory
that involve more than One Hundred Thousand Dollars ($100,000.00) individually or in the aggregate in
any calendar year.
(d)
Keep proper, complete and true books of record and account in accordance with
GAAP in all material respects. Borrower shall, and shall cause each of its Subsidiaries to, allow, at the sole
cost of Borrower, Collateral Agent or any Lender, during regular business hours upon reasonable prior
notice (provided that no notice shall be required when an Event of Default has occurred and is continuing),
to visit and inspect any of its properties, to examine and make abstracts or copies from any of its books and
records, and to conduct a collateral audit and analysis of its operations and the Collateral. Such audits shall
be conducted no more often than once every year unless (and more frequently if) an Event of Default has
occurred and is continuing.
6.3
Inventory; Returns. Keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower, or any of its Subsidiaries, as applicable, and
their respective Account Debtors shall follow Borrower’s, or such Subsidiary’s, customary practices as they
exist as of the Effective Date.
6.4
Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all
required tax returns and reports, and timely pay, and require each of its Subsidiaries to timely pay, all
foreign, federal, state, and local Taxes, assessments, deposits and contributions owed by Borrower or its
Subsidiaries, except as otherwise permitted pursuant to the terms of Section 5.8 hereof; deliver to Lenders,
on demand, appropriate certificates attesting to such payments; and pay all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in accordance with the terms of such plans.
6.5
Insurance. Keep Borrower’s and its Subsidiaries’ business and the Collateral insured for
risks and in amounts standard for companies in Borrower’s and its Subsidiaries’ industry and location and
as Collateral Agent may reasonably request. Insurance policies shall be in a form, with companies, and in
amounts that are reasonably satisfactory to Collateral Agent and Lenders. All property policies shall have a
lender’s loss payable endorsement showing Collateral Agent as lender loss payee and shall waive
subrogation against Collateral Agent, and all liability policies shall show, or have endorsements showing,
Collateral Agent (for the ratable benefit of the Secured Parties), as additional insured. The Collateral Agent
shall be named as lender loss payee and/or additional insured with respect to any such insurance providing
coverage in respect of any Collateral, and each provider of any such insurance shall agree, by endorsement
upon the policy or policies issued by it or by independent instruments furnished to the Collateral Agent, that
it will give the Collateral Agent thirty (30) days prior written notice (or ten (10) days prior written notice for
non-payment) before any such policy or policies shall be cancelled. At Collateral Agent’s request,
Borrower shall deliver to the Collateral Agent certified copies of policies and evidence of all premium
payments. Proceeds payable under any policy shall, at Collateral Agent’s option, be payable to Collateral
Agent, for the ratable benefit of the Secured Parties, on account of the then-outstanding Obligations.
Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower
shall have the option of applying the proceeds of any casualty policy within one hundred eighty (180) days
of receipt thereof up to Five Hundred Thousand Dollars ($500,000.00) with respect to any loss, but not
exceeding Five Hundred Thousand Dollars ($500,000.00), in the aggregate for
US-DOCS\149068676.3
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all losses under all casualty policies in any one year, toward the replacement promptly or repair of destroyed
or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value
as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Collateral Agent has been
granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event
of Default, all proceeds payable under such casualty policy shall, at the option of Collateral Agent, be
payable to Collateral Agent, for the ratable benefit of the Lenders, on account of the Obligations. If
Borrower or any of its Subsidiaries fails to obtain insurance as required under this Section 6.5 or to pay any
amount or furnish any required proof of payment to third persons, Collateral Agent and/or any Lender may
make (but has no obligation to do so), at Borrower’s expense, all or part of such payment or obtain such
insurance policies required in this Section 6.5, and take any action under the policies Collateral Agent or
such Lender deems prudent.
6.6
Operating Accounts.
(a)
From and after the date that is two (2) Business Days after the Effective Date,
maintain Borrower’s and Guarantors’ Collateral Accounts with depositary institutions that have agreed to
execute Control Agreements in favor of Collateral Agent with respect to such Collateral Accounts;
provided, that with respect to Borrower’s Collateral Accounts maintained with PNC Bank, National
Association, the aggregate amount of all cash or Cash Equivalents in all such Collateral Accounts, in the
aggregate, shall not exceed Five Million Dollars ($5,000,000) until the date on which Borrower has
delivered such Control Agreements in favor of Collateral Agent with respect to such Collateral Accounts.
The provisions of the previous sentence shall not apply to Deposit Accounts exclusively used for payroll,
payroll Taxes and other employee wage and benefit payments to or for the benefit of Borrower’s, or any
Guarantor’s, employees, in an aggregate amount not to exceed One Hundred Thousand Dollars $100,000
and as identified to Collateral Agent by Borrower as such in the Perfection Certificate.
(b)
Borrower shall provide Collateral Agent ten (10) days’ prior written notice before
Borrower or any Guarantor establishes any Collateral Account. In addition, for each Collateral Account
that Borrower or any Guarantor, at any time maintains, Borrower or such Guarantor shall cause the
applicable bank or financial institution at or with which such Collateral Account is maintained to execute
and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to
perfect Collateral Agent’s Lien in such Collateral Account (held for the ratable benefit of the Secured
Parties) in accordance with the terms hereunder prior to the establishment of such Collateral Account. The
provisions of the previous sentence shall not apply to any Excluded Accounts.
(c)
Neither Borrower nor any Guarantor shall maintain any Collateral Accounts except
Collateral Accounts maintained in accordance with this Section 6.6.
6.7
Protection of Intellectual Property Rights. Borrower and each of its Subsidiaries shall:
(a) protect, defend and maintain the validity and enforceability of its respective Intellectual Property that is
material to its business; (b) promptly advise Collateral Agent in writing of infringement by a third party of
its respective material Intellectual Property; and (c) not allow any of its respective Intellectual Property
material to its respective business to be abandoned, forfeited or dedicated to the public without Collateral
Agent’s prior written consent.
6.8
Litigation Cooperation. Commencing on the Effective Date and continuing through the
termination of this Agreement, make available to Collateral Agent and the Lenders, without expense to
Collateral Agent or the Lenders, Borrower and each of Borrower’s officers, employees and agents and
Borrower’s Books, to the extent that Collateral Agent or any Lender may reasonably deem them necessary
to prosecute or defend any third-party suit or proceeding instituted by or against Collateral Agent or any
Lender with respect to any Collateral or relating to Borrower.
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6.9
Landlord Waivers; Bailee Waivers. In the event that Borrower or any of its Subsidiaries,
after the Effective Date, intends to add any new offices or business locations, including warehouses, or
otherwise store any portion of the Collateral with, or deliver any portion of the Collateral to, a bailee, in
each case pursuant to Section 7.2, then, in the event that the Collateral at any new location is valued (based
on book value) in excess of One Hundred Thousand Dollars ($100,000.00) in the aggregate, at Collateral
Agent’s election, such bailee or landlord, as applicable, must execute and deliver a bailee waiver or landlord
waiver, as applicable, in form and substance reasonably satisfactory to Collateral Agent prior to the addition
of any new offices or business locations, or any such storage with or delivery to any such bailee, as the case
may be.
6.10
Creation/Acquisition of Subsidiaries. In the event any Borrower or any Subsidiary of any
Borrower creates or acquires any Subsidiary after the Effective Date, Borrower or such Subsidiary shall
promptly notify the Collateral Agent and the Lenders of such creation or acquisition, and Borrower or such
Subsidiary shall, within sixty (60) days of the creation or acquisition of such Subsidiary, take all actions
reasonably requested by the Collateral Agent or the Lenders to achieve any of the following with respect to
such “New Subsidiary” (defined as a Subsidiary formed after the date hereof during the term of this
Agreement): (i) to cause such New Subsidiary to become either a co-Borrower hereunder, or a secured
guarantor with respect to the Obligations; and (ii) to grant and pledge to Collateral Agent a perfected
security interest in 100% of the stock, units or other evidence of ownership held by Borrower or its
Subsidiaries of any such New Subsidiary.
6.11
Further Assurances. Execute any further instruments and take further action as Collateral
Agent or any Lender reasonably requests to perfect or continue Collateral Agent’s Lien in the Collateral or
to effect the purposes of this Agreement.
7.
NEGATIVE COVENANTS
Borrower shall not, and shall not permit any of its Subsidiaries to, do any of the following without
the prior written consent of the Required Lenders:
7.1
Dispositions. Convey, sell, lease, transfer, assign, dispose of, license (collectively,
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except
for Permitted Transfers.
7.2
Changes in Business, Management, Ownership, or Business Locations. (a) Engage in
or permit any of its Subsidiaries to engage in any business other than the businesses engaged in by
Borrower or such Subsidiary, as applicable, as of the Effective Date or reasonably related thereto;
(b) liquidate or dissolve; or (c) (i) terminate the employment of any Key Person unless written notice
thereof is provided to each Lender within ten (10) days of such termination of employment, or (ii) enter into
any transaction or series of related transactions in which (A) the stockholders of Borrower who were not
stockholders immediately prior to the first such transaction own more than thirty-five percent (35%) of the
voting stock of Borrower immediately after giving effect to such transaction or related series of such
transactions and (B) except as permitted by Section 7.3, Borrower ceases to own, directly or indirectly,
100% of the ownership interests in each Subsidiary of Borrower. Borrower shall not, and shall not permit
any of its Subsidiaries to, without at least ten (10) days’ prior written notice to Collateral Agent: (A) add
any new offices or business locations, including warehouses (unless such new offices or business locations
contain less than Two Hundred Thousand Dollars ($200,000.00) in assets or property of Borrower or any of
its Subsidiaries, as applicable); (B) change its respective jurisdiction of organization, (C) except as
permitted by Section 7.3, change its respective organizational structure or type, (D) change its respective
legal name, or (E) change any organizational number(s) (if any) assigned by its respective jurisdiction of
organization.
US-DOCS\149068676.3
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7.3
Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or shares or any property of another Person, in each case including for
the avoidance of doubt through a merger, purchase, in-licensing arrangement or any similar transaction. A
Subsidiary may merge or consolidate into another Subsidiary (provided such surviving Subsidiary is a “co-
Borrower” hereunder or has provided a secured Guaranty of Borrower’s Obligations hereunder in
accordance with Section 6.10) or with (or into) Borrower provided Borrower is the surviving legal entity,
and as long as no Event of Default is occurring prior thereto or arises as a result therefrom.
7.4
Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5
Encumbrance. Create, incur, allow, or suffer any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to
do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein (except for Permitted Liens), or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Collateral Agent, for the ratable benefit of the Secured
Parties) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower, or
any of its Subsidiaries, from assigning, mortgaging, pledging, granting a security interest in or upon, or
encumbering any of Borrower’s or such Subsidiary’s Intellectual Property, except as is otherwise permitted
in Section 7.1 hereof and the definition of “Permitted Liens”.
7.6
Maintenance of Collateral Accounts. With respect to Borrower any Guarantors, maintain
any Collateral Account except pursuant to the terms of Section 6.6 hereof.
7.7
Restricted Payments. (a) Declare or pay any dividends (other than dividends payable
solely in capital stock) or make any other distribution or payment in respect of or redeem, retire or purchase
any capital stock (other than (i) the declaration or payment of dividends to Borrower or its Subsidiaries, (ii)
the declaration or payment of any dividends solely in the form of equity securities, and (iii) repurchases
pursuant to the terms of employee stock purchase plans, employee restricted stock agreements, stockholder
rights plans, employee, director or consultant equity plans, or similar plans, provided such repurchases do
not exceed Two Hundred Fifty Thousand Dollars ($250,000.00) in the aggregate per fiscal year), (b) other
than the Obligations in accordance with the terms hereof, purchase, redeem, defease or prepay any principal
of, premium, if any, interest or other amount payable in respect of any Indebtedness prior to its scheduled
maturity unless being replaced with Indebtedness of at least the same principal amount and such new
Indebtedness is Permitted Indebtedness, or (c) be a party to or bound by an agreement that restricts a
Subsidiary from paying dividends or otherwise distributing property to Borrower.
7.8
Investments.
Directly or indirectly make any Investment other than Permitted
Investments, or permit any of its Subsidiaries to do so other than Permitted Investments.
7.9
Transactions with Affiliates. Directly or indirectly enter into or permit to exist any
material transaction with any Affiliate of Borrower or any of its Subsidiaries, except for (a) transactions that
are in the ordinary course of Borrower’s or such Subsidiary’s business, upon fair and reasonable terms that
are no less favorable to Borrower or such Subsidiary than would be obtained in an arm’s length transaction
with a non-affiliated Person, and (b) Subordinated Debt or equity investments by Borrower’s investors in
Borrower or its Subsidiaries.
7.10
Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except
under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated
Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would
US-DOCS\149068676.3
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increase the amount thereof or adversely affect the subordination thereof to Obligations owed to the
Lenders.
7.11
Compliance. (a) Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its
important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System), or use the proceeds of any Term Loan for that purpose;
(b) fail to meet the minimum funding requirements of ERISA; (c) permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; (d) fail to comply with the Federal Fair Labor Standards Act or
violate any other law or regulation, if the violation could reasonably be expected to have a Material Adverse
Change, or permit any of its Subsidiaries to do so; or (e) withdraw or permit any Subsidiary to withdraw
from participation in, permit partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably
be expected to result in any liability of Borrower or any of its Subsidiaries, including any liability to the
Pension Benefit Guaranty Corporation or its successors or any other Governmental Authority.
7.12
Compliance with Anti-Terrorism Laws. Directly or indirectly, Knowingly or permit any
Affiliate to enter into any documents, instruments, agreements or contracts with any Person listed on the
OFAC Lists. Directly or indirectly or permit any Affiliate to, (a) conduct any business or engage in any
transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of
any contribution of funds, goods or services to or for the benefit of any Blocked Person, (b) deal in, or
otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to
Executive Order No. 13224 or any similar executive order or other Anti-Terrorism Law, or (c) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or
attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism
Law.
7.13
Financial Covenants.
(a)
Minimum Liquidity. (x) If, as of any date of determination falling on or prior to
April 30, 2025, the Net Product Revenue, measured on a trailing twelve-month basis as of the last day of the
most recently ended month, is greater than [***], permit Qualified Cash to be less than [***] plus the
Qualified Cash A/P Amount and (y) at all other times, permit Qualified Cash to be less than [***] plus the
Qualified Cash A/P Amount.
(b)
Minimum Net Product Revenue. Commencing with the measurement period
ending March 31, 2024, as of the last day of each month, permit Net Product Revenue, measured on a
trailing twelve-month basis, to be lower than the value equal to 109% of the actual Net Product Revenue as
of the month ending twelve (12) months prior to such date of determination. From the July 31, 2024, testing
period onward, Net Product Revenue, measured on a trailing twelve-month basis, to be lower than the value
equal to 110% of the actual Net Product Revenue as of the month ending twelve (12) months prior to such
date of determination. For clarity, the minimum Net Product Revenue levels for March through June 2024
are set forth below:
Measurement Period Ending
Minimum Net Product Revenue
March 31, 2024
April 30, 2024
[***]
[***]
US-DOCS\149068676.3
34
May 31, 2024
June 30, 2024
July 31, 2024
August 31, 2024
September 30, 2024
October 31, 2024
November 30, 2024
December 31, 2024
January 31, 2025
February 28, 2025
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
[***]
7.14 Material Agreements. Without the consent of Collateral Agent, amend any Material
Agreement in a manner adverse to the interests of the Collateral Agent or Lenders.
8.
EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “Event of Default”) under this
Agreement:
8.1
Payment Default. Borrower fails to (a) make any payment of principal or interest on any
Term Loan on its due date, or (b) pay any other Obligation within three (3) Business Days after such
Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments
due on the Maturity Date or the date of acceleration pursuant to Section 9.1 (a) hereof);
8.2
Covenant Default.
(a)
Borrower or any of its Subsidiaries fails or neglects to perform any obligation in
Sections 3.7 (Post-Closing Obligations), 6.2 (Financial Statements, Reports, Certificates), 6.4 (Taxes), 6.5
(Insurance), 6.6 (Operating Accounts), 6.7 (Protection of Intellectual Property Rights), 6.9 (Landlord
Waivers; Bailee Waivers), 6.10 (Creation/Acquisition of Subsidiaries) or Borrower violates any provision in
Section 7; or
(b)
Borrower, or any of its Subsidiaries, fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant or agreement contained in this Agreement or any other Loan
Document to which such person is a party, and as to any default (other than those specified in this Section 8)
under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the
default within twenty (20) days after the occurrence thereof; provided, however, that if the default cannot by
its nature be cured within the twenty (20) day period or cannot after diligent attempts by Borrower or such
Subsidiary, as applicable, be cured within such twenty (20) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure
US-DOCS\149068676.3
35
to cure the default shall not be deemed an Event of Default (but no Term Loans shall be made during such
cure period).
8.3
8.4
Material Adverse Change. A Material Adverse Change has occurred;
Attachment; Levy; Restraint on Business.
(a)
(i) The service of process seeking to attach, by trustee or similar process, any funds
of Borrower or any of its Subsidiaries or of any entity under control of Borrower or its Subsidiaries on
deposit with any institution at which Borrower or any of its Subsidiaries maintains a Collateral Account, or
(ii) a notice of lien, levy, or assessment is filed against Borrower or any of its Subsidiaries or their
respective assets by any government agency, and the same under subclauses (i) and (ii) of this clause (a) are
not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a
bond or otherwise); and
(b)
(i) any material portion of Borrower’s or any of its Subsidiaries’ assets is attached,
seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains,
or prevents Borrower or any of its Subsidiaries from conducting any part of its business;
8.5
Insolvency. (a) Borrower or any of its Subsidiaries is or becomes Insolvent; (b) Borrower
or any of its Subsidiaries begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against
Borrower or any of its Subsidiaries and not dismissed or stayed within forty-five (45) days (but no Term
Loans shall be extended while Borrower or any Subsidiary is Insolvent and/or until any Insolvency
Proceeding is dismissed);
8.6
Other Agreements. There is a default in (a) any agreement to which Borrower or any of
its Subsidiaries is a party with a third party or parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000.00) or that could reasonably be expected to have a Material Adverse
Change or (b) there is any default under a Material Agreement that permits the counterparty thereto to
accelerate the payments owed thereunder;
8.7
Judgments. One or more judgments, orders, or decrees for the payment of money in an
amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000.00) (not
covered by independent third-party insurance as to which (a) Borrower reasonably believes such insurance
carrier will accept liability, (b) Borrower or the applicable Subsidiary has submitted such claim to such
insurance carrier and (c) liability has not been rejected by such insurance carrier) shall be rendered against
Borrower or any of its Subsidiaries and shall remain unsatisfied, unvacated, or unstayed for a period of ten
(10) days after the entry thereof;
8.8
Misrepresentations. Borrower or any of its Subsidiaries or any Person acting for
Borrower or any of its Subsidiaries makes any representation, warranty, or other statement now or later in
this Agreement, any Loan Document or in any writing delivered to Collateral Agent and/or the Lenders or
to induce Collateral Agent and/or the Lenders to enter this Agreement or any Loan Document, and such
representation, warranty, or other statement, when taken as a whole, is incorrect in any material respect
when made;
8.9
Subordinated Debt. A default or breach occurs under any subordination agreement, or any
creditor that has signed such an agreement with Collateral Agent or the Lenders breaches any terms of such
agreement;
US-DOCS\149068676.3
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8.10
Guaranty. (a) Any Guaranty terminates or ceases for any reason to be in full force and
effect; (b) any Guarantor does not perform any obligation or covenant under any Guaranty; or (c) any
circumstance described in Section 8 occurs with respect to any Guarantor;
8.11
Governmental Approvals; FDA Action. Any Governmental Approval shall have been
revoked, rescinded, suspended, modified in an adverse manner, or not renewed in the ordinary course for a
full term and such revocation, rescission, suspension, modification or non-renewal has resulted in or could
reasonably be expected to result in a Material Adverse Change; or (b) (i) the FDA, DOJ or other
Governmental Authority initiates a Regulatory Action or any other enforcement action against Borrower or
any of its Subsidiaries or any supplier of Borrower or any of its Subsidiaries that causes Borrower or any of
its Subsidiaries to recall, withdraw, remove or discontinue manufacturing, distributing, and/or marketing
any of its products, even if such action is based on previously disclosed conduct; (ii) the FDA or any other
comparable Governmental Authority issues a warning letter to Borrower or any of its Subsidiaries with
respect to any of its activities or products which could reasonably be expected to result in a Material
Adverse Change; (iii) Borrower or any of its Subsidiaries conducts a mandatory or voluntary recall which
could reasonably be expected to result in liability and expense to Borrower or any of its Subsidiaries of Five
Hundred Thousand Dollars ($500,000) or more; (iv) Borrower or any of its Subsidiaries enters into a
settlement agreement with the FDA, DOJ or other Governmental Authority that results in aggregate liability
as to any single or related series of transactions, incidents or conditions, of Five Hundred Thousand Dollars
($500,000) or more, or that could reasonably be expected to result in a Material Adverse Change, even if
such settlement agreement is based on previously disclosed conduct; or (v) the FDA or any other
comparable Governmental Authority revokes any authorization or permission granted under any
Registration, or Borrower or any of its Subsidiaries withdraws any Registration, that could reasonably be
expected to result in a Material Adverse Change.
8.12
Lien Priority. Except as the result of the action or inaction of the Collateral Agent or the
Lenders, any Lien created hereunder or by any other Loan Document shall at any time fail to constitute a
valid and perfected Lien on any of the Collateral purported to be secured thereby, subject to no prior or
equal Lien, other than Permitted Liens arising as a matter of applicable law.
9.
RIGHTS AND REMEDIES
9.1
Rights and Remedies.
(a)
Upon the occurrence and during the continuance of an Event of Default, Collateral
Agent may, and at the written direction of Required Lenders shall, without notice or demand, do any or all
of the following: (i) deliver notice of the Event of Default to Borrower, (ii) by notice to Borrower declare all
Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all
Obligations shall be immediately due and payable without any action by Collateral Agent or the Lenders) or
(iii) by notice to Borrower suspend or terminate the obligations, if any, of the Lenders to advance money or
extend credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower
and Collateral Agent and/or the Lenders (but if an Event of Default described in Section 8.5 occurs all
obligations, if any, of the Lenders to advance money or extend credit for Borrower’s benefit under this
Agreement or under any other agreement between Borrower and Collateral Agent and/or the Lenders shall
be immediately terminated without any action by Collateral Agent or the Lenders).
(b)
Without limiting the rights of Collateral Agent and the Lenders set forth in
Section 9.1(a) above, upon the occurrence and during the continuance of an Event of Default, Collateral
Agent shall have the right and at the written direction of the Required Lenders shall, without notice or
demand, to do any or all of the following:
(i)
foreclose upon and/or sell or otherwise liquidate, the Collateral;
US-DOCS\149068676.3
37
(ii)
make a demand for payment upon any Guarantor pursuant to the Guaranty
delivered by such Guarantor;
(iii)
apply to the Obligations any (A) balances and deposits of Borrower that Collateral
Agent or any Lender holds or controls, (B) any amount held or controlled by Collateral Agent or any Lender
owing to or for the credit or the account of Borrower, or (C) amounts received from any Guarantors in
accordance with the respective Guaranty delivered by such Guarantor; and/or
(iv)
commence and prosecute an Insolvency Proceeding or consent to Borrower
commencing any Insolvency Proceeding.
(c)
Without limiting the rights of Collateral Agent and the Lenders set forth in Sections
9.1(a) and (b) above, upon the occurrence and during the continuance of an Event of Default, Collateral
Agent shall have the right and at the written direction of the Required Lenders shall, without notice or
demand, to do any or all of the following:
(i)
settle or adjust disputes and claims directly with Account Debtors for amounts on
terms and in any order that Collateral Agent considers advisable, notify any Person owing Borrower money
of Collateral Agent’s security interest in such funds, and verify the amount of such account;
(ii)
make any payments and do any acts it considers necessary or reasonable to protect
the Collateral and/or its Liens in the Collateral (held for the ratable benefit of the Secured Parties).
Borrower shall assemble the Collateral if Collateral Agent requests and make it available at such location
as Collateral Agent reasonably designates. Collateral Agent may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or
compromise any Lien which appears to be prior or superior to its security interest and pay all expenses
incurred. Borrower grants Collateral Agent a license to enter and occupy any of its premises, without
charge, to exercise any of Collateral Agent’s rights or remedies;
(iii)
ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, and/or
advertise for sale, any of the Collateral. Collateral Agent is hereby granted a non-exclusive, royalty-free
license or other right to use, without charge, Borrower’s and each of its Subsidiaries’ labels, patents,
copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks,
and advertising matter, or any similar property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Collateral Agent’s exercise of its
rights under this Section 9.1, Borrower’s and each of its Subsidiaries’ rights under all licenses and all
franchise agreements inure to Collateral Agent, for the benefit of the Lenders;
(iv)
place a “hold” on any Collateral Account maintained with Collateral Agent or any
Lender or otherwise in respect of which a Control Agreement has been delivered in favor of Collateral
Agent (for the ratable benefit of the Secured Parties) and/or deliver a notice of exclusive control, any
entitlement order, or other directions or instructions pursuant to any Control Agreement or similar
agreements providing control of any Collateral;
(v)
demand and receive possession of Borrower’s Books;
(vi)
appoint a receiver to seize, manage and realize any of the Collateral, and such
receiver shall have any right and authority as any competent court will grant or authorize in accordance with
any applicable law, including any power or authority to manage the business of Borrower or any of its
Subsidiaries; and
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(vii)
subject to clauses 9.1(a) and (b), exercise all rights and remedies available to
Collateral Agent and each Lender under the Loan Documents or at law or equity, including all remedies
provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
Notwithstanding any provision of this Section 9.1 to the contrary, upon the occurrence of any Event
of Default, Collateral Agent shall have the right to exercise any and all remedies referenced in this
Section 9.1 without the written consent of Required Lenders following the occurrence of an Exigent
Circumstance.
9.2
Power of Attorney. Borrower hereby irrevocably appoints Collateral Agent as its lawful
attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to:
(a) endorse Borrower’s or any of its Subsidiaries’ name on any checks or other forms of payment or
security; (b) sign Borrower’s or any of its Subsidiaries’ name on any invoice or bill of lading for any
Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts of
Borrower directly with the applicable Account Debtors, for amounts and on terms Collateral Agent
determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and
(f) transfer the Collateral into the name of Collateral Agent or a third party as the Code or any applicable
law permits. Borrower hereby appoints Collateral Agent as its lawful attorney-in-fact to sign Borrower’s or
any of its Subsidiaries’ name on any documents necessary to perfect or continue the perfection of Collateral
Agent’s security interest in the Collateral regardless of whether an Event of Default has occurred until all
Obligations (other than inchoate indemnity obligations) have been satisfied in full and Collateral Agent and
the Lenders are under no further obligation to make extend Term Loans hereunder. Collateral Agent’s
foregoing appointment as Borrower’s or any of its Subsidiaries’ attorney in fact, and all of Collateral
Agent’s rights and powers, coupled with an interest, are irrevocable until all Obligations (other than
inchoate indemnity obligations) have been fully repaid and performed and Collateral Agent’s and the
Lenders’ obligation to provide Term Loans terminates.
9.3
Protective Payments. If Borrower or any of its Subsidiaries fail to obtain the insurance
called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which
Borrower or any of its Subsidiaries is obligated to pay under this Agreement or any other Loan Document,
Collateral Agent may obtain such insurance or make such payment, and all amounts so paid by Collateral
Agent are Lenders’ Expenses and immediately due and payable, bearing interest at the Default Rate, and
secured by the Collateral. Collateral Agent will make reasonable efforts to provide Borrower with notice of
Collateral Agent obtaining such insurance or making such payment at the time it is obtained or paid or
within a reasonable time thereafter. No such payments by Collateral Agent are deemed an agreement to
make similar payments in the future or Collateral Agent’s waiver of any Event of Default.
9.4
Application of Payments and Proceeds. Notwithstanding anything to the contrary
contained in this Agreement, upon the occurrence and during the continuance of an Event of Default,
(a) Borrower irrevocably waives the right to direct the application of any and all payments at any time or
times thereafter received by Collateral Agent from or on behalf of Borrower or any of its Subsidiaries of all
or any part of the Obligations, and, as between Borrower on the one hand and Collateral Agent and Lenders
on the other, Collateral Agent shall have the continuing and exclusive right to apply and to reapply any and
all payments received against the Obligations in such manner as Collateral Agent may deem advisable
notwithstanding any previous application by Collateral Agent, and (b) the proceeds of any sale of, or other
realization upon all or any part of the Collateral shall be applied: first, to the Lenders’ Expenses; second, to
accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the
United States Bankruptcy Code, would have accrued on such amounts); third, to the principal amount of the
Obligations outstanding; and fourth, to any other Obligations owing to Collateral Agent or any Lender
US-DOCS\149068676.3
39
under the Loan Documents. Any balance remaining shall be delivered to Borrower or to whoever may be
lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. In carrying out
the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to
the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in
any particular category shall receive an amount equal to its pro rata share of amounts available to be applied
pursuant thereto for such category. Any reference in this Agreement to an allocation between or sharing by
the Lenders of any right, interest or obligation “ratably,” “proportionally” or in similar terms shall refer to
the Lenders’ Pro Rata Shares unless expressly provided otherwise. Collateral Agent, or if applicable, each
Lender, shall promptly remit to the other Lenders such sums as may be necessary to ensure the ratable
repayment of each Lender’s Pro Rata Share of any Term Loan and the ratable distribution of interest, fees
and reimbursements paid or made by Borrower. Notwithstanding the foregoing, a Lender receiving a
scheduled payment shall not be responsible for determining whether the other Lenders also received their
scheduled payment on such date; provided, however, if it is later determined that a Lender received more
than its Pro Rata Share of scheduled payments made on any date or dates, then such Lender shall remit to
Collateral Agent or other the Lenders such sums as may be necessary to ensure the ratable payment of such
scheduled payments, as instructed by Collateral Agent. If any payment or distribution of any kind or
character, whether in cash, properties or securities, shall be received by a Lender in excess of its Pro Rata
Share, then the portion of such payment or distribution in excess of such Lender’s Pro Rata Share shall be
received and held by such Lender in trust for and shall be promptly paid over to the other Lenders (in
accordance with their respective Pro Rata Shares) for application to the payments of amounts due on such
other Lenders’ claims. To the extent any payment for the account of Borrower is required to be returned as
a voidable transfer or otherwise, the Lenders shall contribute to one another as is necessary to ensure that
such return of payment is on a pro rata basis. If any Lender shall obtain possession of any Collateral, it
shall hold such Collateral for itself and as agent and bailee for the Secured Parties for purposes of perfecting
Collateral Agent’s security interest therein (held for the ratable benefit of the Secured Parties).
9.5
Liability for Collateral. So long as Collateral Agent and the Lenders comply with
reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the
control of Collateral Agent and the Lenders, Collateral Agent and the Lenders shall not be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6
No Waiver; Remedies Cumulative. Failure by Collateral Agent or any Lender, at any
time or times, to require strict performance by Borrower of any provision of this Agreement or by Borrower
or any other Loan Document shall not waive, affect, or diminish any right of Collateral Agent or any Lender
thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall
be effective unless signed by Collateral Agent and the Required Lenders and then is only effective for the
specific instance and purpose for which it is given. The rights and remedies of Collateral Agent and the
Lenders under this Agreement and the other Loan Documents are cumulative. Collateral Agent and the
Lenders have all rights and remedies provided under the Code, any applicable law, by law, or in equity. The
exercise by Collateral Agent or any Lender of one right or remedy is not an election, and Collateral Agent’s
or any Lender’s waiver of any Event of Default is not a continuing waiver. Collateral Agent’s or any
Lender’s delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7
Demand Waiver. Borrower waives, to the fullest extent permitted by law, demand, notice
of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper,
and guarantees held by Collateral Agent or any Lender on which Borrower or any Subsidiary is liable.
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40
10.
NOTICES
Other than as specifically provided herein, all notices, consents, requests, approvals, demands, or
other communication (collectively, “Communications”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon
the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered
or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by
electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight
courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall
be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated
below. Any of Collateral Agent, Lender or Borrower may change its mailing address or facsimile number
by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to Borrower:
with a copy to:
NEURONETICS, INC.
3222 Phoenixville Pike
Malvern, PA 19355
Attn: Chief Financial Officer
Email: [***]
NEURONETICS, INC.
3222 Phoenixville Pike
Malvern, PA 19355
Attn: General Counsel
Fax:
Email: [***]
with a copy
(which shall not
constitute notice)
to:
Morrison & Foerster LLP
250 West 55th Street
New York, NY 10019
Attn: Geoff Peck
Email: [***]
If to Collateral
Agent:
SOLAR CAPITAL LTD.
500 Park Avenue, 3rd Floor
New York, NY 10022
Attention: Anthony Storino
Fax: [***]
Email: [***]
with a copy
(which shall not
constitute notice)
to:
LATHAM & WATKINS LLP
505 Montgomery Street, Suite 2000
San Francisco, CA 94111
Attention: Haim Zaltzman
Facsimile: [***]
Email: [***]
US-DOCS\149068676.3
41
11.
CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
11.1 Waiver of Jury Trial. EACH OF BORROWER, COLLATERAL AGENT AND
LENDERS UNCONDITIONALLY WAIVES ANY AND ALL RIGHT TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF
THE OTHER LOAN DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY
DEALINGS AMONG BORROWER, COLLATERAL AGENT AND/OR LENDERS RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE
RELATIONSHIP THAT IS BEING ESTABLISHED AMONG BORROWER, COLLATERAL AGENT
AND/OR LENDERS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT. THIS WAIVER IS
IRREVOCABLE. THIS WAIVER MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING.
THE WAIVER ALSO SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS,
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR
ANY RELATED TRANSACTION. THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
11.2
Governing Law and Jurisdiction.
THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS (EXCLUDING THOSE LOAN DOCUMENTS THAT BY THEIR OWN TERMS ARE
EXPRESSLY GOVERNED BY THE LAWS OF ANOTHER JURISDICTION) AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL IN ALL RESPECTS
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES THAT
WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAW OF SUCH
STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
REGARDLESS OF THE LOCATION OF THE COLLATERAL, PROVIDED, HOWEVER, THAT IF THE
LAWS OF ANY JURISDICTION OTHER THAN NEW YORK SHALL GOVERN IN REGARD TO THE
VALIDITY, PERFECTION OR EFFECT OF PERFECTION OF ANY LIEN OR IN REGARD TO
PROCEDURAL MATTERS AFFECTING ENFORCEMENT OF ANY LIENS IN COLLATERAL, SUCH
LAWS OF SUCH OTHER JURISDICTIONS SHALL CONTINUE TO APPLY TO THAT EXTENT.
11.3
Submission to Jurisdiction. Any legal action or proceeding with respect to the Loan
Documents shall be brought exclusively in the courts of the State of New York located in the City of New
York, Borough of Manhattan, or of the United States of America for the Southern District of New York and,
by execution and delivery of this Agreement, Borrower hereby accepts for itself and in respect of its
Property, generally and unconditionally, the jurisdiction of the aforesaid courts. Notwithstanding the
foregoing, Collateral Agent and Lenders shall have the right to bring any action or proceeding against
Borrower (or any property of Borrower) in the court of any other jurisdiction Collateral Agent or Lenders
deem necessary or appropriate in order to realize on the Collateral or other security for the Obligations. The
parties hereto hereby irrevocably waive any objection, including any objection to the laying of venue or
based on the grounds of forum non conveniens, that any of them may now or hereafter have to the bringing
of any such action or proceeding in such jurisdictions.
11.4
Service of Process. Borrower irrevocably waives personal service of any and all legal
process, summons, notices and other documents and other service of process of any kind and consents to
such service in any suit, action or proceeding brought in the United States of America with respect to or
otherwise arising out of or in connection with any Loan Document by any means permitted by applicable
requirements of law, including by the mailing thereof (by registered or certified mail, postage prepaid) to
the address of Borrower specified herein (and shall be effective when such mailing shall be effective, as
US-DOCS\149068676.3
42
provided therein). Borrower agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
11.5
Non-exclusive Jurisdiction. Nothing contained in this Article 11 shall affect the right of
Collateral Agent or Lenders to serve process in any other manner permitted by applicable requirements of
law or commence legal proceedings or otherwise proceed against Borrower in any other jurisdiction.
12.
GENERAL PROVISIONS
12.1
Successors and Assigns.
(a)
This Agreement binds and is for the benefit of the successors and permitted assigns
of each party. Borrower may not transfer, pledge or assign this Agreement or any rights or obligations
under it without Collateral Agent’s prior written consent (which may be granted or withheld in Collateral
Agent’s discretion, subject to Section 12.5). The Lenders have the right, without the consent of or notice to
Borrower, to sell, transfer, assign, pledge, negotiate, or grant participation in (any such sale, transfer,
assignment, negotiation, or grant of a participation, a “Lender Transfer”) all or any part of, or any interest
in, the Lenders’ obligations, rights, and benefits under this Agreement and the other Loan Documents;
provided, however, that any such Lender Transfer (other than (i) any Transfer at any time that an Event of
Default has occurred and is continuing, or (ii) a transfer, pledge, sale or assignment to an Eligible Assignee)
of its obligations, rights, and benefits under this Agreement and the other Loan Documents shall require the
prior written consent of Collateral Agent (such approved assignee, an “Approved Lender”). Borrower and
Collateral Agent shall be entitled to continue to deal solely and directly with such Lender in connection with
the interests so assigned until Collateral Agent shall have received and accepted an effective assignment
agreement in form satisfactory to Collateral Agent executed, delivered and fully completed by the
applicable parties thereto, and shall have received such other information regarding such Eligible Assignee
or Approved Lender as Collateral Agent reasonably shall require.
(b)
Notwithstanding anything to the contrary contained herein, so long as no Event of
Default has occurred and is continuing, no Lender Transfer (other than a Lender Transfer in connection with
(x) assignments by a Lender due to a forced divestiture at the request of any regulatory agency; or (y) upon
the occurrence of a default, event of default or similar occurrence with respect to a Lender’s own financing
or securitization transactions) shall be permitted, without Borrower’s consent, to any Person which is an
Affiliate or Subsidiary of Borrower, a then-current direct competitor of Borrower, as reasonably determined
by Collateral Agent at the time of such assignment, vulture funds or distressed debt funds, as reasonably
determined by Collateral Agent at the time of such assignment, and natural persons.
(c)
Collateral Agent, acting solely for this purpose as an agent of Borrower, shall
maintain at one of its offices in the United States a register for the recordation of the names and addresses of
the Lenders, and the Term Loan Commitments of, and principal amounts (and stated interest) of the Term
Loans owing to each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in
the Register shall be conclusive absent manifest error, and Borrower, Collateral Agent and Lenders shall
treat each Person whose name is recorded in the Register pursuant to the terms hereof as Lender hereunder
for all purposes of this Agreement. The Register shall be available for inspection by Borrower and any
Lender at any reasonable time and from time to time upon reasonable prior notice. Each Lender that sells a
participation shall, acting solely for this purpose as a non-fiduciary agent of Borrower, maintain a register
on which it enters the name and address of each participant and the principal amounts (and stated interest)
of each participant’s interest in the Term Loans or other obligations under the Loan Documents (the
“Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of
the Participant Register (including the identity of any participant or any information relating to a
participant’s interest in any commitments, loans or its other obligations under any Loan
US-DOCS\149068676.3
43
Document) to any Person except to the extent that such disclosure is necessary to establish that such
commitment, loan or other obligation is in registered form under Section 5f.103-1(c) of the United States
Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and
such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such
participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the
avoidance of doubt, Collateral Agent (in its capacity as Collateral Agent) shall have no responsibility for
maintaining a Participant Register. Borrower agrees that each participant shall be entitled to the benefits of
the provisions in Exhibit C attached hereto (subject to the requirements and limitations therein, including
the requirements under Section 7 of Exhibit C attached hereto (it being understood that the documentation
required under Section 7 of Exhibit C attached hereto shall be delivered to the participating Lender)) to the
same extent as if it were a Lender and had acquired its interest by assignment pursuant to this Section 12.1;
provided that such participant shall not be entitled to receive any greater payment under Exhibit C attached
hereto, with respect to any participation, than its participating Lender would have been entitled to receive,
except to the extent such entitlement to receive a greater payment results from a change in law that occurs
after the participant acquired the applicable participation.
12.2
Indemnification. Borrower agrees to indemnify, defend and hold each Secured Party and
their respective directors, officers, employees, consultants, agents, attorneys, or any other Person affiliated
with or representing such Secured Party (each, an “Indemnified Person”) harmless against: (a) all
obligations, demands, claims, and liabilities (collectively, “Claims”) asserted by any other party in
connection with; related to; following; or arising from, out of or under, the transactions contemplated by the
Loan Documents; and (b) all losses and Lenders’ Expenses incurred, or paid by Indemnified Person in
connection with; related to; following; or arising from, out of or under, the transactions contemplated by the
Loan Documents (including reasonable and invoiced out-of-pocket attorneys’ fees and expenses), except, in
each case, for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or
willful misconduct. Borrower hereby further agrees to indemnify, defend and hold each Indemnified Person
harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable
and invoiced out-of-pocket fees and disbursements of counsel for such Indemnified Person) in connection
with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not
such Indemnified Person shall be designated a party thereto and including any such proceeding initiated by
or on behalf of Borrower, and the reasonable expenses of investigation by engineers, environmental
consultants and similar technical personnel and any commission, fee or compensation claimed by any
broker (other than any broker retained by Collateral Agent or Lenders) asserting any right to payment for
the transactions contemplated hereby which may be imposed on, incurred by or asserted against such
Indemnified Person as a result of or in connection with the transactions contemplated hereby and the use or
intended use of the proceeds of the loan proceeds except for liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements directly caused by such
Indemnified Person’s gross negligence or willful misconduct.
12.3
Severability of Provisions. Each provision of this Agreement is severable from every
other provision in determining the enforceability of any provision.
12.4
Correction of Loan Documents. Collateral Agent may correct patent errors and fill in any
blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties.
12.5
Amendments in Writing; Integration. (a) No amendment, modification, termination or
waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder,
or any consent to any departure by Borrower or any of its Subsidiaries therefrom, shall in any event be
effective unless the same shall be in writing and signed by Borrower, Collateral Agent and the Required
Lenders provided that:
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44
(i)
no such amendment, waiver or other modification that would have the effect of
increasing or reducing a Lender’s Term Loan Commitment or Commitment Percentage shall be effective as
to such Lender without such Lender’s written consent;
(ii)
no such amendment, waiver or modification that would affect the rights and duties
of Collateral Agent shall be effective without Collateral Agent’s written consent or signature; and
(iii)
no such amendment, waiver or other modification shall, unless signed by all the
Lenders directly affected thereby, (A) reduce the principal of, rate of interest on or any fees with respect to
any Term Loan or forgive any principal, interest (other than default interest) or fees (other than late charges)
with respect to any Term Loan (B) postpone the date fixed for, or waive, any payment of principal of any
Term Loan or of interest on any Term Loan (other than default interest) or any fees provided for hereunder
(other than late charges or for any termination of any commitment); (C) change the definition of the term
“Required Lenders” or the percentage of Lenders which shall be required for the Lenders to take any action
hereunder; (D) release all or substantially all of any material portion of the Collateral, authorize Borrower to
sell or otherwise dispose of all or substantially all or any material portion of the Collateral or release any
Guarantor of all or any portion of the Obligations or its Guaranty obligations with respect thereto, except, in
each case with respect to this clause (D), as otherwise may be expressly permitted under this Agreement or
the other Loan Documents (including in connection with any disposition permitted hereunder); (E) amend,
waive or otherwise modify this Section 12.5 or the definitions of the terms used in this Section 12.5 insofar
as the definitions affect the substance of this Section 12.5; (F) consent to the assignment, delegation or other
transfer by Borrower of any of its rights and obligations under any Loan Document or release Borrower of
its payment obligations under any Loan Document, except, in each case with respect to this clause (F),
pursuant to a merger or consolidation permitted pursuant to this Agreement; (G) amend any of the
provisions of Section 9.4 or amend any of the definitions of Pro Rata Share, Term Loan Commitment,
Commitment Percentage or that provide for the Lenders to receive their Pro Rata Shares of any fees,
payments, setoffs or proceeds of Collateral hereunder; (H) subordinate the Liens granted in favor of
Collateral Agent securing the Obligations; or (I) amend any of the provisions of Section 12.8. It is hereby
understood and agreed that all Lenders shall be deemed directly affected by an amendment, waiver or other
modification of the type described in the preceding clauses (C), (D), (E), (F), (G) and (H) of the
immediately preceding sentence.
(b)
Other than as expressly provided for in Section 12.5(a)(i)-(iii), Collateral Agent
may, at its discretion, or if requested by the Required Lenders, from time to time designate covenants in this
Agreement less restrictive by notification to a representative of Borrower.
(c)
This Agreement and the Loan Documents represent the entire agreement about this
subject matter and supersede prior negotiations or agreements with respect to such subject matter. All prior
agreements, understandings, representations, warranties, and negotiations between the parties about the
subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan
Documents.
12.6
Counterparts. This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and delivered, is an original, and
all taken together, constitute one Agreement. Delivery of an executed counterpart of a signature page of this
Agreement by facsimile, portable document format (.pdf) or other electronic transmission will be as
effective as delivery of a manually executed counterpart hereof.
12.7
Survival. Except as otherwise provided in this Agreement, all covenants, representations
and warranties made in this Agreement continue in full force and effect until this Agreement has terminated
pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other
obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied.
US-DOCS\149068676.3
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The obligation of Borrower in Section 12.2 to indemnify each Lender and Collateral Agent, as well as the
confidentiality provisions in Section 12.8 below, shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.
12.8
Confidentiality. In handling any confidential information of Borrower, each of the
Lenders and Collateral Agent shall exercise the same degree of care that it exercises for their own
confidential information, but disclosure of information may be made: (a) subject to the terms and conditions
of this Agreement, to the Lenders’ and Collateral Agent’s Subsidiaries or Affiliates, or in connection with a
Lender’s own financing or securitization transactions and upon the occurrence of a default, event of default
or similar occurrence with respect to such financing or securitization transaction; (b) to prospective
transferees (other than those identified in (a) above) or purchasers of any interest in the Term Loans
(provided, however, the Lenders and Collateral Agent shall, except upon the occurrence and during the
continuance of an Event of Default, obtain such prospective transferee’s or purchaser’s agreement to the
terms of this provision or to similar confidentiality terms); (c) as required by law, rule, regulation,
regulatory or self-regulatory authority, subpoena, or other order; (d) to Lenders’ or Collateral Agent’s
regulators or as otherwise required in connection with an examination or audit; (e) as Collateral Agent
reasonably considers appropriate in exercising remedies under the Loan Documents; and (f) to third party
service providers of the Lenders and/or Collateral Agent so long as such service providers have executed a
confidentiality agreement or have agreed to similar confidentiality terms with the Lenders and/or Collateral
Agent, as applicable, with terms no less restrictive than those contained herein. Confidential information
does not include information that either: (i) is in the public domain or in the Lenders’ and/or Collateral
Agent’s possession when disclosed to the Lenders and/or Collateral Agent, or becomes part of the public
domain after disclosure to the Lenders and/or Collateral Agent through no breach of this provision by the
Lenders or the Collateral Agent; or (ii) is disclosed to the Lenders and/or Collateral Agent by a third party,
if the Lenders and/or Collateral Agent does not know that the third party is prohibited from disclosing the
information. Collateral Agent and the Lenders may use confidential information for any purpose, including,
without limitation, for the development of client databases, reporting purposes, and market analysis. The
provisions of the immediately preceding sentence shall survive the termination of this Agreement. The
agreements provided under this Section 12.8 supersede all prior agreements, understanding, representations,
warranties, and negotiations between the parties about the subject matter of this Section 12.8.
12.9
Right of Set Off. Borrower hereby grants to Collateral Agent and to each Lender, a Lien,
security interest and right of set off as security for all Obligations to Secured Parties hereunder, whether
now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or
hereafter in the possession, custody, safekeeping or control of any Secured Party or any entity under the
control of such Security Party (including a Collateral Agent Affiliate) or in transit to any of them. At any
time after the occurrence and during the continuance of an Event of Default, without demand or notice, any
Secured Party may set off the same or any part thereof and apply the same to any liability or obligation of
Borrower even though unmatured and regardless of the adequacy of any other collateral securing the
Obligations. ANY AND ALL RIGHTS TO REQUIRE COLLATERAL AGENT TO EXERCISE ITS
RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE
OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH
DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED BY BORROWER.
12.10 Cooperation of Borrower. If necessary, Borrower agrees to (i) execute any documents
reasonably required to effectuate and acknowledge each assignment of a Term Loan Commitment (or
portion thereof) or Term Loan (or portion thereof) to an assignee in accordance with Section 12.1, (ii) make
Borrower’s management personnel available to meet with Collateral Agent and prospective participants and
assignees of Term Loan Commitments, the Term Loans or portions thereof (which meetings shall be
US-DOCS\149068676.3
46
conducted no more often than twice every twelve months unless an Event of Default has occurred and is
continuing), and (iii) assist Collateral Agent and the Lenders in the preparation of information relating to the
financial affairs of Borrower as any prospective participant or assignee of a Term Loan Commitment (or
portions thereof) or Term Loan (or portions thereof) reasonably may request. Subject to the provisions of
Section 12.8, Borrower authorizes each Lender to disclose to any prospective participant or assignee of a
Term Loan Commitment (or portions thereof), any and all information in such Lender’s possession
concerning Borrower and its financial affairs which has been delivered to such Lender by or on behalf of
Borrower pursuant to this Agreement, or which has been delivered to such Lender by or on behalf of
Borrower in connection with such Lender’s credit evaluation of Borrower prior to entering into this
Agreement.
12.11 Public Announcement. Subject to Borrower’s review and approval, Borrower hereby
agrees that Collateral Agent and each Lender may make a public announcement of the transactions
contemplated by this Agreement, and may publicize the same in marketing materials, newspapers and other
publications, and otherwise, and in connection therewith may use Borrower’s name, tradenames and logos.
Collateral Agent and the Lenders may also make disclosures to the Securities and Exchange Commission
or other governmental agency and any other public disclosure with investors, other governmental agencies
or other related persons.
12.12 Collateral Agent and Lender Agreement. Collateral Agent and the Lenders hereby agree
to the terms and conditions set forth on Exhibit B attached hereto. Borrower acknowledges and agrees to
the terms and conditions set forth on Exhibit B attached hereto.
12.13 Time of Essence. Time is of the essence for the performance of Obligations under this
Agreement.
12.14 Termination Prior to Maturity Date; Survival. All covenants, representations and
warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its
terms and all Obligations have been satisfied. So long as Borrower has satisfied the Obligations (other than
inchoate indemnity obligations and any other obligations which, by their terms, are to survive the
termination of this Agreement and for which no claim has been made) in accordance with the terms of this
Agreement, this Agreement may be terminated prior to the Maturity Date by Borrower, effective five (5)
Business Days after written notice of termination is given to the Collateral Agent and the Lenders.
[Balance of Page Intentionally Left Blank]
US-DOCS\149068676.3
47
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the
Effective Date.
BORROWER:
NEURONETICS, INC.
By
Name:
Title:
US-DOCS\113911192.4#56974094 v2
[Signature Page to Loan and Security Agreement]
COLLATERAL AGENT AND LENDER:
SOLAR CAPITAL LTD.
By
Name:
Title:
US-DOCS\113911192.4#56974094 v2
[Signature Page to Loan and Security Agreement]
LENDERS:
SUNS SPV LLC
By
Name: Anthony Storino
Title: Authorized Signatory
SCP PRIVATE CREDIT INCOME FUND SPV LLC
By
Name: Anthony Storino
Title: Authorized Signatory
SCP PRIVATE CREDIT INCOME BDC SPV LLC
By
Name: Anthony Storino
Title: Authorized Signatory
SCP PRIVATE CORPORATE LENDING FUND SPV LLC
By
Name: Anthony Storino
Title: Authorized Signatory
SCP SF DEBT FUND L.P.
By
Name: Anthony Storino
Title: Authorized Signatory
US-DOCS\113911192.4#56974094 v2
[Signature Page to Loan and Security Agreement]
SCHEDULE 1.1
Lenders and Commitments
Term A Loans
Term Loan Commitment
$5,612,935.51
$12,399,509.81
$4,096,038.24
$3,055,625.78
$5,549,578.80
$2,374,202.48
$1,912,109.38
$35,000,000.00
Commitment Percentage
16.037%
35.427%
11.703%
8.730%
15.856%
6.783%
5.463%
100.00%
Term B Loans
Term Loan Commitment
$1,286,603.24
Commitment Percentage
51.464%
$292,574.16
$218,258.98
$396,398.49
$169,585.89
$136,579.24
$2,500,000.00
11.703%
8.730%
15.856%
6.783%
5.463%
100.00%
Term C Loans
Term Loan Commitment
$11,579,429.16
Commitment Percentage
51.464%
$2,633,167.44
$1,964,330.82
$3,567,586.41
$1,526,273.01
$1,229,213.16
$22,500,000.00
11.703%
8.730%
15.856%
6.783%
5.463%
100.00%
Lender
SLR Investment Corp.
SUNS SPV LLC
SCP Private Credit Income Fund
SPV LLC
SCP Private Credit Income BDC
SPV LLC
SCP Private Corporate Lending
Fund SPV LLC
SCP Cayman Debt Master Fund
SPV LLC
SLR CP SF Debt Fund SPV LLC
TOTAL
Lender
SLR Investment Corp.
SCP Private Credit Income Fund
L.P.
SCP Private Credit Income BDC
LLC
SCP Private Corporate Lending
Fund SPV LLC
SCP Cayman Debt Master Fund
SPV LLC
SLR CP SF Debt Fund SPV LLC
TOTAL
Lender
SLR Investment Corp.
SCP Private Credit Income Fund
L.P.
SCP Private Credit Income BDC
LLC
SCP Private Corporate Lending
Fund SPV LLC
SCP Private Corporate Lending
Fund L.P.
SLR CP SF Debt Fund SPV LLC
TOTAL
US-DOCS\149068676.3
Aggregate
Term Loan Commitment
$18,478,967.91
$12,399,509.81
Commitment Percentage
30.798%
20.666%
$4,096,038.24
$2,925,741.60
$3,055,625.78
$2,182,589.80
$9,513,563.70
$1,526,273.01
$2,543,788.37
$3,277,901.78
$60,000,000.00
6.827%
4.876%
5.093%
3.638%
15.856%
2.544%
4.240%
5.463%
100.00%
Lender
SLR Investment Corp.
SUNS SPV LLC
SCP Private Credit Income Fund
SPV LLC
SCP Private Credit Income Fund
L.P.
SCP Private Credit Income BDC
SPV LLC
SCP Private Credit Income BDC
LLC
SCP Private Corporate Lending
Fund SPV LLC
SCP Private Corporate Lending
Fund L.P.
SCP Cayman Debt Master Fund
SPV LLC
SLR CP SF Debt Fund SPV
LLC
TOTAL
US-DOCS\149068676.3
EXHIBIT A
Description of Collateral
The Collateral consists of all of Borrower’s right, title and interest in and to the following property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or
rights to payment of money, leases, license agreements, franchise agreements, General Intangibles,
commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether
tangible or electronic), cash, deposit accounts and other Collateral Accounts, all certificates of deposit,
fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and
all other investment property, supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and
All Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of
the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and
replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include (a) any interest of Borrower as a
lessee or sublessee under a real property lease; (b) rights held under a license that are not assignable by their
terms without the consent of the licensor thereof (but only to the extent such restriction on assignment is
effective under Section 9-406, 9-407, 9-408 or 9-409 of the Code (or any successor provision or provisions)
of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of
equity); (c) any interest of Borrower as a lessee under an Equipment lease if Borrower is prohibited by the
terms of such lease from granting a security interest in such lease or under which such an assignment or
Lien would cause a default to occur under such lease; and (d) any “intent to use” United States Trademark
applications for which a statement of use or an amendment to allege use has not been filed (but only until
such statement is filed) solely to the extent, if any, that, and only during the period, if any, in which, the
grant of a security interest therein would impair the validity or enforceability of such intent to use
Trademark applications under applicable federal law provided, however, that upon termination of such
prohibition, such interest shall immediately become Collateral without any action by Borrower, Collateral
Agent or any Lender.
US-DOCS\149068676.3
EXHIBIT B
Collateral Agent and Lender Terms
1.
Appointment of Collateral Agent.
(a)
Each Lender hereby appoints Solar (together with any successor Collateral Agent
pursuant to Section 7 of this Exhibit B) as Collateral Agent under the Loan Documents and authorizes
Collateral Agent to (i) execute and deliver the Loan Documents and accept delivery thereof on its behalf
from Borrower, (ii) take such action on its behalf and to exercise all rights, powers and remedies and
perform the duties as are expressly delegated to Collateral Agent under such Loan Documents and
(iii) exercise such powers as are reasonably incidental thereto.
(b)
Without limiting the generality of clause (a) above, Collateral Agent shall have the
sole and exclusive right and authority (to the exclusion of the Lenders), and is hereby authorized, to (i) act
as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in
connection with the Loan Documents (including in any other bankruptcy, insolvency or similar proceeding),
and each Person making any payment in connection with any Loan Document to any Lender is hereby
authorized to make such payment to Collateral Agent, (ii) file and prove claims and file other documents
necessary or desirable to allow the claims of Collateral Agent and Lenders with respect to any Obligation in
any bankruptcy, insolvency or similar proceeding (but not to vote, consent or otherwise act on behalf of
such Lender), (iii) act as collateral agent for the Secured Parties for purposes of the perfection of all Liens
created by the Loan Documents and all other purposes stated therein, (iv) manage, supervise and otherwise
deal with the Collateral as permitted pursuant to the Loan Agreement, (v) take such other action as is
necessary or desirable to maintain the perfection and priority of the Liens created or purported to be created
by the Loan Documents, (vi) except as may be otherwise specified in any Loan Document, exercise all
remedies given to Collateral Agent and the other Lenders with respect to the Borrower and/or the Collateral,
whether under the Loan Documents, applicable Requirements of Law or otherwise and (vii) execute any
amendment, consent or waiver under the Loan Documents on behalf of any Lender that has consented in
writing to such amendment, consent or waiver; provided, however, that Collateral Agent hereby appoints,
authorizes and directs each Lender to act as collateral sub-agent for Collateral Agent and the Lenders for
purposes of the perfection of all Liens with respect to the Collateral, including any Deposit Account
maintained by Borrower or any Guarantor with, and cash and Cash Equivalents held by, such Lender, and
may further authorize and direct the Lenders to take further actions as collateral sub-agents for purposes of
enforcing such Liens or otherwise to transfer the Collateral subject thereto to Collateral Agent, and each
Lender hereby agrees to take such further actions to the extent, and only to the extent, so authorized and
directed. Collateral Agent may, upon any term or condition it specifies, delegate or exercise any of its
rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect
to, any Loan Document by or through any trustee, co-agent, employee, attorney-in-fact and any other
Person (including any Lender). Any such Person shall benefit from this Exhibit B to the extent provided by
Collateral Agent.
(c)
Under the Loan Documents, Collateral Agent (i) is acting solely on behalf of the
Lenders, with duties that are entirely administrative in nature, notwithstanding the use of the defined term
“Collateral Agent”, the terms “agent”, “Collateral Agent” and “collateral agent” and similar terms in any
Loan Document to refer to Collateral Agent, which terms are used for title purposes only, (ii) is not
assuming any obligation under any Loan Document other than as expressly set forth therein or any role as
agent, fiduciary or trustee of or for any Lender or any other Person and (iii) shall have no implied functions,
responsibilities, duties, obligations or other liabilities under any Loan Document, and each Lender, by
accepting the benefits of the Loan Documents, hereby waives and agrees not to assert any claim against
Collateral Agent based on the roles, duties and legal relationships expressly disclaimed in clauses (i)
US-DOCS\149068676.3
through (iii) above. Except as expressly set forth in the Loan Documents, Collateral Agent shall not have
any duty to disclose, and shall not be liable for failure to disclose, any information relating to Borrower or
any of its Subsidiaries that is communicated to or obtained by Solar or any of its Affiliates in any capacity.
2.
Binding Effect; Use of Discretion; E-Systems.
(a)
Each Lender, by accepting the benefits of the Loan Documents, agrees that (i) any
action taken by Collateral Agent or the Required Lenders (or, if expressly required in any Loan Document, a
greater proportion of the Lenders) in accordance with the provisions of the Loan Documents, (ii) any action
taken by Collateral Agent in reliance upon the instructions of the Required Lenders (or, where so required,
such greater proportion) and (iii) the exercise by Collateral Agent or the Required Lenders (or, where so
required, such greater proportion) of the powers set forth herein or therein, together with such other powers
as are reasonably incidental thereto, shall be authorized and binding upon all of Lenders.
(b)
If Collateral Agent shall request instructions from the Required Lenders or all
affected Lenders with respect to any act or action (including failure to act) in connection with any Loan
Document, then Collateral Agent shall be entitled to refrain from such act or taking such action unless and
until Collateral Agent shall have received instructions from the Required Lenders or all affected Lenders, as
the case may be, and Collateral Agent shall not incur liability to any Person by reason of so refraining.
Collateral Agent shall be fully justified in failing or refusing to take any action under any Loan Document
(i) if such action would, in the opinion of Collateral Agent, be contrary to any Requirement of Law or any
Loan Document, (ii) if such action would, in the opinion of Collateral Agent, expose Collateral Agent to
any potential liability under any Requirement of Law or (iii) if Collateral Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. Without limiting the foregoing, no Lender shall have
any right of action whatsoever against Collateral Agent as a result of Collateral Agent acting or refraining
from acting under any Loan Document in accordance with the instructions of the Required Lenders or all
affected Lenders, as applicable.
(c)
Collateral Agent is hereby authorized by Borrower and each Lender to establish
procedures (and to amend such procedures from time to time) to facilitate administration and servicing of
the Term Loans and other matters incidental thereto. Without limiting the generality of the foregoing,
Collateral Agent is hereby authorized to establish procedures to make available or deliver, or to accept,
notices, documents (including, without limitation, borrowing base certificates) and similar items on, by
posting to or submitting and/or completion, on E-Systems. Borrower and each Lender acknowledges and
agrees that the use of transmissions via an E-System or electronic mail is not necessarily secure and that
there are risks associated with such use, including risks of interception, disclosure and abuse, and Borrower
and each Lender assumes and accepts such risks by hereby authorizing the transmission via E-Systems or
electronic mail. Each “e-signature” on any such posting shall be deemed sufficient to satisfy any
requirement for a “signature”, and each such posting shall be deemed sufficient to satisfy any requirement
for a “writing”, in each case including pursuant to any Loan Document, any applicable provision of any
Code, the federal Uniform Electronic Transactions Act, the Electronic Signatures in Global and National
Commerce Act and any substantive or procedural Requirement of Law governing such subject matter. All
uses of an E-System shall be governed by and subject to, in addition to this Section, the separate terms,
conditions and privacy policy posted or referenced in such E-System (or such terms, conditions and privacy
policy as may be updated from time to time, including on such E-System) and related contractual
obligations executed by Collateral Agent, Borrower and/or Lenders in connection with the use of such E-
System. ALL E-SYSTEMS AND ELECTRONIC TRANSMISSIONS SHALL BE PROVIDED “AS IS”
AND “AS AVAILABLE”. NO REPRESENTATION OR WARRANTY OF ANY KIND IS MADE BY
AGENT, ANY LENDER OR ANY OF THEIR RELATED PERSONS IN CONNECTION WITH ANY E-
SYSTEMS.
US-DOCS\149068676.3
3.
Collateral Agent’s Reliance, Etc
. Collateral Agent may, without incurring any liability hereunder, (a) consult with any of its Related
Persons and, whether or not selected by it, any other advisors, accountants and other experts (including
advisors to, and accountants and experts engaged by, Borrower) and (b) rely and act upon any document and
information (including those transmitted by electronic transmission) and any telephone message or
conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by
the appropriate parties. None of Collateral Agent and its Related Persons shall be liable for any action taken
or omitted to be taken by any of them under or in connection with any Loan Document, and each Lender
and Borrower hereby waives and shall not assert (and Borrower shall cause its Subsidiaries to waive and
agree not to assert) any right, claim or cause of action based thereon, except to the extent of liabilities
resulting from the gross negligence or willful misconduct of Collateral Agent or, as the case may be, such
Related Person (each as determined in a final, non-appealable judgment of a court of competent
jurisdiction) in connection with the duties of Collateral Agent expressly set forth herein. Without limiting
the foregoing, Collateral Agent: (i) shall not be responsible or otherwise incur liability for any action or
omission taken in reliance upon the instructions of the Required Lenders or for the actions or omissions of
any of its Related Persons, except to the extent that a court of competent jurisdiction determines in a final
non-appealable judgment that Collateral Agent acted with gross negligence or willful misconduct in the
selection of such Related Person; (ii) shall not be responsible to any Lender or other Person for the due
execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the
attachment, perfection or priority of any Lien created or purported to be created under or in connection with,
any Loan Document; (iii) makes no warranty or representation, and shall not be responsible, to any Lender
or other Person for any statement, document, information, representation or warranty made or furnished by
or on behalf of Borrower or any Related Person of Borrower in connection with any Loan Document or any
transaction contemplated therein or any other document or information with respect to Borrower, whether or
not transmitted or (except for documents expressly required under any Loan Document to be transmitted to
the Lenders) omitted to be transmitted by Collateral Agent, including as to completeness, accuracy, scope or
adequacy thereof, or for the scope, nature or results of any due diligence performed by Collateral Agent in
connection with the Loan Documents; and (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any provision of any Loan Document, whether any condition set forth in any
Loan Document is satisfied or waived, as to the financial condition of Borrower or as to the existence or
continuation or possible occurrence or continuation of any Event of Default, and shall not be deemed to
have notice or knowledge of such occurrence or continuation unless it has received a notice from Borrower
or any Lender describing such Event of Default that is clearly labeled “notice of default” (in which case
Collateral Agent shall promptly give notice of such receipt to all Lenders, provided that Collateral Agent
shall not be liable to any Lender for any failure to do so, except to the extent that such failure is attributable
to Collateral Agent’s gross negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction); and, for each of the items set forth in clauses (i) through (iv)
above, each Lender and Borrower hereby waives and agrees not to assert (and Borrower shall cause its
Subsidiaries to waive and agree not to assert) any right, claim or cause of action it might have against
Collateral Agent based thereon.
4.
Collateral Agent Individually
. Collateral Agent and its Affiliates may make loans and other extensions of credit to, acquire stock and
stock equivalents of, engage in any kind of business with, Borrower or any Affiliate of Borrower as though
it were not acting as Collateral Agent and may receive separate fees and other payments therefor. To the
extent Collateral Agent or any of its Affiliates makes any Term Loans or otherwise becomes a Lender
hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the
same obligations and liabilities as any other Lender and the terms “Lender”, “Required Lender” and any
similar terms shall, except where otherwise expressly provided in any Loan Document, include, without
limitation, Collateral Agent or such Affiliate, as the case may be, in its individual capacity as Lender, or as
one of the Required Lenders.
US-DOCS\149068676.3
5.
Lender Credit Decision; Collateral Agent Report
. Each Lender acknowledges that it shall, independently and without reliance upon Collateral Agent, any
Lender or any of their Related Persons or upon any document solely or in part because such document was
transmitted by Collateral Agent or any of its Related Persons, conduct its own independent investigation of
the financial condition and affairs of Borrower and make and continue to make its own credit decisions in
connection with entering into, and taking or not taking any action under, any Loan Document or with
respect to any transaction contemplated in any Loan Document, in each case based on such documents and
information as it shall deem appropriate. Except for documents expressly required by any Loan Document
to be transmitted by Collateral Agent to the Lenders, Collateral Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information concerning the business,
prospects, operations, Property, financial and other condition or creditworthiness of Borrower or any
Affiliate of Borrower that may come in to the possession of Collateral Agent or any of its Related Persons.
Each Lender agrees that is shall not rely on any field examination, audit or other report provided by
Collateral Agent or its Related Persons (an “Collateral Agent Report”). Each Lender further
acknowledges that any Collateral Agent Report (a) is provided to the Lenders solely as a courtesy, without
consideration, and based upon the understanding that such Lender will not rely on such Collateral Agent
Report, (b) was prepared by Collateral Agent or its Related Persons based upon information provided by
Borrower solely for Collateral Agent’s own internal use, and (c) may not be complete and may not reflect
all information and findings obtained by Collateral Agent or its Related Persons regarding the operations
and condition of Borrower. Neither Collateral Agent nor any of its Related Persons makes any
representations or warranties of any kind with respect to (i) any existing or proposed financing, (ii) the
accuracy or completeness of the information contained in any Collateral Agent Report or in any related
documentation, (iii) the scope or adequacy of Collateral Agent’s and its Related Persons’ due diligence, or
the presence or absence of any errors or omissions contained in any Collateral Agent Report or in any
related documentation, and (iv) any work performed by Collateral Agent or Collateral Agent’s Related
Persons in connection with or using any Collateral Agent Report or any related documentation. Neither
Collateral Agent nor any of its Related Persons shall have any duties or obligations in connection with or as
a result of any Lender receiving a copy of any Collateral Agent Report. Without limiting the generality of
the forgoing, neither Collateral Agent nor any of its Related Persons shall have any responsibility for the
accuracy or completeness of any Collateral Agent Report, or the appropriateness of any Collateral Agent
Report for any Lender’s purposes, and shall have no duty or responsibility to correct or update any
Collateral Agent Report or disclose to any Lender any other information not embodied in any Collateral
Agent Report, including any supplemental information obtained after the date of any Collateral Agent
Report. Each Lender releases, and agrees that it will not assert, any claim against Collateral Agent or its
Related Persons that in any way relates to any Collateral Agent Report or arises out of any Lender having
access to any Collateral Agent Report or any discussion of its contents, and agrees to indemnify and hold
harmless Collateral Agent and its Related Persons from all claims, liabilities and expenses relating to a
breach by any Lender arising out of such Lender’s access to any Collateral Agent Report or any discussion
of its contents.
6.
Indemnification
. Each Lender agrees to reimburse Collateral Agent and each of its Related Persons (to the extent not
reimbursed by Borrower as required under the Loan Documents (including pursuant to Section 12.2 of the
Agreement)) promptly upon demand for its Pro Rata Share of any out-of-pocket costs and expenses
(including, without limitation, fees, charges and disbursements of financial, legal and other advisors and any
Taxes or insurance paid in the name of, or on behalf of, Borrower) incurred by Collateral Agent or any of its
Related Persons in connection with the preparation, syndication, execution, delivery, administration,
modification, amendment, consent, waiver or enforcement of, or the taking of any other action (whether
through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding
(including, without limitation, preparation for and/or response to any subpoena or request for document
production relating thereto) or otherwise) in respect of, or legal advice with respect to, its rights or
responsibilities under, any Loan Document. Each Lender further agrees to indemnify Collateral Agent and
each of its Related Persons (to the extent not reimbursed by
US-DOCS\149068676.3
Borrower as required under the Loan Documents (including pursuant to Section 12.2 of the Agreement)),
ratably according to its Pro Rata Share, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever
(including, to the extent not indemnified by the applicable Lender, Taxes, interests and penalties imposed
for not properly withholding or backup withholding on payments made to or for the account of any Lender)
that may be imposed on, incurred by, or asserted against Collateral Agent or any of its Related Persons in
any matter relating to or arising out of, in connection with or as a result of any Loan Document or any other
act, event or transaction related, contemplated in or attendant to any such document, or, in each case, any
action taken or omitted to be taken by Collateral Agent or any of its Related Persons under or with respect
to the foregoing; provided that no Lender shall be liable to Collateral Agent or any of its Related Persons
under this Section 6 of this Exhibit B to the extent such liability has resulted from the gross negligence or
willful misconduct of Collateral Agent or, as the case may be, such Related Person, as determined by a final
non-appealable judgment of a court of competent jurisdiction. To the extent required by any applicable
Requirement of Law, Collateral Agent may withhold from any payment to any Lender under a Loan
Document an amount equal to any applicable withholding Tax. If the IRS or any other Governmental
Authority asserts a claim that Collateral Agent did not properly withhold Tax from amounts paid to or for
the account of any Lender for any reason, or if Collateral Agent reasonably determines that it was required
to withhold Taxes from a prior payment to or for the account of any Lender but failed to do so, such Lender
shall promptly indemnify Collateral Agent fully for all amounts paid, directly or indirectly, by Collateral
Agent as Tax or otherwise, including penalties and interest, and together with all expenses incurred by
Collateral Agent. Collateral Agent may offset against any payment to any Lender under a Loan Document,
any applicable withholding Tax that was required to be withheld from any prior payment to such Lender but
which was not so withheld, as well as any other amounts for which Collateral Agent is entitled to
indemnification from such Lender under the immediately preceding sentence of this Section 6 of this
Exhibit B.
7.
Successor Collateral Agent
. Collateral Agent may resign at any time by delivering notice of such resignation to the Lenders and
Borrower, effective on the date set forth in such notice or, if no such date is set forth therein, upon the date
such notice shall be effective, in accordance with the terms of this Section 7 of this Exhibit B. If Collateral
Agent delivers any such notice, the Required Lenders shall have the right to appoint a successor Collateral
Agent. If, after 30 days after the date of the retiring Collateral Agent’s notice of resignation, no successor
Collateral Agent has been appointed by the Required Lenders and has accepted such appointment, then the
retiring Collateral Agent may, on behalf of the Lenders, appoint a successor Collateral Agent from among
the Lenders. Effective immediately upon its resignation, (a) the retiring Collateral Agent shall be
discharged from its duties and obligations under the Loan Documents, (b) the Lenders shall assume and
perform all of the duties of Collateral Agent until a successor Collateral Agent shall have accepted a valid
appointment hereunder, (c) the retiring Collateral Agent and its Related Persons shall no longer have the
benefit of any provision of any Loan Document other than with respect to any actions taken or omitted to be
taken while such retiring Collateral Agent was, or because such Collateral Agent had been, validly acting as
Collateral Agent under the Loan Documents, and (iv) subject to its rights under Section 2(b) of this Exhibit
B, the retiring Collateral Agent shall take such action as may be reasonably necessary to assign to the
successor Collateral Agent its rights as Collateral Agent under the Loan Documents. Effective immediately
upon its acceptance of a valid appointment as Collateral Agent, a successor Collateral Agent shall succeed
to, and become vested with, all the rights, powers, privileges and duties of the retiring Collateral Agent
under the Loan Documents.
8.
Release of Collateral
. Each Lender hereby consents to the release and hereby directs Collateral Agent to release (or in the case
of clause (b)(ii) below, release or subordinate) the following:
(a)
any Guarantor if all of the stock of such Subsidiary owned by Borrower is sold or
transferred in a transaction permitted under the Loan Documents (including pursuant to a valid waiver or
US-DOCS\149068676.3
consent), to the extent that, after giving effect to such transaction, such Subsidiary would not be required to
guaranty any Obligations pursuant to any Loan Document; and
(b)
any Lien held by Collateral Agent for the benefit of the Secured Parties against (i)
any Collateral that is sold or otherwise disposed of by Borrower in a transaction permitted by the Loan
Documents (including pursuant to a valid waiver or consent), (ii) any Collateral subject to a Lien that is
expressly permitted under clause (c) of the definition of the term “Permitted Lien” and (iii) all of the
Collateral and Borrower, upon (A) termination of all of the Commitments, (B) the payment in full in cash of
all of the Obligations (other than inchoate indemnity obligations for which no claim has been made), and
(C) to the extent requested by Collateral Agent, receipt by Collateral Agent and Lenders of liability releases
from Borrower in form and substance acceptable to Collateral Agent (the satisfaction of the conditions in
this clause (iii), the “Termination Date”).
9.
Setoff and Sharing of Payments
. In addition to any rights now or hereafter granted under any applicable Requirement of Law and not by
way of limitation of any such rights, upon the occurrence and during the continuance of any Event of
Default and subject to Section 10(d) of this Exhibit B, each Lender is hereby authorized at any time or from
time to time upon the direction of Collateral Agent, without notice to Borrower or any other Person, any
such notice being hereby expressly waived, to setoff and to appropriate and to apply any and all balances
held by it at any of its offices for the account of Borrower (regardless of whether such balances are then due
to Borrower) and any other properties or assets at any time held or owing by that Lender or that holder to or
for the credit or for the account of Borrower against and on account of any of the Obligations that are not
paid when due. Any Lender exercising a right of setoff or otherwise receiving any payment on account of
the Obligations in excess of its Pro Rata Share thereof shall purchase for cash (and the other Lenders or
holders shall sell) such participations in each such other Lender’s or holder’s Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share the amount so offset or otherwise received
with each other Lender or holder in accordance with their respective Pro Rata Shares of the Obligations.
Borrower agrees, to the fullest extent permitted by law, that (a) any Lender may exercise its right to offset
with respect to amounts in excess of its Pro Rata Share of the Obligations and may purchase participations
in accordance with the preceding sentence and (b) any Lender so purchasing a participation in the Term
Loans made or other Obligations held by other Lenders or holders may exercise all rights of offset, bankers’
liens, counterclaims or similar rights with respect to such participation as fully as if such Lender or holder
were a direct holder of the Term Loans and the other Obligations in the amount of such participation.
Notwithstanding the foregoing, if all or any portion of the offset amount or payment otherwise received is
thereafter recovered from the Lender that has exercised the right of offset, the purchase of participations by
that Lender shall be rescinded and the purchase price restored without interest.
10.
Advances; Payments; Non-Funding Lenders; Actions in Concert
.
(a)
Advances; Payments. If Collateral Agent receives any payment with respect to a
Term Loan for the account of the Lenders on or prior to 2:00 p.m. (New York time) on any Business Day,
Collateral Agent shall pay to each applicable Lender such Lender’s Pro Rata Share of such payment on such
Business Day. If Collateral Agent receives any payment with respect to a Term Loan for the account
of Lenders after 2:00 p.m. (New York time) on any Business Day, Collateral Agent shall pay to each
applicable Lender such Lender’s Pro Rata Share of such payment on the next Business Day.
(b)
Return of Payments.
(i)
If Collateral Agent pays an amount to a Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by Collateral Agent or on behalf of
from Borrower and such related payment is not received by Collateral Agent, then Collateral Agent will be
entitled to recover such amount (including interest accruing on such amount at the rate otherwise
US-DOCS\149068676.3
applicable to such Obligation) from such Lender on demand without setoff, counterclaim or deduction of
any kind.
(ii)
If Collateral Agent determines at any time that any amount received by
Collateral Agent under any Loan Document must be returned to Borrower or paid to any other Person
pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of any Loan
Document, Collateral Agent will not be required to distribute any portion thereof to any Lender. In
addition, each Lender will repay to Collateral Agent on demand any portion of such amount that Collateral
Agent has distributed to such Lender, together with interest at such rate, if any, as Collateral Agent is
required to pay to Borrower or such other Person, without setoff, counterclaim or deduction of any kind and
Collateral Agent will be entitled to set off against future distributions to such Lender any such amounts
(with interest) that are not repaid on demand.
(c)
Actions in Concert. Anything in this Agreement to the contrary notwithstanding,
each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce
its rights arising out of any Loan Document (including exercising any rights of setoff) without first
obtaining the prior written consent of Collateral Agent or Required Lenders, it being the intent of Lenders
that any such action to protect or enforce rights under any Loan Document shall be taken in concert and at
the direction or with the consent of Collateral Agent or Required Lenders.
US-DOCS\149068676.3
EXHIBIT C
Taxes; Increased Costs.
1.
Defined Terms
. For purposes of this Exhibit C:
(a)
“Connection Income Taxes” means Other Connection Taxes that are imposed on
or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
(b)
“Excluded Taxes” means any of the following Taxes imposed on or with respect to
a Recipient or required to be withheld or deducted from a payment to a Recipient, (i) Taxes imposed on or
measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case,
(A) imposed as a result of such Recipient being organized under the laws of, or having its principal office
or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or
any political subdivision thereof) or (B) that are Other Connection Taxes, (ii) in the case of a Lender, U.S.
federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to
an applicable interest in a Term Loan or Term Loan Commitment pursuant to a law in effect on the date on
which (A) such Lender acquires such interest in the Term Loan or Term Commitment or (B) such Lender
changes its lending office, except in each case to the extent that, pursuant to Section 2 or Section 4 of this
Exhibit C, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately
before such Lender became a party hereto or to such Lender immediately before it changed its lending
office, (iii) Taxes attributable to such Recipient’s failure to comply with Section 7 of this Exhibit C and (iv)
any withholding Taxes imposed under FATCA.
(c)
“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of
the date of this Agreement (or any amended or successor version that is substantively comparable and not
materially more onerous to comply with), any current or future regulations or official interpretations thereof,
any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code, and any fiscal or
regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or
convention among Governmental Authorities and implementing such Sections of the Internal Revenue
Code.
(d)
“Foreign Lender” means a Lender that is not a U.S. Person.
(e)
“Indemnified Taxes” means (i) Taxes, other than Excluded Taxes, imposed on or
with respect to any payment made by or on account of any obligation of Borrower under any Loan
Document and (ii) to the extent not otherwise described in clause (i), Other Taxes.
(f)
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed
as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax
(other than connections arising from such Recipient having executed, delivered, become a party to,
performed its obligations under, received payments under, received or perfected a security interest under,
engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest
in any Term Loan or Loan Document).
(g)
“Other Taxes” means all present or future stamp, court or documentary, intangible,
recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery,
performance, enforcement or registration of, from the receipt or perfection of a security interest under, or
otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes
imposed with respect to an assignment.
(h)
“Recipient” means Collateral Agent or any Lender, as applicable.
US-DOCS\149068676.3
(i)
“U.S. Person” means any Person that is a “United States person” as defined in
Section 7701(a)(30) of the Internal Revenue Code.
(j)
“Withholding Agent” means Borrower and Collateral Agent.
2.
Payments Free of Taxes
. Any and all payments by or on account of any obligation of Borrower under any Loan Document shall be
made without deduction or withholding for any Taxes, except as required by applicable law. If any
applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the
deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable
Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full
amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law
and, if such Tax is an Indemnified Tax, then the sum payable by Borrower shall be increased as necessary so
that after such deduction or withholding has been made (including such deductions and withholdings
applicable to additional sums payable under this Section 2 or Section 4 of this Exhibit C) the applicable
Recipient receives an amount equal to the sum it would have received had no such deduction or withholding
been made.
3.
Payment of Other Taxes by Borrower
. Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at
the option of Collateral Agent timely reimburse it for the payment of, any Other Taxes.
4.
Indemnification by Borrower
. Borrower shall indemnify each Recipient, within 10 days after demand therefor, for the full amount of any
Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable
under Section 2 of this Exhibit C or this Section 4) payable or paid by such Recipient or required to be
withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or
with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted
by the relevant Governmental Authority. A certificate as to the amount of such payment or liability
delivered to Borrower by a Lender (with a copy to Collateral Agent), or by Collateral Agent on its own
behalf or on behalf of a Lender, shall be conclusive absent manifest error.
5.
Indemnification by the Lenders
. Each Lender shall severally indemnify Collateral Agent, within 10 days after demand therefor, for (a) any
Indemnified Taxes attributable to such Lender (but only to the extent that Borrower has not already
indemnified Collateral Agent for such Indemnified Taxes and without limiting the obligation of Borrower to
do so), (b) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 12.1 of
the Agreement relating to the maintenance of a Participant Register and (c) any Excluded Taxes attributable
to such Lender, in each case, that are payable or paid by Collateral Agent in connection with any Loan
Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such
Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate
as to the amount of such payment or liability delivered to any Lender by Collateral Agent shall be
conclusive absent manifest error. Each Lender hereby authorizes Collateral Agent to set off and apply any
and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by
Collateral Agent to the Lender from any other source against any amount due to Collateral Agent under this
Section 5.
6.
Evidence of Payments
. As soon as practicable after any payment of Taxes by Borrower to a Governmental Authority pursuant to
the provisions of this Exhibit C, Borrower shall deliver to Collateral Agent the original or a certified copy of
a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting
such payment or other evidence of such payment reasonably satisfactory to Collateral Agent.
US-DOCS\149068676.3
7.
Status of Lenders
.
(a)
Any Lender that is entitled to an exemption from or reduction of withholding Tax
with respect to payments made under any Loan Document shall deliver to Borrower and Collateral Agent, at
the time or times reasonably requested by Borrower or Collateral Agent, such properly completed and
executed documentation reasonably requested by Borrower or Collateral Agent as will permit such
payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if
reasonably requested by Borrower or Collateral Agent, shall deliver such other documentation prescribed by
applicable law or reasonably requested by Borrower or Collateral Agent as will enable Borrower or
Collateral Agent to determine whether or not such Lender is subject to backup withholding or information
reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the
completion, execution and submission of such documentation (other than such documentation set forth in
Sections 7(b)(i), 7(b)(ii) and 7(b)(iv) of this Exhibit C) shall not be required if in the Lender’s reasonable
judgment such completion, execution or submission would subject such Lender to any material
unreimbursed cost or expense or would materially prejudice the legal or commercial position of such
Lender.
(b)
Without limiting the generality of the foregoing, in the event that Borrower is a
U.S. Person,
(i)
any Lender that is a U.S. Person shall deliver to Borrower and Collateral
Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time
to time thereafter upon the reasonable request of Borrower or Collateral Agent), executed copies of IRS
Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(ii)
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver
to Borrower and Collateral Agent (in such number of copies as shall be requested by the recipient) on or
prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to
time thereafter upon the reasonable request of Borrower or Collateral Agent), whichever of the following is
applicable:
(A)
(B)
(C)
in the case of a Foreign Lender claiming the benefits of an income tax treaty
to which the United States is a party (x) with respect to payments of interest
under any Loan Document, executed copies of IRS Form W-8BEN or IRS
Form W-8BEN-E establishing an exemption from, or reduction of, U.S.
federal withholding Tax pursuant to the “interest” article of such tax treaty
and (y) with respect to any other applicable payments under any Loan
Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an
exemption from, or reduction of, U.S. federal withholding Tax pursuant to
the “business profits” or “other income” article of such tax treaty;
executed copies of IRS Form W-8ECI;
in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under Section 881(c) of the Internal Revenue Code, (x) a
certificate, in form and substance reasonably acceptable to Borrower and
Collateral Agent, to the effect that such Foreign Lender (or other applicable
Person) is not a “bank” within the meaning of Section 881(c)(3)(A) of the
Internal Revenue Code, a “10 percent shareholder” of Borrower within the
meaning of Section 871(h)(3)(B) of the Internal Revenue Code, or a
“controlled foreign corporation” related to Borrower as described in
US-DOCS\149068676.3
Section 881(c)(3)(C) of the Internal Revenue Code (a “U.S. Tax
Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN
or IRS Form W-8BEN-E; or
(D)
to the extent a Foreign Lender is not the beneficial owner, executed copies
of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-
8BEN, IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate, IRS
Form W-9, and/or other certification documents from each beneficial
owner, as applicable; provided that if the Foreign Lender is a partnership
and one or more direct or indirect partners of such Foreign Lender are
claiming the portfolio interest exemption, such Foreign Lender may provide
a U.S. Tax Compliance Certificate on behalf of each such direct and indirect
partner;
(iii)
any Foreign Lender shall, to the extent it is legally entitled to do so, deliver
to Borrower and Collateral Agent (in such number of copies as shall be requested by the recipient) on or
prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to
time thereafter upon the reasonable request of Borrower or Collateral Agent), executed copies of any other
form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal
withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by
applicable law to permit Borrower or Collateral Agent to determine the withholding or deduction required
to be made;
(iv)
if a payment made to a Lender under any Loan Document would be subject
to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the
applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of
the Internal Revenue Code, as applicable), such Lender shall deliver to Borrower and Collateral Agent at
the time or times prescribed by law and at such time or times reasonably requested by Borrower or
Collateral Agent such documentation prescribed by applicable law (including as prescribed by Section
1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by
Borrower or Collateral Agent as may be necessary for Borrower and Collateral Agent to comply with their
obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations
under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for
purposes of this clause (iv), “FATCA” shall include any amendments made to FATCA after the date of this
Agreement; and
each Lender agrees that if any form or certification it previously delivered
expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or
promptly notify Borrower and Collateral Agent in writing of its legal inability to do so.
(v)
8.
Treatment of Certain Refunds
. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any
Taxes as to which it has been indemnified pursuant to the provisions of this Exhibit C (including by the
payment of additional amounts pursuant to the provisions of this Exhibit C), it shall pay to the indemnifying
party an amount equal to such refund (but only to the extent of indemnity payments made under the
provisions of this Exhibit C with respect to the Taxes giving rise to such refund), net of all out-of-pocket
expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by
the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the
request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to
this Section 8 (plus any penalties, interest or other charges imposed by the relevant Governmental
Authority) in the event that such indemnified party is required to repay such refund to such Governmental
Authority. Notwithstanding anything to the contrary in this Section 8, in no
US-DOCS\149068676.3
event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this
Section 8 the payment of which would place the indemnified party in a less favorable net after-Tax position
than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such
refund had not been deducted, withheld or otherwise imposed and the indemnification payments or
additional amounts with respect to such Tax had never been paid. This Section 8 shall not be construed to
require any indemnified party to make available its Tax returns (or any other information relating to its
Taxes that it deems confidential) to the indemnifying party or any other Person.
9.
Increased Costs
. If any change in applicable law shall subject any Recipient to any Taxes (other than (A) Indemnified
Taxes, (B) Taxes described in clauses (ii) through (iv) of the definition of Excluded Taxes and (C)
Connection Income Taxes) on its loans, loan principal, commitments, or other obligations, or its deposits,
reserves, other liabilities or capital attributable thereto, and the result shall be to increase the cost to such
Recipient of making, converting to, continuing or maintaining any Term Loan or of maintaining its
obligation to make any such Term Loan, or to reduce the amount of any sum received or receivable by such
Recipient (whether of principal, interest or any other amount), then, upon the request of such Recipient,
Borrower will pay to such Recipient such additional amount or amounts as will compensate such Recipient
for such additional costs incurred or reduction suffered.
10.
Survival
. Each party’s obligations under the provisions of this Exhibit C shall survive the resignation or
replacement of Collateral Agent or any assignment of rights by, or the replacement of, a Lender, the
termination of the Term Loan Commitments and the repayment, satisfaction or discharge of all obligations
under any Loan Document.
US-DOCS\149068676.3
Fax To: (212) 993-1698
LOAN PAYMENT:
EXHIBIT D
Loan Payment Request Form
Neuronetics, Inc.
Date: _____________________
From Account #________________________________
To Account #__________________________________________________
(Deposit Account #)
(Loan Account #)
Principal $____________________________________
and/or Interest $________________________________________________
Authorized Signature:
Print Name/Title:
Phone Number:
LOAN ADVANCE:
Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.
From Account #________________________________
To Account #__________________________________________________
(Loan Account #)
(Deposit Account #)
Amount of Advance $___________________________
All Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the
request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date:
Authorized Signature:
Print Name/Title:
Phone Number:
OUTGOING WIRE REQUEST:
Complete only if all or a portion of funds from the loan advance above is to be wired.
Beneficiary Name: _____________________________
Beneficiary Bank: ______________________________
City and State:
Amount of Wire: $
Account Number:
US-DOCS\149068676.3
Beneficiary Bank Transit (ABA) #:
Intermediary Bank:
For Further Credit to:
Beneficiary Bank Code (Swift, Sort, Chip, etc.):
(For International Wire Only)
Transit (ABA) #:
Special Instruction:
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).
Authorized Signature: ___________________________
Print Name/Title: ______________________________
Telephone #:
2nd Signature (if required): _______________________________________
Print Name/Title: ______________________________________________
Telephone #:
]
US-DOCS\149068676.3
EXHIBIT E
Compliance Certificate
TO:
SOLAR CAPITAL LTD., as Collateral Agent and Lender
FROM:
Neuronetics, Inc.
The undersigned authorized officer (“Officer”) of Neuronetics, Inc. (“Borrower”), hereby certifies
that in accordance with the terms and conditions of the Loan and Security Agreement dated as of March 2,
2020, by and among Borrower, Collateral Agent, and the Lenders from time to time party thereto (the
“Loan Agreement;” capitalized terms used but not otherwise defined herein shall have the meanings given
them in the Loan Agreement),
(a)
Borrower is in complete compliance for the period ending _______________ with
all required covenants except as noted below;
(b)
There are no Events of Default, except as noted below;
(c)
Except as noted below, all representations and warranties of Borrower stated in the
Loan Documents are true and correct in all material respects on this date and for the period described in (a),
above; provided, however, that such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text thereof; and provided, further that
those representations and warranties expressly referring to a specific date shall be true, accurate and
complete in all material respects as of such date.
(d)
Borrower, and each of Borrower’s Subsidiaries, has timely filed all required tax
returns and reports; Borrower, and each of Borrower’s Subsidiaries, has timely paid all foreign, federal,
state, and local Taxes, assessments, deposits and contributions owed by Borrower, or Subsidiary, except as
otherwise permitted pursuant to the terms of Section 5.8 of the Loan Agreement;
(e)
No Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided
written notification to Collateral Agent and the Lenders.
Attached are the required documents, if any, supporting Borrower’s certification(s). The Officer, on
behalf of Borrower, further certifies that the attached financial statements are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes and except, in the case of unaudited financial
statements, for the absence of footnotes and subject to year-end audit adjustments as to the interim financial
statements.
Please indicate compliance status since the last Compliance Certificate by circling Yes, No, or N/A
under “Complies” column.
Reporting Covenant
Requirement
Actual
Complies
1) Monthly financial statements
Quarterly financial statements
2)
Monthly within 30 days
Quarterly within 45 days
Yes
Yes
No
No
N/A
N/A
US-DOCS\149068676.3
3)
4)
5)
6)
7)
8)
9)
Annual (CPA Audited)
statements
Annual Financial
Projections/Budget (prepared
on a monthly basis)
A/R & A/P agings
8-K, 10-K and 10-Q Filings
Compliance Certificate
IP Report
Total amount of Borrower’s
cash and cash equivalents at the
last day of the measurement
period
10)
Total amount of Borrower’s
Subsidiaries’ cash and cash
equivalents at the last day of
the measurement period
Within 90 days after FYE
Yes
No
N/A
Annually (within earlier of 10
days of approval or 60 days after
FYE), and when revised
If applicable
within 5 days of filing
Monthly within 30 days
When required
Yes
No
N/A
Yes
Yes
Yes
Yes
No
No
No
No
N/A
N/A
N/A
N/A
$________
Yes
No
N/A
$________
Yes
No
N/A
Deposit and Securities Accounts
(Please list all accounts; attach separate sheet if additional space needed)
Institution Name
Account Number
1)
2)
3)
4)
Financial Covenants
New
Account?
Yes
Yes
Yes
Yes
No
No
No
No
Account Control Agreement in place?
Yes
Yes
Yes
Yes
No
No
No
No
Minimum Liquidity Requirement
(A) Qualified
Cash
$___________
(B) A/P not paid within 90
days from invoice date
$____________
Complies with Minimum
Liquidity Requirement
(Is (A) greater than or
equal to $10,000,000
plus (B)?
Y
N
N/A
Minimum Product Revenue (period
ending __________)
(A) Actual Product
Revenue $___________
(B) Minimum
Product Revenue per
Section 7.13(b)
$____________
Complies with Minimum
Product Revenue (Is (A)
greater than or equal to (B))?
Y
N
N/A
US-DOCS\149068676.3
Other Matters
1)
2)
3)
4)
5)
6)
Have there been any changes in Key Persons since the last Compliance Certificate?
Yes
Have there been any transfers/sales/disposals/retirement of Collateral or IP
prohibited by the Loan Agreement?
Have there been any new or pending claims or causes of action against Borrower
that involve more than One Hundred Thousand Dollars ($100,000.00)?
Yes
Yes
No
No
No
Have there been any amendments of or other changes to the capitalization table of
Borrower and to the Operating Documents of Borrower or any of its Subsidiaries?
If yes, provide copies of any such amendments or changes with this Compliance
Certificate.
Has Borrower or any Subsidiary entered into or amended any Material Agreement?
If yes, please explain and provide a copy of the Material Agreement(s) and/or
amendment(s).
Yes
No
Yes
No
Has Borrower provided the Collateral Agent with all notices required to be
delivered under Sections 6.2(a) and 6.2(c) of the Loan Agreement?
Yes
No
US-DOCS\149068676.3
Exceptions
Please explain any exceptions with respect to the certification above: (If no exceptions exist, state “No
exceptions.” Attach separate sheet if additional space needed.)
NEURONETICS, INC.
By:
Name:
Title:
Date:
US-DOCS\149068676.3
COLLATERAL AGENT USE
ONLY
Received by:
Date:
Verified by:
Date:
Compliance Status:
No
Yes
EXHIBIT I
ACH LETTER
SLR INVESTMENT CORP.
500 Park Avenue, 3rd Floor
New York, NY 10022
Attention: Anthony Storino
Fax: (212) 993-1698
Email: storino@solarcapital.com
Re: Loan and Security Agreement dated as of March 2, 2020 (the “Agreement”) by and among
Neuronetics, Inc. (“Borrower”), SLR Investment Corp. (formerly, Solar Capital Ltd.) (“Solar”), as
collateral agent (in such capacity, “Collateral Agent”) and the Lenders listed on Schedule 1.1
thereof or otherwise a party thereto from time to time, including Solar in its capacity as a Lender
and Collateral Agent (each a “Lender” and collectively, the “Lenders”). Capitalized terms used but
not otherwise defined herein shall have the meanings given them under the Agreement.
In connection with the above referenced Agreement, the Borrower hereby authorizes the Collateral Agent
to, at its discretion and with prior notice of at least one (1) Business Day, initiate debit entries to the
Borrower’s account indicated below (i) on each payment date of all Obligations then due and owing, (ii) at
any time any payment due and owing with respect to Lender Expenses, and (iii) upon an Event of Default,
any other Obligations outstanding, in each case pursuant to Section 2.3(e) of the Agreement. The Borrower
authorizes the depository institution named below to debit to such account.
DEPOSITORY NAME
BRANCH
CITY
STATE AND ZIP CODE
TRANSIT/ABA NUMBER
ACCOUNT NUMBER
This authority will remain in full force and effect so long as any amounts are due under the Agreement.
NEURONETICS, INC.
By: _________________________________________
Title: ________________________________________
Date: ________________________________________
US-DOCS\149068676.3
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
Exhibit 10.22
RESTRICTIVE COVENANT AND SEVERANCE AGREEMENT
This Restrictive Covenant and Severance Agreement (the “Agreement”) is made and
entered into effective as of July 1, 2021 (the “Effective Date”), by and between Neuronetics,
Inc., a Delaware corporation (“Company”) and _______________________ (“Executive”).
RECITALS
WHEREAS, in order to encourage Executive’s continued dedication to Company, the
Board of Directors of Company (the “Board”) desires to provide Executive with severance
benefits following certain terminations of employment;
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
obligations set forth below, the adequacy and sufficiency of which are hereby acknowledged,
Company and Executive hereby agree as follows:
1.
Term of Agreement. The “Term” of this Agreement will begin on the Effective
Date and continue until the earliest of: (i) termination of Executive’s employment by Company for
Cause, by Executive without Good Reason, or due to Executive’s death or Disability; (ii) if
Executive becomes entitled to benefits, payment of all benefits to which Executive is entitled
under this Agreement and satisfaction of all other obligations of Executive and Company with
respect to this Agreement, including Executive’s obligations pursuant to the Restrictive Covenant
Agreement (as defined herein); and (iii) termination pursuant to Section 11 of this Agreement.
2.
At-Will Employment. Company and Executive acknowledge that Executive’s
employment will continue to be at-will as defined under applicable law, and either Company or
Executive may terminate the employment relationship at any time and for any reason. If
Executive’s employment with Company terminates for any reason, Executive shall not be entitled
to any payments, benefits, damages, awards, or compensation other than the payment of accrued
but unpaid wages, as required by law, and any unreimbursed business expenses, and as provided by
this Agreement.
3.
Termination.
3.1
Cause. Company in its sole discretion, may terminate Executive’s
employment and cancel all of Company’s obligations under this Agreement for Cause at
any time. The term “Cause” shall mean the occurrence of one or more of the following
events: any (a) act of fraud, embezzlement, or theft; (b) willful disregard of Company rules,
policies, or procedures or of the assigned duties of Executive or directions of the CEO or
the Board (other than due to physical or mental illness or Disability), which has not been
corrected (to the extent correctable) within thirty (30) days of Executive receiving a written
notice for substantial correction from Company; (c) gross negligence, meaning an act or
omission exhibiting a conscious indifference or disregard of Company rules, policies, or
procedures or of the assigned duties of Executive, which has not been corrected (to the
extent correctable) within thirty (30) days of Executive receiving a written notice for
substantial correction from Company; (d) breach of fiduciary duty for personal gain during
the course of Executive’s
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
employment with Company; (e) commission by Executive of a felony; (f) intentional act or
intentional failure to act by Executive which reasonably could be expected to have a
material adverse effect on Company’s business, reputation, or operations, which has not
been corrected (to the extent correctable) within thirty (30) days of Executive receiving a
written notice for substantial correction from Company; or (g) determination that Executive
intentionally omitted any requested information or falsified any disclosed information
either in Executive’s resume or during Executive’s interview process with Company.
Whether an event constituting “Cause” exists, and whether that event is correctable, shall
be determined in the sole discretion of Company.
In the event Company elects to terminate Executive’s employment in accordance with this
Section, such termination shall be without prejudice to any other remedy to which
Company may be entitled under law, equity, or this Agreement. Furthermore, the
termination will be effective as of the date of the original written notice of termination and
neither party shall have any further obligation to the other (including the payment of any
severance benefits by Company to Executive) except for Executive’s obligations set forth
in the Restrictive Covenant Agreement, which will remain in full force and effect.
Specifically, should Company terminate this Agreement for Cause, Executive shall not be
entitled to any further compensation other than Executive’s earned but unpaid base salary
(at the annual rate then in effect), any expense reimbursements to be paid in accordance
with Company policy, and payments for any accrued but unused vacation or paid time off
in accordance with Company’s policies and applicable law (the “Accrued Amounts”) up to
the effective date of termination of employment with Company (the “Termination Date”).
3.2
Resignation without Good Reason. Executive may resign Executive’s
employment without Good Reason at any time. Executive shall not be entitled to any
further compensation other than the Accrued Amounts up to the Termination Date.
Company, in its sole discretion, may elect to have Executive immediately cease providing
services to Company upon receipt of Executive’s notice of resignation; provided, however,
Company shall pay the Accrued Amounts through the Termination Date.
3.3 Without Cause or Resignation for Good Reason.
(a)
Executive’s employment may be terminated at any time by
Company, without any requirement of Cause, upon delivery to Executive of thirty
(30) days’ prior written notice of its intention to terminate Executive’s employment
(the “Termination Period”). Company, in its sole discretion, may elect to have
Executive
the
Termination Period; provided, however, Company shall pay the Accrued Amounts
through the end of the Termination Period, whether or not Company elects to
continue Executive’s services during all or a portion of the Termination Period.
immediately cease providing services
to Company during
(b)
Subject to the terms and conditions of this Agreement, in the event
of (A) Executive’s termination of employment by Company without Cause, or (B)
Executive’s resignation for Good Reason, Executive’s obligations pursuant to the
Restrictive Covenant Agreement will remain in full force and effect. Executive and
Company also agree that in the event Executive’s termination or resignation in
accordance with this Section constitutes a separation from service within the
meaning
- 2 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
of Treasury Regulation Section 1.409A-1(h), Company, in addition to the Accrued
Amounts for the Termination Period, will provide Executive:
(1)
severance at a rate equal to Executive’s monthly base salary
in effect at the time of such termination or resignation for a period of six (6)
months (the “Severance Period”);
(2)
any unpaid annual incentive bonus, if any, determined in
Company’s sole discretion in accordance with the incentive bonus program
established by Company for senior executives of Company (the “Incentive
Bonus”), payable to Executive for the fiscal year that ended immediately
preceding Executive’s termination of employment, regardless of any
requirement that Executive be employed on the date of payment; and
(3)
if Executive (and Executive’s spouse or dependents, as
applicable) timely elects to continue health, dental, and/or vision coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985
(“COBRA”), Company will pay the full premium cost associated with such
COBRA continuation coverage consistent with such coverages as are
offered to then active employees until the earliest to occur of (i) the
expiration of the Severance Period; (ii) the date Executive first becomes
eligible for health, dental, or vision coverage with a subsequent employer;
(iii) the date Executive is no longer eligible for continuation coverage under
COBRA; or (iv) the date Executive violates the provisions of the Restrictive
Covenant Agreement. Notwithstanding
if Company
determines that it cannot provide the benefit required by this Paragraph (4)
without potentially violating applicable law (including Section 2716 of the
Public Health Service Act) or incurring an excise tax, Company shall in lieu
thereof provide to Executive a taxable monthly payment for the period
described herein in an amount equal to the monthly COBRA premium that
Executive would be required to pay to continue Executive’s and Executive’s
dependents’ COBRA continuation coverage based on the premium for the
first month of COBRA continuation coverage.
foregoing,
the
(c)
“Good Reason” means Executive’s “separation from service” within
the meaning of Treasury Regulation Section 1.409A-1(h) following the initial
existence of one or more of the following conditions arising without Executive’s
consent:
(1)
a material adverse change of Executive’s position with
Company that reduces Executive’s title, level of authority, duties, and/or
responsibilities from those in effect immediately prior to the reduction;
(2)
a reduction in base salary or target incentive compensation
opportunity;
(3)
any failure to provide that Executive is eligible to participate
in Company benefit plans on a basis that is generally comparable to
similarly-situated senior corporate officers of Company;
- 3 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
(4)
a relocation of Executive’s principal worksite of more than
35 miles one way unless such relocation reduces Executive’s commute to
such worksite; or
(5)
any action or inaction that constitutes a material breach by
Company of any employment agreement between Executive and Company,
if applicable, or a material breach of this Agreement (including a failure to
assume this Agreement by any successor to Company).
Within 30 days following the initial existence of a condition described above,
Executive must provide written notice to Company of the existence of the
condition, and Company must fail to remedy the condition within 120 days of
receipt of such notice. If Company fails to remedy the condition, Executive must
separate from service with Company within 30 days of the end of the 120-day cure
period. If Executive does not separate from service with Company within such 30-
day period, Executive will not have incurred a separation from service for Good
Reason.
3.4
Change in Control.
(a)
For purposes of this Agreement, “Change in Control” shall have the
meaning set forth in the Neuronetics, Inc. 2018 Equity Incentive Plan, as may be
amended from time to time (the “Equity Plan”); provided, however, that if any
amounts under this Agreement are determined to be subject to Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), then a transaction will
not be deemed a Change in Control for purposes of this Agreement unless the
transaction qualifies as a change in control event within the meaning of Code
Section 409A.
(b)
Subject to the terms and conditions of this Agreement, if, during the
three (3) month period immediately preceding, through the twelve (12) month
period immediately following, the occurrence of a Change in Control, (A) Company
terminates Executive’s employment without Cause, or (B) Executive resigns for
Good Reason, Company will provide Executive:
(1)
the amounts described in Subparagraphs (1), (2), and (3) of
Section 3.3(b) of this Agreement; provided, however, that the Severance
Period shall be extended to nine (9) months;
(2)
an amount equal to Executive’s target Incentive Bonus for
the fiscal year of Executive’s termination of employment; and
(3)
immediate and full vesting (and the ability to exercise, if
applicable) of all outstanding unvested restricted stock, stock options, and
other equity incentives awarded to Executive by Company.
In the event Executive is entitled to payments pursuant to this Section 3.4, then this
Section shall supersede Section 3.3 of this Agreement.
3.5
Death; Disability. In the event Executive’s employment ends due to
Executive’s death or Disability, this Agreement shall terminate and Executive shall not be
- 4 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
entitled to any further compensation under this Agreement other than the Accrued Amounts
up to the Termination Date. For purposes of this Agreement, “Disability” means a
condition entitling Executive to benefits under Company’s long-term disability plan, policy,
or arrangement; provided, however, that if no such plan, policy, or arrangement is then
maintained by Company and applicable to Executive, “Disability” will mean Executive’s
inability to perform Executive’s duties to Company due to a physical or mental condition
that can be expected to result in death or that can be expected to last (or has already lasted)
for a continuous period of 90 days or more, or for 120 days in any 180 consecutive day
period, as determined by an independent physician reasonably satisfactory to Executive and
Company whose fees shall be paid by Company. Termination as a result of a Disability will
not be construed as a termination by Company “without Cause.”
3.6
Release; Timing of Payment.
(a)
Company shall not be obligated to make any severance payment to
Executive under Section 3.3 or 3.4 of this Agreement until Executive has timely
delivered to Company a separation agreement, which will include a release of all
claims against Company and a non-disparagement clause in favor of Company, in
form and substance satisfactory to Company (“Release”), no later than forty-five
(45) days following the Termination Date.
(b)
The base salary and COBRA continuation severance payable
pursuant to Sections 3.3 and 3.4 above shall be paid in substantially equal
installments in accordance with Company’s payroll practices over the Severance
Period; the Incentive Bonus severance described in Section 3.3(b)(2) above shall be
paid in a single lump sum on the date Incentive Bonus payments are paid to
employees generally; the Incentive Bonus severance described in Section 3.4(b)(2)
above shall be payable in a single lump sum commencing within the sixty (60) days
immediately following the Termination Date; and any equity awards will be payable
in accordance with the Equity Plan, as applicable. Notwithstanding the foregoing,
no amounts will be paid pursuant to this Agreement unless and until the Release has
become effective and irrevocable under all applicable law; provided, that if the
period from the Termination Date until the date of payment can encompass two
consecutive calendar years, payment will not be made until the later calendar year.
The first payment after the Release has become effective shall include all amounts
that would have been paid following the Termination Date had the Release been
effective as of the Termination Date but which were not yet paid.
3.7
Violation of Restrictive Covenant Agreement. Notwithstanding anything
herein to the contrary, Executive’s violation of the Restrictive Covenant Agreement at any
point during the Severance Period shall result in forfeiture of all unpaid amounts set forth
in Sections 3.3 and 3.4 above, Company shall be under no further obligation to make any
further payment to Executive, and Executive will be required to repay to Company the
gross amount of any payments made pursuant to this Agreement within thirty (30) days of
the demand by Company.
3.8
No Mitigation. Executive shall not be obligated to seek other employment
or take other action to mitigate the amounts payable to Executive hereunder.
- 5 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
3.9
No Additional Severance. Executive acknowledges and agrees that the
severance described in this Section 3 shall be in lieu of any other severance payments or
benefits to which Executive may be eligible or entitled to receive under any other severance
plan or arrangement of Company or its affiliates.
3.10 Clawback. Notwithstanding anything herein to the contrary, any amounts
payable pursuant to Section 3.3 or 3.4 above remain subject to Company’s clawback policy.
By entering into this Agreement, Executive acknowledges and agrees that Executive is
subject to any clawback and recoupment policies that may be applicable to Executive as an
employee of Company, as in effect (or as may be amended) from time to time.
4.
Restrictive Covenant Agreement. Executive acknowledges and agrees to abide by
the terms of the Confidentiality, Non-Competition and Inventions Assignment Agreement, as may
be amended from time to time, and substantially in the form as attached hereto as Exhibit A, and/or
any other restrictive covenant agreement in the form and substance determined in the discretion of
Company (the “Restrictive Covenant Agreement”). Executive acknowledges that the Restrictive
Covenant Agreement shall continue to remain in full-force and effect in accordance with its terms
following cessation of Executive’s employment with Company for any reason. If Executive does
not execute the Restrictive Covenant Agreement on or before the fifth (5th) calendar day following
the Effective Date, or does not have a prior Restrictive Covenant Agreement already in effect as of
the Effective Date, this Agreement shall be deemed null and void from the outset and Company
shall have no obligations hereunder.
5.
Arbitration.
5.1
Executive and Company agree and stipulate that any claims, disputes, and
demands which may arise out of Executive’s employment with Company, Executive’s
termination of employment, the interpretation or application of any term, provision, and/or
language in this Agreement, and/or disputes, controversies or claims between Executive
and Company, regardless of whether said claims, disputes, or demands are based on
contract law, common law, federal or state statutes, federal or state constitutional
provisions, or otherwise, shall first be submitted to mediation administered by the
American Arbitration Association (“AAA”) under its Employment Arbitration Rules and
Medication Procedures, before resorting to arbitration. Thereafter, any unresolved claim,
dispute, or demand shall be submitted to final and binding arbitration pursuant to the
Federal Arbitration Act (“Act”) in accordance with the Employment Arbitration Rules (or
successor rules) of the AAA and Federal Rule of Civil Procedure 68; provided, however,
that nothing in this Section shall preclude either party from seeking or obtaining judicial
enforcement of the Restrictive Covenant Agreement, through injunctive or equitable relief
without arbitration as provided in the Restrictive Covenant Agreement. The FAA applies to
this Agreement because Company’s business involves interstate commerce. Specifically,
Company’s business affects interstate commerce because Company operates facilities in
various states outside of Pennsylvania; it purchases goods and services and other products
from vendors who are located outside of Pennsylvania; it ships goods and other products
and provides services to persons and entities in various states outside of Pennsylvania;
and/or it promotes its business in various states.
5.2
The arbitration shall be conducted before a single arbitrator who is licensed
to practice law in the Commonwealth of Pennsylvania and familiar with employment
disputes.
- 6 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
The parties may select an arbitrator for their dispute by agreement. If the parties cannot
agree upon an arbitrator within thirty (30) days from either party’s request for arbitration,
either party may request a list of proposed arbitrators from AAA. AAA will guide the
parties through the selection of a neutral arbitrator in accordance with its Rules and will
provide the parties at least two complete panels from which a selection may be made. The
arbitration shall be scheduled within one hundred eighty (180) days after the arbitrator has
been selected with the hearing to take place in Chester County, Pennsylvania, and the
arbitrator shall issue a written decision within thirty (30) days after the close of the hearing,
unless otherwise agreed by the parties.
5.3
The parties shall have the right to file dispositive motions and post-hearing
briefs. The arbitrator’s authority and jurisdiction shall be limited to determining the matter
in dispute consistent with controlling law and this Agreement. Except as otherwise
provided herein, the arbitrator shall apply, and shall not deviate from, the substantive law of
the state in which the claim(s) arose and/or federal law, as applicable. The arbitrator shall
have the same authority to order remedies (e.g., emotional distress damages, punitive
damages, equitable relief, etc.) as would a court of competent jurisdiction. The arbitrator
shall not have the authority to hear disputes not recognized by existing law and shall
dismiss such claims upon motion by either party in accordance with the summary judgment
standards of the applicable jurisdiction. Similarly, the arbitrator shall not have the authority
to order any remedy that a court would not be authorized to order. The arbitrator shall
render a written award setting forth the arbitrator’s findings of fact and conclusions of law
within 30 days after the close of the hearing, unless otherwise agreed by the parties. The
arbitrator, and not any federal, state, or local court, shall have exclusive authority to resolve
any dispute relating to the formation, enforceability, applicability, or interpretation of this
Agreement, including without limitation any claim that this Agreement is void or voidable.
Thus, the parties voluntarily waive the right to have a court determine the enforceability of
this Agreement.
5.4
Any party hereto who refuses or fails to proceed to arbitration of a dispute
covered by this Agreement, after having received a written request from the other party that
it/he do so, will be liable to the party requesting arbitration for all attorney fees, costs, and
litigation expenses incurred in compelling arbitration.
5.5
The parties acknowledge that because of their relative positions, knowledge
and sophistication, they are capable of, and voluntarily consent to, an equal division of the
arbitrator compensation and administrative fees incurred in connection with any arbitration
conducted under this Section, so long as such an order would be consistent with the AAA’s
employment arbitration rules and mediation procedures. Each party shall be solely
responsible for payment of its own attorney’s fees, if any, relating to the arbitration, unless
otherwise required by statute or contract.
6.
Successors. This Agreement shall be binding upon any successor of Company and
any successor shall be deemed substituted for Company under the terms of this Agreement. As
used in this Agreement, the term “successor” shall include any person, firm, corporation, or other
business entity which at any time, whether by merger, purchase, or otherwise, acquires all or
substantially all of the assets or business of Company. Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially
all of the business or assets of Company to assume and agree to perform the obligations under this
Agreement in the same manner
- 7 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
and to the same extent that Company would be required to perform it if no such succession had
taken place. Company shall be permitted to assign this Agreement to its successors and assigns,
and all covenants and agreements hereunder shall inure to the benefit of and be enforceable by or
against its successors and assigns.
7.
statements,
This Agreement supersedes any and all prior or
Entire Agreement.
contemporaneous understandings, expectations,
representations, negotiations,
promises, and agreements (regardless of whether written or oral, expressed or implied) between
Company and Executive relating to the subject matter hereof, other than the Restrictive Covenant
Agreement and except as provided herein. This Agreement, and the Restrictive Covenant
Agreement, incorporate and constitute the full, entire, and complete agreement between Company
and Executive with respect to the subject matter hereof and no other agreements, expectations,
understandings, representations, and/or promises between the parties and/or their representatives
shall be considered valid or effective unless expressly stated herein. Executive shall remain
subject to clawback policy of Company, as well as the personnel policies and procedures of
Company to the extent that such policies and procedures are not inconsistent with the terms and
provisions of this Agreement.
8.
409A Savings Clause. All amounts payable under this Agreement are intended to
comply with the “short term deferral” exception from Code Section 409A, specified in Treas. Reg.
§ 1.409A-1(b)(4) (or any successor provision) or the “separation pay plan” exception specified in
Treas. Reg. § 1.409A-1(b)(9) (or any successor provision), or both of them, and shall be
interpreted in a manner consistent with the applicable exceptions. Notwithstanding the foregoing,
to the extent that any amounts payable in accordance with this Agreement are subject to Code
Section 409A, this Agreement shall be interpreted and administered in such a way as to comply
with Code Section 409A to the maximum extent possible. Any reference in this Agreement to a
termination of employment means a “separation from service” as defined in Code Section 409A
and the applicable guidance issued thereunder. All rights to payments and benefits hereunder shall
be treated as rights to receive a series of separate payments and benefits to the fullest extent
allowed by Code Section 409A. If payment of any amount subject to Code Section 409A is
triggered by a separation from service that occurs while the Employee is a “specified employee”
(as defined by Code Section 409A) with the Company, and if such amount is scheduled to be paid
within six (6) months after such separation from service, the amount shall accrue without interest
and shall be paid on the first business day after the end of such six-month period, or, if earlier,
within 15 days after the appointment of the personal representative or executor of the Employee’s
estate following the Employee’s death.
Notwithstanding anything in this Agreement to the contrary, in no event shall Company commence
payment or distribution to Executive of any amount that constitutes “nonqualified deferred
compensation” within the meaning of Code Section 409A, earlier than the earliest permissible date
under Code Section 409A that such amount could be paid or distributed without the imposition of
additional taxes, interest, or penalties under Code Section 409A. If any payments or distributions
are delayed pursuant to the immediately preceding sentence, Company will accrue such amounts
without interest during such period as the payment or distribution may be required to be deferred
under Code Section 409A, and will become payable and be paid by Company in a lump-sum
payment on the first business day that such amount could be paid or distributed without additional
taxes, interest, or penalties being imposed under Code Section 409A.
9.
Section 280G.
- 8 -
Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
9.1
In the event that part or all of the payments or benefits to be paid or
provided to the Executive under this Agreement together with the aggregate present value
of payments, consideration, compensation, and benefits under all other plans,
arrangements, and agreements applicable to the Executive (“Total Payments”) will be
subject to an excise tax under the provisions of Code Section 4999 (“Excise Tax”), the
Total Payments shall be reduced so that the maximum amount of the Total Payments (after
reduction) will be one dollar ($1.00) less than the amount that would cause the Total
Payments to be subject to the Excise Tax; provided, however, that the Total Payments shall
only be reduced to the extent the after-tax value of amounts received by the Executive after
application of the above reduction would exceed the after-tax value of the Total Payments
received by the Executive without application of such reduction. If applicable, the
particular payments that are to be reduced shall be subject to the mutual agreement of the
Executive and the Company, with a view to maximizing the value of the payments to the
Executive that are not reduced.
9.2
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (a) all of the Total Payments
shall be treated as “parachute payments” within the meaning of Code Section 280G(b)(2),
unless in the opinion of tax counsel (the “Tax Counsel”) reasonably acceptable to the
Executive and selected by the accounting firm (the “Auditor”) which was, immediately
prior to the Change in Control, the Company’s independent auditor, such other payments or
benefits (in whole or in part) do not constitute parachute payments, including by reason of
Code Section 280G(b)(4)(A), (b) all “excess parachute payments” within the meaning of
Code Section 280G(b)(1) shall be treated as subject to the Excise Tax unless, in the opinion
of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered, within the meaning of Code Section 280G(b)
(4)(B), in excess of the base amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (c) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance with the
principles set forth in Code Section 280G(d)(3) and (d)(4). Prior to the payment date set
forth in Section 3.4 of this Agreement, Company shall provide the Executive with its
calculation of the amounts referred to in this Section 9.2 and such supporting materials as
are reasonably necessary for the Executive to evaluate Company’s calculations. If the
Executive disputes Company’s calculations (in whole or in part), the reasonable opinion of
Tax Counsel with respect to the matter in dispute shall prevail.
10.
Taxes, Penalties, and Fees. It is the sole obligation of Executive, or Executive’s
estate or beneficiary, to remain aware of and to pay any and all taxes, fees, or penalties (including
any excise taxes) due now or in the future on benefits received under this Agreement, whether or
not Executive or Executive’s beneficiary has received cash from Company at the time the taxes,
fees, or penalties become due. Executive acknowledges that tax requirements may change during
the term of this Agreement and that it is Executive’s (or Executive’s estate’s or beneficiary’s)
obligation to remain aware of these changes and to fulfill these obligations. Any amounts payable
(or transfers of property) pursuant to this Agreement will be subject to federal, state, and local tax
withholding to the extent required by applicable law.
11.
Amendment. No
addition,
supplementation, clarification, or modification to this Agreement or any of its terms shall be valid
or
amendment,
alteration,
deletion,
change,
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Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
of any effect unless, and only if, it is reduced to writing as a formal and specific amendment to this
Agreement and is signed by Executive and Company. Notwithstanding the foregoing, no
amendment to this Agreement may accelerate any amount payable to Executive unless the
amendment and acceleration are allowable by Code Section 409A, or the amounts payable are not
subject to Code Section 409A. Further notwithstanding the foregoing, no payment to Executive
shall occur upon termination of this Agreement unless the requirements of Code Section 409A
have been met, to the extent applicable. Company and Executive agree to execute any and all
amendments to this Agreement as they mutually agree may be necessary or appropriate to ensure
compliance with the distribution provisions of Code Section 409A or as otherwise needed to
ensure that this Agreement complies with, or remains exempt from, Code Section 409A.
12.
Severability. The invalidity or unenforceability of a particular provision of this
Agreement shall not affect the enforceability of any other provisions hereof and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision was omitted.
13. Waiver. The waiver by either party of a breach or violation of any provision of this
Agreement shall not operate as or be construed to be a waiver of any subsequent breach hereof or
of any other right herein.
14.
Notices. Any notice to be given under this Agreement by either party to the other
may be effective either by personal delivery in writing or by mail, certified mail, postage prepaid
with return receipt requested. Mailed notices shall be addressed to Executive’s current residence
or to Company’s principal business address. Notices delivered personally shall be deemed
communicated as of the actual receipt thereof, and mailed notices shall be deemed communicated
and received three (3) days after the mailing of same.
15.
Applicable Law; Venue. This Agreement shall be governed by and interpreted
under the laws of the Commonwealth of Pennsylvania, and all actions brought to enforce or
interpret this Agreement shall be in the courts applicable to Chester County, Pennsylvania.
16.
Construction of Agreement. The terms, provisions, and conditions of this
Agreement represent the results of negotiations between and among the parties hereto, each of
which has had the opportunity to be represented by counsel of its own choosing, and neither of
which has acted under duress or coercion whether legal, economic or otherwise. Accordingly, the
terms, provisions, and conditions of this Agreement shall be interpreted and construed in
accordance with their usual and customary meanings.
17.
Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together will constitute one and the same
instrument.
18.
Consultation with Attorney. Executive acknowledges and agrees that Executive
has been afforded the opportunity to review this Agreement with Executive’s legal counsel prior to
execution hereof.
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Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
IN WITNESS WHEREOF, the parties have hereto set their hand to this Agreement as set
out below.
EXECUTIVE
[Name]
Date
ATTEST:
Date
NEURONETICS, INC.
By:
Its:
Date
By:
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Form of Restrictive Covenant and Severance Agreement – VP (Pennsylvania)
EXHIBIT A
RESTRICTIVE COVENANT AGREEMENT
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47667933.2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
Exhibit 10.26
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”)
is made by and between NEURONETICS, INC. (the “Company”) and KEITH J. SULLIVAN
(“Executive”), and is effective as of November 2, 2023 (the “A&R Effective Date”).
WHEREAS, the Company and Executive previously executed an Employment Agreement
dated July 14, 2020 (the “Prior Agreement”), which became effective as of the date that Executive
commenced his employment with the Company (the “Original Effective Date”);
WHEREAS, since the Original Effective Date, the Company’s Board of Directors (the
“Board”) has approved certain modifications to Executive’s employment arrangements, and the
Company has determined that such modifications should be reflected in the documents that
memorialize Executive’s employment relationship with the Company;
WHEREAS, in furtherance of the foregoing, the parties wish to amend and restate the Prior
Agreement as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and intending to be bound hereby,
the parties agree as follows:
1.
Duration of Agreement; Amendment and Restatement.
1.1.
This Agreement is effective as of the A&R Effective Date, and has no
specific expiration date. Unless terminated by agreement of the parties, this Agreement will
govern Executive’s employment by the Company until that employment ceases.
1.2.
by this Agreement in all respects.
The Prior Agreement is hereby amended, restated, superseded, and replaced
2.
Title; Duties.
2.1.
Executive will be employed as the Company’s President and Chief
Executive Officer. Executive will devote his best efforts and substantially all of his business time
and services to the Company Group to perform such duties as may be customarily incident to his
position and as may reasonably be assigned to him from time to time. Executive shall report to the
Company’s Board of Directors (the “Board”). Except as otherwise set forth in Section 2.2,
Executive will not, in any capacity, engage in other business activities or perform services for any
other individual, firm or corporation without the prior written consent of the Board; provided,
however, that without such consent, Executive may engage in charitable, non-profit and public
service activities, so long as such activities do not in any respect interfere or conflict with
Executive’s performance of his duties and obligations to the Company Group; and provided further
that Executive may serve on for-profit boards of directors (other than the Board) only with the
consent of the Board.
2.2.
Executive agrees to reduce his current (as of the Original Effective Date)
for-profit board service from three (3) companies to two (2) companies within six (6) months after
the Original Effective Date. Executive and the Board will periodically discuss whether continued
outside for-profit board service is consistent with the requirements of Section 2.1 as well as the
policies of proxy advisory firms and institutional investors. Executive agrees to comply with any
reasoned decision of the Board with respect thereto.
2.3.
The Board intends to appoint Executive to fill a newly created vacancy
resulting from the increase of the size of the Board from six members to seven members
contemporaneously with or as promptly as practicable after the Original Effective Date. Thereafter,
Executive’s election to serve as a continuing director on the Board shall be determined by the
Company’s stockholders.
3.
Place of Performance. Executive will substantially perform his services hereunder
at the principal executive offices of the Company in Malvern, PA; provided, however, that
Executive may be required to travel from time to time for business purposes.
4.
Compensation.
4.1.
Base Salary. Executive’s annual salary (the “Base Salary”) will be seven
hundred thousand dollars ($700,000), paid in accordance with the Company’s payroll practices as
in effect from time to time. The Base Salary will be reviewed annually in the first quarter of the
fiscal year by the Compensation Committee of the Company’s Board of Directors (the
“Committee”). The Committee will make recommendations to the Board concerning, and the non-
executive Board members will determine, Base Salary in their respective discretion.
4.2.
Annual Bonus. Executive shall be eligible to receive an annual incentive
bonus (the “Bonus”), with a target amount equal to 100% of his Base Salary, subject to annual
review by the Committee. The Committee will make recommendations to the Board concerning,
and the non-executive Board members will determine, Executive’s Bonus target in their respective
discretion. The actual Bonus payable with respect to a particular fiscal year will be determined by
the Board, after consulting with the Committee, based on the achievement of corporate and/or
individual objectives established by the Board in consultation with the Committee and Executive.
Notwithstanding the foregoing, the Bonus payable for the Company’s 2020 fiscal year shall be no
less than the target Bonus, determined on a pro rata basis based on the number of days Executive is
employed by the Company during 2020. Any Bonus payable under this paragraph will be paid
during the calendar year immediately following the fiscal year in respect of which the bonus is
payable and, except as otherwise provided in Section 5.1.1, will only be paid if Executive remains
continuously employed by the Company through the actual bonus payment date.
4.3.
Equity Incentive Awards.
4.3.1. Beginning in 2022, Executive shall be eligible to receive equity-
based compensation commensurate with his position in connection with any annual equity-based
awards made to senior executives of the Company. Such awards shall be made in the sole
discretion of the Committee and shall be subject to the terms and conditions set forth in the
Company’s 2018 Equity Incentive Plan (the “Plan”) (or other applicable plan) and award
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agreements, and in all cases shall be recommended by the Committee and determined by the non-
executive Board members in their respective discretion.
4.3.2. As an inducement to Executive’s employment with the Company, the
Committee shall approve a grant of two million (2,000,000) shares of the Company’s common
stock (the “Sign-On Equity Grant”). The Sign-On Equity Grant will be made on the Original
Effective Date. Such Sign-On Equity Grant shall be structured as an inducement grant under
Nasdaq Listing Rule 5635(c), but otherwise subject to all terms and conditions of the Plan and
related agreements.
4.3.3. The Sign-On Equity Grant shall be in the form of: (i) restricted stock
units representing five hundred thousand (500,000) shares of the Company’s common stock,
vesting in four (4) annual installments on the anniversary of the grant date; (ii) non-qualified stock
options representing one million (1,000,000) shares of common stock with an exercise price equal
to the closing price of the Company’s common stock on the grant date and with 25% vesting on the
first anniversary of the grant date and the remaining 75% vesting ratably over the following thirty-
six (36) months; and (iii) performance stock units representing five hundred thousand (500,000)
shares of the Company’s common stock vesting upon attainment of the performance metrics set
forth in the grant agreement, in each case of clauses (i) through (iii), subject to Executive’s
continuous employment with the Company through the relevant date.
4.4.
Employee Benefits. During Executive’s employment, Executive will be
eligible to participate in all employee benefit plans and programs made available by the Company
from time to time to its executives generally, subject to applicable plan terms and policies. The
Company periodically reviews its benefits, policies, benefits providers and practices and may
terminate, alter or change them at its discretion from time to time.
4.5.
Reimbursement of Expenses. Executive will be reimbursed by the
Company for all reasonable business expenses incurred by Executive in accordance with the
Company’s customary expense reimbursement policies as in effect from time to time; provided,
however, that in lieu of reimbursement for personal mileage for travel by automobile Executive
shall receive a monthly stipend in the amount of one thousand two hundred dollars ($1,200)
(grossed-up for applicable taxes). Notwithstanding anything herein to the contrary, to the extent
any expense, reimbursement or in-kind benefit provided to Executive constitutes a “deferral of
compensation” within the meaning of Section 409A of the Internal Revenue Code (the “Code”) (i)
the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive must
be incurred during Executive’s term of employment; (ii) the amount of expenses eligible for
reimbursement or in-kind benefits provided to Executive during any calendar year will not affect
the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive in any
other calendar year, (iii) the reimbursements for expenses for which Executive is entitled to be
reimbursed shall be made on or before the last day of the calendar year following the calendar year
in which the applicable expense is incurred and (iv) the right to payment or reimbursement or in-
kind benefits hereunder may not be liquidated or exchanged for any other benefit.
5.
Termination. Executive’s employment with the Company may be terminated by the
Company or Executive at any time and for any reason. Upon any cessation of his
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employment with the Company, Executive will be entitled only to such compensation and benefits
as described in this Section 5. Upon any cessation of his employment for any reason, unless
otherwise requested by the Company, Executive agrees to resign immediately from all officer and
director positions he then holds with the Company Group.
5.1.
Termination without Cause or for Good Reason. If Executive’s employment
by the Company ceases due to a termination by the Company without Cause or a resignation by
Executive for Good Reason, Executive will be entitled to:
5.1.1. payment of any annual bonus otherwise payable (but for the
cessation of Executive’s employment) with respect to a year ended prior to the cessation of
Executive’s employment;
5.1.2. continuation of Executive’s Base Salary for a period equal to twelve
(12) months (“Severance Period”), payable in accordance with the Company’s standard payroll
practices;
5.1.3. payment of prorated Bonus for the current year based on the
achievement of the performance criteria achieved through the termination date, as determined by
the Board after consultation with the Committee, paid in accordance with the Company’s standard
payroll practices; and
5.1.4.
if Executive is eligible for COBRA benefits, waiver of the applicable
premium otherwise payable for COBRA continuation coverage for Executive (and, to the extent
covered immediately prior to the date of such cessation, his eligible dependents) during the
Severance Period.
Except as otherwise provided in this Section 5.1, and except for payment of all (i) accrued and
unpaid Base Salary through the date of such cessation, (ii) any expense reimbursements to be paid
in accordance with the Company policy and (iii) payments for any accrued but unused paid time
off in accordance with the Company’s policies and applicable law, all compensation and benefits
will cease at the time of such cessation and the Company Group will have no further liability or
obligation by reason of such cessation. The payments and benefits described in this Section 5.1 are
in lieu of, and not in addition to, any other severance arrangement maintained by the Company
Group. Notwithstanding any provision of this Agreement, the payments and benefits described in
Section 5.1 are conditioned on: (i) Executive’s execution and delivery to the Company and the
expiration of all applicable statutory revocation periods, by the 45th day following the effective
date of his cessation of employment, of a general release of claims against the Company Group in
a form reasonably prescribed by the Company (the “Release”); and (b) Executive’s continued
compliance with the Restrictive Covenants (as defined below). Subject to Section 5.4, the benefits
described in Section 5.1 will be paid or provided (or begin to be paid or provided) as soon as
administratively practicable (or determinable in the case of the benefits described in Sections 5.1.1
and 5.1.3, if later) after the Release becomes irrevocable, provided that if the 45 day period
described above begins in one taxable year and ends in a second taxable year such payments or
benefits shall not commence until the second taxable year.
5.2.
Termination Following a Change in Control. If Executive’s employment by
the Company ceases due to a termination by the Company without Cause or a resignation by
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Executive for Good Reason during the twelve (12) month period immediately following the
occurrence of a Change in Control (as defined below), in addition to the benefits provided pursuant
to Section 5.1, the Severance Period shall be extended from twelve (12) months to twenty-four
(24) months and all outstanding unvested restricted stock, stock options and other equity incentives
awarded to Executive by the Company, including, without limitation, the Sign-On Equity Grant,
will become immediately and automatically fully vested and exercisable (as applicable), subject to
Executive’s execution and non-revocation of the Release.
5.3.
Other Terminations. If Executive’s employment with the Company ceases
for any reason other than as described in Section 5.1 or Section 5.2 above (including but not
limited to termination (i) by the Company for Cause, (ii) by Executive without Good Reason, (iii)
as a result of Executive’s retirement, (iv) as a result of Executive’s death or (v) as a result of
Executive’s Disability, then the Company Group’s obligation to Executive will be limited solely to
(a) accrued and unpaid Base Salary through the date of such cessation, (b) any expense
reimbursements to be paid in accordance with the Company policy and (c) payments for any
accrued but unused paid time off in accordance with the Company’s policies and applicable law.
All compensation and benefits will cease at the time of such cessation and, except as otherwise
provided by COBRA or this Section 5.3, the Company Group will have no further liability or
obligation by reason of such termination. The foregoing will not be construed to limit Executive’s
right to payment or reimbursement for claims incurred prior to the date of such termination under
any insurance contract funding an employee benefit plan, policy or arrangement of the Company in
accordance with the terms of such insurance contract.
5.4.
Compliance with Section 409A. If the termination giving rise to the
payments described in Section 5.1 or Section 5.2 is not a “Separation from Service” within the
meaning of Treas. Reg. § 1.409A-1(h)(1) (or any successor provision), then the amounts otherwise
payable pursuant to that section will instead be deferred without interest and will not be paid until
Executive experiences a Separation from Service. To the maximum extent permitted under Section
409A of the Code and its corresponding regulations, the cash severance benefits payable under this
Agreement are intended to meet the requirements of the short-term deferral exemption under
Section 409A of the Code and the “separation pay exception” under Treas. Reg. §1.409A-1(b)(9)
(iii). To the extent compliance with the requirements of Treas. Reg. § 1.409A-3(i)(2) (or any
successor provision) is necessary to avoid the application of an additional tax under Section 409A
of the Internal Revenue Code to payments due to Executive upon or following his Separation from
Service, then notwithstanding any other provision of this Agreement (or any otherwise applicable
plan, policy, agreement or arrangement), any such payments that are otherwise due within six
months following Executive’s Separation from Service (taking into account the preceding sentence
of this paragraph) will be deferred without interest and paid to Executive in a lump sum
immediately following that six month period. For purposes of the application of Treas. Reg. §
1.409A-1(b)(4) (or any successor provision), each payment in a series of payments will be deemed
a separate payment.
5.5.
PPACA. Notwithstanding anything in this Agreement to the contrary, the
waiver in respect of COBRA premiums pursuant to Section 5.1 shall cease to the extent required to
avoid adverse consequences to the Company Group under the Patient Protection and Affordable
Care Act of 2010 and regulations thereunder.
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5.6.
Section 280G. If any payment or distribution by the Company to or for the
benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement or the lapse or termination of any restriction on or the vesting or
exercisability of any payment or benefit (each a “Payment”), would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision thereto) or to any similar tax
imposed by state or local law (such tax or taxes are hereafter collectively referred to as the “Excise
Tax”), then the aggregate amount of Payments payable to Executive shall be reduced to the
aggregate amount of Payments that may be made to Executive without incurring an excise tax (the
“Safe-Harbor Amount”) in accordance with the immediately following sentence; provided that
such reduction shall only be imposed if the aggregate after-tax value of the Payments retained by
Executive (after giving effect to such reduction) is equal to or greater than the aggregate after-tax
value (after giving effect to the Excise Tax) of the Payments to Executive without any such
reduction. Any such reduction shall be made in the following order: (i) first, any future cash
payments (if any) shall be reduced (if necessary, to zero); (ii) second, any current cash payments
shall be reduced (if necessary, to zero); (iii) third, all non-cash payments (other than equity or
equity derivative related payments) shall be reduced (if necessary, to zero); and (iv) fourth, all
equity or equity derivative payments shall be reduced.
5.7.
Definitions. For purposes of this Agreement:
5.7.1. “Cause” means Executive’s (a) conviction of, or the entry of a plea
of guilty or no contest to, a felony, any crime of moral turpitude or any other crime that materially
adversely affects the Company Group’s operations, financial performance, reputation, or
relationship with its customers, suppliers or employees; (b) chronic alcohol abuse or abuse of
controlled drugs; (c) a material breach of this Agreement or any duty owed to the Company Group;
(d) dishonesty, including fraud, embezzlement, theft or other misuse of property with respect to the
Company Group; (e) refusal to perform the lawful and reasonable directives of the Board; (f) gross
negligence or willful misconduct in the performance of duties (g) or breach of Executive’s
restrictive covenants; or (h) a material violation of any written policy of the Company Group,
including, without limitation, policies relating to discrimination, harassment, fraternization and
nepotism.
5.7.2. “Change in Control” shall have the same meaning given it under the
Plan.
5.7.3. “Disability” means a condition entitling Executive to benefits under
the Company’s long term disability plan, policy or arrangement; provided, however, that if no such
plan, policy or arrangement is then maintained by the Company and applicable to Executive,
“Disability” will mean Executive’s inability to perform his duties under this Agreement due to a
mental or physical condition that can be expected to result in death or that can be expected to last
(or has already lasted) for a continuous period of 90 days or more, or for 120 days in any 180
consecutive day period. Termination as a result of a Disability will not be construed as a
termination by the Company “without Cause.”
prior consent: (a) a material reduction in Base Salary or target Bonus opportunity (except for
5.7.4. “Good Reason” means any of the following, without Executive’s
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reductions proportionately applicable to all of the Company’s executives); (b) a material
diminution of Executive’s duties or responsibilities; or (c) a material breach of this Agreement by
the Company. However, none of the foregoing events or conditions will constitute Good Reason
unless Executive provides the Company with written objection to the event or condition within
thirty (30) days following the occurrence thereof, the Company does not reverse or otherwise cure
the event or condition within thirty (30) days of receiving that written objection, and Executive
resigns Executive’s employment within thirty (30) days following the expiration of that cure
period.
6.
Restrictive Covenants. To induce the Company to enter into this Agreement and in
recognition of the compensation to be paid to Executive pursuant to Sections 4 and 5 of this
Agreement, Executive agrees to be bound by the provisions of this Section 6 (the “Restrictive
Covenants”). The Restrictive Covenants will apply without regard to whether any termination or
cessation of Executive’s employment is initiated by the Company or Executive, and without regard
to the reason for that termination or cessation.
6.1.
Covenant Not To Solicit. Executive covenants that, during his employment
by the Company and for a period of twenty four (24) months following immediately thereafter (the
“Restricted Period”), Executive shall not, directly or indirectly, for Executive’s own benefit or for
the benefit of any other Person, in any capacity (as a principal, shareholder, partner, member,
investor, director, officer, agent, advisor, executive, consultant, contractor, employee, lender or
otherwise):
6.1.1. direct, induce, solicit, recruit or attempt to persuade any Person to
terminate such Person’s employment or other relationship with the Company Group or not to
establish an employment or other relationship with the Company Group, whether or not such
Person is or would be an employee, consultant, contractor, officer and/or director, whether or not
such relationship is or would be pursuant to a written or oral agreement and whether or not such
relationship is for a specific period of time or is at-will;
6.1.2. employ or establish a business relationship with (or attempt to
employ or establish a business relationship with), or encourage or assist any Person to employ or
establish a business relationship with, any individual who was an employee, consultant, contractor,
officer or director of the Company Group during the twelve month period preceding such
termination;
6.1.3. call upon, solicit, contact, or serve in any capacity any of the then-
existing clients, Customers, vendors or suppliers of the Company Group, any clients, Customers,
vendors or suppliers that have had a relationship with the Company Group during the twelve (12)
months preceding the Termination Date, or any potential clients, Potential Customers, vendors or
suppliers that were solicited by the Company Group during the twelve (12) months preceding the
Termination Date for the purpose of engaging in a Competing Business or in any manner that
could adversely affect alter or change the relationship (contractual or otherwise) which such
clients, Customers, Potential Customers, vendors or suppliers have with the Company Group;
(a) direct or engage in any act or omission that could otherwise
disrupt, damage, impair, or interfere with the business of the Company Group (or attempt to do the
same) whether by way of interfering with or disrupting the relationship of the Company Group
6.1.4.
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with employees, customers, agents, representatives, clients, Customers, Potential Customers,
vendors, suppliers consultants or contractor of the Company Group, or (b) otherwise induce or
attempt to induce any such Person to cease doing business, reduce or otherwise limit its business
with the Company Group; or
6.1.5. solicit business from any Customer or Prospective Customer, or do
business with any Customer or Prospective Customer of the Company Group, involving the
Business.
6.2.
Non-Competition. During Executive’s service with the Company Group and
for the Restricted Period, Executive shall not, directly or indirectly, for Executive’s own benefit or
for the benefit of any other Person, in any capacity (as a principal, shareholder, partner, member,
investor, director, officer, agent, advisor, executive, consultant, contractor, employee, lender or
otherwise), engage or participate in, or be financially interested in, any Person involved in a
Competing Business anywhere in the United States or any other country or region in which the
Company Group is then selling its products and services, is planning to sell its products and
services or is planning to apply for, or has applied for, regulatory approval to sell its products and
services, including but not limited to, those Persons set forth on Attachment A (provided, however,
that nothing contained in this Section 6.2 shall prevent Executive from holding for passive
investment of less than two percent (2%) of any class of equity securities of a company whose
securities are publicly traded on a national securities exchange or in a national market system).
6.3.
Confidentiality. Executive recognizes and acknowledges that the
Proprietary Information (as defined in below) is a valuable, special and unique asset of the
business of the Company Group. As a result, both during the Term and for the ten (10) year period
thereafter, Executive will not, without the prior written consent of the Company, for any reason
divulge to any third-party or use for his own benefit, or for any purpose other than the exclusive
benefit of the Company Group, any Proprietary Information, provided, however, that during the
Term and at all times thereafter, Executive will not, without the prior written consent of the
Company, for any reason divulge to any third-party or use for his own benefit, or for any purpose
other than the exclusive benefit of the Company Group, any trade secrets. Notwithstanding the
foregoing, nothing in this Agreement prohibits Executive from initiating communications directly
with, responding to any inquiries from, providing testimony before, providing confidential
information to, reporting possible violations of law or regulation to, or from filing a claim or
assisting with an investigation directly with a self-regulatory authority or a government agency or
entity, including the U.S. Equal Employment Opportunity Commission, the Department of Labor,
the National Labor Relations Board, the Department of Justice, the Securities and Exchange
Commission, the Congress, and any agency Inspector General (collectively, the “Regulators”), or
from making other disclosures that are protected under the whistleblower provisions of state or
federal law or regulation. In connection with any such activity, Executive must identify any
information that is confidential and ask the Regulator for confidential treatment of such
information. Despite the foregoing, Executive is not permitted to reveal to any other Person,
including any governmental, law enforcement, or regulatory authority, information employee came
to learn during the course of Executive’s employment with the Company that is protected from
disclosure by any applicable privilege, including but not limited to the attorney-client privilege,
attorney work product doctrine and/or other applicable
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legal privileges. The Company Group does not waive any applicable privileges or the right to
continue to protect its privileged attorney-client information, attorney work product, and other
privileged information. Notwithstanding any other provisions of this Agreement, pursuant to 18
USC Section 1833(b), Executive shall not be held criminally or civilly liable under any federal or
state trade secret law for the disclosure of the Company Group’s trade secret that is made: (a)
confidentially to a federal, state, or local government official, either directly or indirectly, or to an
attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or
(b) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made
under seal. If Executive files a lawsuit for retaliation by the Company for reporting a suspected
violation of law, Executive may disclose a trade secret to Executive’s attorney and use the trade
secret information in related court proceedings, provided that Executive files any document
containing the trade secret information under seal and does not disclose the trade secret, except
pursuant to court order. Executive agrees that he will not, while employed by the Company or
engaged as a consultant and/or director of the Company Group, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or other Person, if
any, with whom Executive has an agreement or duty to keep such information or secrets
confidential, if any, and that Executive will not use, disclose or bring onto the premises of the
Company Group any unpublished document or proprietary information belonging to any such
employer or Person unless consented to in writing by such employer or Person. Executive
recognizes that the Company Group has received and in the future will receive from third parties
(including customers of the Company Group) their confidential or proprietary information subject
to a duty on the Company Group’s part to maintain the confidentiality of such information and to
use it only for certain limited purposes. Executive agrees to hold all such confidential or
proprietary information in the strictest confidence and not to disclose it to any Person or to use it
except as necessary in carrying out Executive’s work for the Company Group, consistent with the
Company Group’s agreement with such other Person.
6.4.
Property of the Company Group.
6.4.1. Proprietary Information. All right, title and interest in and to
Proprietary Information will be and remain the sole and exclusive property of the Company Group.
Executive will not remove from the Company Group’s offices or premises any documents,
records, notebooks, files, correspondence, reports, memoranda or similar materials of or containing
Proprietary Information, or other materials or property of any kind belonging to the Company
Group unless necessary or appropriate in the performance of his duties to the Company Group. If
Executive removes such materials or property in the performance of his duties, he will return such
materials or property promptly after the removal has served its purpose. Executive will not make,
retain, remove and/or distribute any copies of any such materials or property, or divulge to any
third person the nature of and/or contents of such materials or property, except to the extent
necessary to satisfy contractual obligations of the Company Group, to perform his duties on behalf
of the Company Group or pursuant to the exceptions set forth in Section 6.3. Upon termination of
Executive’s employment with the Company, he will leave with the Company Group or promptly
return to the Company Group all originals and copies of such materials or property then in his
possession.
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6.4.2.
Intellectual Property.
(a)
Executive has attached hereto, as Attachment B, a list
describing all inventions, original works of authorship, developments, improvements, and trade
secrets which were made by Executive prior to becoming an employee, consultant, officer and/or
director of the Company (collectively referred to as “Prior Inventions), which are owned by
Executive alone or jointly with others, which relate to the Company Group’s business, proposed
business, products or research and development, and which are not assigned to the Company
Group hereunder; or, if no such list is attached, Executive represents that there are no such Prior
Inventions. If in the course of Executive’s service with the Company Group, Executive
incorporates into a Company Group product, process or machine a Prior Invention owned by
Executive or in which Executive has an interest, the Company, or its designee, is hereby granted
and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide, assignable,
transferable, and sub-licenseable license to make, have made, modify, use and sell such Prior
Invention as part of or in connection with such product, process or machine.
(b)
Executive agrees that he will promptly make full written
disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and
hereby assigns to the Company, or its designee, all Executive’s right, title, and interest in and to
any and all inventions, original works of authorship, developments, concepts, improvements or any
trade secrets which relate in any manner to the Company Group’s business or proposed business,
whether or not patentable or registrable under patent, copyright or similar laws, which Executive
may solely or jointly conceive or develop or reduce to practice (or may have conceived or
developed or reduced to practice) or cause (or may have caused) to be conceived or developed or
reduced to practice, at any time prior to the date of this Agreement until Executive is no longer an
employee, consultant, officer and/or director of the Company (collectively referred to as
“Inventions”), including any and all intellectual property rights inherent in the Inventions and
appurtenant thereto including, without limitation, all patent rights, copyrights, trademark rights and
trade secret rights (collectively referred to as “Intellectual Property Rights”). Executive further
acknowledges that all original works of authorship which are made by Executive (solely or jointly
with others) within the scope of Executive’s service or duties as an employee, consultant, officer
and/or director and which are protectable by copyright are “works made for hire”, as that term is
defined in the United States Copyright Act.
(c)
Executive agrees to keep and maintain adequate and current
records of all Inventions. The records will be in the form of notes, sketches, drawings, and any
other format that may be specified by the Company. The records will be available to the Company
at all times, and the Company, or its designee, shall retain all right, title, and interest in and to the
same.
(d)
Executive agrees to assist the Company, or its designee, at the
Company’s expense, in every proper way to secure the Company Group’s rights in the Inventions
and any Intellectual Property Rights related thereto in any and all countries, including the
disclosure to the Company of all pertinent information and data with respect thereto, the execution
of all applications, specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order to assign and convey
to the Company, or its designee, the sole and exclusive right, title and interest
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in and to such Inventions and any Intellectual Property Rights relating thereto. Executive further
agrees that Executive’s obligation to execute or cause to be executed, when it is in Executive’s
power to do so, any such instrument or papers shall continue after the termination of this
Agreement. If the Company is unable because of Executive’s mental or physical incapacity or for
any other reason to secure Executive’s signature to apply for or to pursue any application for any
United States or foreign Intellectual Property Right covering Inventions assigned to the Company,
or its designee, as above, then Executive hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents as Executive’s agent and attorney in fact, to act for and
in Executive’s behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of letters patent, or copyright,
trademark or other registrations thereon with the same legal force and effect as if executed by
Executive.
6.5.
Returning the Company Group Documents and Property. Executive agrees
that, upon termination of Executive’s service with the Company, for any reason, Executive will
deliver to the Company, or its designee, and will not keep in Executive’s possession or deliver to
anyone else, any and all records, data, notes, reports, information, proposals, lists, correspondence,
emails, specifications, drawings, blueprints, sketches, materials, other documents, or reproductions
or copies (including but not limited to on computer discs or drives) of any aforementioned items
either developed by Executive pursuant to Executive’s service with the Company or otherwise
relating to the business of the Company Group, retaining neither copies nor excerpts thereof.
Executive also agrees that, at such time, or earlier upon request, Executive will deliver to the
Company, or its designee, all the Company Group property in Executive’s possession, including
cell phones, computers, computer discs, drives and other equipment or devices, and that if
Executive fails to do so the Company may withhold from Executive’s compensation the
replacement cost of the Company Group property Executive has not returned.
6.6.
Non-Disparagement. Executive acknowledges and agrees that Executive
will not while employed by the Company or engaged as a consultant and/or director of the
Company and for the ten (10) year period following the end of such service with the Company,
whether in writing or orally, malign, denigrate or disparage the Company Group or any of their
respective predecessors or successors, or any of the current or former directors, officers,
employees, shareholders, partners, members, agents or representatives of any of the foregoing,
with respect to any of their respective past or present activities, or otherwise publish (whether in
writing or orally) statements that tend to portray any of the aforementioned parties in an
unfavorable light. Disclosure of information Executive is required to disclose pursuant to any
applicable law, court order, subpoena, compulsory process of law or governmental decree shall not
constitute a violation or breach of this Section 6.6, provided that Executive delivers written notice
of such required disclosure to the Company or its designee promptly before making such
disclosure if such notice is not prohibited by applicable law, court order, subpoena, compulsory
process of law or governmental decree.
6.7.
Relatives, Affiliates, Etc. Executive acknowledges and agree that Executive
will not hire or otherwise engage to provide products or services to the Company Group (as an
employee, consultant, supplier, vendor, or otherwise) any Person that is
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Executive’s Affiliate or any Person that is Executive’s familial relative by marriage or by birth
(including adoption) without disclosure to and the written consent of the Board.
6.8.
Definitions. For purposes of this Agreement:
6.8.1. “Affiliate” means, with respect to any specified Person, any other
Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or
is under common Control with, such specified Person, provided that, in any event, any business in
which the Company has any direct ownership interest shall be treated as an Affiliate of the
Company.
Company and each of its Affiliates.
6.8.2.
“Company Group” means, collectively and individually, the
6.8.3. “Competing Business” means any Person engaged
the
development, manufacture and marketing of medical devices indicated for treatment of depression,
or any other indications developed, being developed or being considered for development by the
Company.
in
6.8.4. “Control”
terms
“Controlled by” and “under common Control with”), as used with respect to any Person, means the
direct or indirect possession of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by contract or
otherwise.
(including, with correlative meanings,
the
6.8.5. “Customer” shall mean those Persons for whom or which the
Company Group performed services or to whom or which the Company Group sold or licensed its
products, during the twelve (12) months preceding the cessation of Executive’s employment with
the Company for any reason.
6.8.6. “Intellectual Property” means (a) all inventions (whether patentable
or un-patentable and whether or not reduced to practice), all improvements thereto, and all patents
and patent applications claiming such inventions, (b) all trademarks, service marks, trade dress,
logos, trade names, fictitious names, brand names, brand marks and corporate names, together with
all translations, adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in connection therewith, (c)
all copyrightable works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations, and renewals in
connection therewith, (e) all trade secrets (including research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques, methodologies,
technical data, designs, drawings and specifications), (f) all computer software (including data,
source and object codes and related documentation), (g) all other proprietary rights, (h) all copies
and tangible embodiments thereof (in whatever form or medium), or (i) similar intangible personal
property which have been or are developed or created in whole or in part by Executive (a) at any
time and at any place while Executive is employed by the Company and which, in the case of any
or all of the foregoing, are related to and used in connection with the business of the Company
Group, or (b) as a result of tasks assigned to Executive by the Company Group.
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6.8.7. “Person” means any individual, firm, corporation, partnership,
limited liability company, trust, joint venture, association, governmental entity, unincorporated
entity or other entity.
6.8.8. “Proprietary Information” means any and all the Company Group
proprietary or confidential information, technical data, trade secrets or know-how, including, but
not limited to, research, product plans and developments, prototypes, products, services, client lists
and clients, prospective clients and contacts, proposals, client purchasing practices, prices and
pricing methodology, cost information, terms and conditions of business relationships with clients,
client research and other needs, markets, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering, distribution and sales methods and systems, sales and
profit figures, finances, personnel information including, but not limited to, information regarding
compensation, skills and duties, as well as reports and other business information that Executive
learns of, obtain, or that is disclosed to Executive relating to the Company Group at any time prior
to or during the course of Executive’s service to the Company, either directly or indirectly, in
writing, orally or by review or inspection of documents or other tangible property. Failure by the
Company Group to mark any of the Proprietary Information as confidential or proprietary shall not
affect its status as Proprietary Information.
6.8.9. “Prospective Customer” shall mean Persons whose business was
solicited by the Company Group during the twelve (12) months preceding the date on which
Executive’s employment with the Company ceases for any reason.
6.9.
Acknowledgements. Executive acknowledges that the Restrictive
Covenants are reasonable and necessary to protect the legitimate interests of the Company Group,
that the duration and geographic scope of the Restrictive Covenants are reasonable given the nature
of this Agreement and the position Executive holds within the Company, and that the Company
would not enter into this Agreement or otherwise employ Executive unless Executive agrees to be
bound by the Restrictive Covenants set forth in this Section 6.
6.10. Remedies and Enforcement Upon Breach.
6.10.1. Specific Enforcement. Executive acknowledges that any breach by
him, willfully or otherwise, of the Restrictive Covenants will cause continuing and irreparable
injury to the Company Group for which monetary damages would not be an adequate remedy.
Executive shall not, in any action or proceeding to enforce any of the provisions of this
Agreement, assert the claim or defense that such an adequate remedy at law exists. In the event of
any such breach or threatened breach by Executive of any of the Restrictive Covenants, the
Company Group, as applicable, shall be entitled to injunctive or other similar equitable relief in
any court, without any requirement that a bond or other security be posted, and this Agreement
shall not in any way limit remedies of law or in equity otherwise available to the Company Group.
6.10.2. Economic Remedies. Executive acknowledges and agree that if
Executive breaches any of the provisions of this Agreement, the Company will have the right and
remedy to require Executive to account for and pay over to the Company or its designee, all
compensation, profits, monies, accruals, increments or other benefits Executive derives or receives
as a result of such breach. This right and remedy will be in addition to, and not in lieu of, any
other rights and remedies available to the Company Group under law or in equity.
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6.10.3. Judicial Modification. If any court determines that any of the
Restrictive Covenants, or any part thereof, is unenforceable because of the duration or
geographical scope of such provision, such court shall have the power to modify such provision
and, in its modified form, such provision shall then be enforceable.
6.10.4. Enforceability. If any court holds the Restrictive Covenants
unenforceable by reason of their breadth or scope or otherwise, it is the intention of the parties
hereto that such determination not bar or in any way affect the right of the Company Group to the
relief provided above in the courts of any other jurisdiction within the geographic scope of such
Restrictive Covenants.
6.10.5. Disclosure of Restrictive Covenants. Executive agrees to disclose
the existence and terms of the Restrictive Covenants to any employer that Executive may work for
during the Restricted Period.
6.10.6. Extension of Restricted Period. If Executive breaches Section 6.1 in
any respect, the restrictions contained in that section will be extended for a period equal to the
period that Executive was in breach.
7.
Miscellaneous.
7.1.
Other Agreements. Executive represents and warrants to the Company that
there are no restrictions, agreements or understandings whatsoever to which he is a party that
would prevent or make unlawful his execution of this Agreement, that would be inconsistent or in
conflict with this Agreement or Executive’s obligations hereunder, or that would otherwise
prevent, limit or impair the performance by Executive of his duties under this Agreement.
7.2.
Cooperation. Executive further agrees that she will cooperate fully with the
Company and its counsel with respect to any matter (including litigation, investigations, or
governmental proceedings) in which Executive was in any way involved during his employment
with the Company. Executive shall render such cooperation in a timely manner on reasonable
notice from the Company. The Company shall reimburse Executive any reasonable expenses
incurred in rendering such cooperation.
7.3.
Successors and Assigns. The Company may assign this Agreement to any
successor to its assets and business by means of liquidation, dissolution, sale of assets or otherwise.
The duties of Executive hereunder are personal to Executive and may not be assigned by him.
7.3.1. Governing Law and Enforcement. This Agreement will be governed
by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without
regard to the principles of conflicts of laws. Any legal proceeding arising out of or relating to this
Agreement will be subject to mediation followed by binding arbitration in Chester County, PA,
provided, however, that any dispute involving the Restrictive Covenants of Section 6 may be
instituted in a state or federal court in the Commonwealth of Pennsylvania, and Executive and the
Company hereby consent to the personal and exclusive jurisdiction of such court(s) and hereby
waive any objection(s) that they may have to personal jurisdiction, the laying of venue of any such
proceeding and any claim or defense of inconvenient forum.
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7.4. Waivers. The waiver by either party of any right hereunder or of any breach
by the other party will not be deemed a waiver of any other right hereunder or of any other breach
by the other party. No waiver will be deemed to have occurred unless set forth in a writing. No
waiver will constitute a continuing waiver unless specifically stated, and any waiver will operate
only as to the specific term or condition waived.
7.5.
Severability. Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law. However, if any
provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability will not affect any other provision, and this Agreement will
be reformed, construed and enforced as though the invalid, illegal or unenforceable provision had
never been herein contained.
7.6.
Survival. This Agreement will survive the cessation of Executive’s
employment to the extent necessary to fulfill the purposes and intent of this Agreement.
7.7.
Notices. Any notice or communication required or permitted under this
Agreement will be made in writing and (a) sent by overnight courier, (b) mailed by overnight U.S.
express mail, return receipt requested, (c) sent by telecopier, or (d) sent by email. Any notice or
communication to Executive will be sent to the address contained in his personnel file. Any notice
or communication to the Company will be sent to the Company’s principal executive offices, to the
attention of its General Counsel. Notwithstanding the foregoing, either party may change the
address for notices or communications hereunder by providing written notice to the other in the
manner specified in this paragraph.
7.8.
Entire Agreement; Amendments. This Agreement contains the entire
agreement and understanding of the parties hereto relating to the subject matter hereof, and merges
and supersedes all prior and contemporaneous discussions, agreements and understandings of
every nature relating to that subject matter (including, without limitation, the employment term
sheet). This Agreement may not be changed or modified, except by an agreement in writing
signed by each of the parties hereto.
7.9. Withholding. All payments (or transfers of property) to Executive will be
subject to tax withholding to the extent required by applicable law.
7.10. Section Headings. The headings of sections and paragraphs of this
Agreement are inserted for convenience only and will not in any way affect the meaning or
construction of any provision of this Agreement.
7.11. Counterparts; Facsimile. This Agreement may be executed in multiple
counterparts (including by facsimile signature), each of which will be deemed to be an original, but
all of which together will constitute but one and the same instrument. Counterparts may be
delivered via facsimile, electronic mail (including pdf) or other transmission method and any
counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and
effective for all purposes.
-15-
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and Executive has executed this Agreement, effective as of the A&R
Effective Date.
NEURONETICS, INC.
By:
Name: W. Andrew Macan
Title: Executive Vice President, General Counsel,
and Chief Compliance Officer
KEITH J. SULLIVAN
Signature Page to Amended and Restated Employment Agreement
ATTACHMENT A – COMPETITORS
Brainsway Ltd. and its Affiliates
MagVenture, Inc. and its Affiliates
The Magstim Company Ltd. and its Affiliates
Nextstim plc and its Affiliates
TeleEMG, LLC a/k/a CloudTMS) and its Affiliates
MAG & More GmbH and its Affiliates
Remed Co., Ltd and its Affiliates
Shenzhen Yingchi Technology Co. Ltd. and its Affiliates
Transcranial Magnetic Stimulation (TMS) service provider organizations that currently or
in the future manufacture, contract manufacture, distribute, sell, lease, franchise, or
otherwise commercialize medical devices indicated for treatment of depression, or any
other indications developed, being developed or being considered for development by the
Company
ATTACHMENT B - PRIOR INVENTIONS
CERTAIN INFORMATION IN THIS EXHIBIT MARKED [***] HAS BEEN EXCLUDED FROM THIS
EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) IS THE TYPE THAT IS PRIVATE OR
CONFIDENTIAL.
Exhibit 10.28
November 25, 2019
Mr. W. Andrew Macan
[***]
Dear Andy:
On behalf of everyone at Neuronetics, we are delighted at the prospect of having you become part of our
Senior Management Team. We are pleased to offer you employment with Neuronetics, Inc. on the following
terms:
1. Position. You will serve in a full-time capacity as Sr. Vice President, General Counsel, Chief
Compliance Officer and Corporate Secretary. You will report to the Chief Executive Officer of the
Company. Your primary duties will be those consistent with your title. This is a Malvern-based position
and the expectation is that you would relocate from Texas to the Greater Philadelphia area and regularly
work from the Company's offices in Malvern. By signing this letter agreement, you represent and
warrant to the Company that you are under no contractual commi = inconsistent with your obligations
to the Company. Your anticipated start date will be Janu
2. Salary. You will be compensated at a semi-monthly rate of $14,583.33, less applicable xes and other
withholdings, on the 15" and the last day of each month, or the business day prior if these are not a
business day, based on an annualized base salary of $350,000 (the "Base Salary"). This salary will be
paid in accordance with the Company's standard payroll practices for salaried employees, and will be
subject to adjustment pursuant to the Company's employee compensation policies in effect from time to
time.
3. Bonus. You will be eligible to receive a discretionary cash bonus equal to a percentage of your annual
Base Salary (the "Incentive Bonus"), which Incentive Bonus will be payable based on the financial
performance of the Company, the attainment of certain corporate and departmental goals and your
personal performance. The amount of such Incentive Bonus will be determined in the sole discretion of
the Board of Directors of the Company (the "Board") or the Compensation Committee thereof. The
Incentive Bonus, if any, for 2020 is targeted at 40% of your actual salary earned in 2020. The Incentive
Bonus may be increased or decreased dependent upon the attainment of certain corporate, departmental
and personal performance measures, as defined by you and the CEO.
4. Benefits. You will be permitted to participate in such group medical, dental, vision, life, accident and
long-term disability insurance and other fringe benefits and retirement plans as the Company may
make available from time to time to its other similarly situated senior employees; provided, however,
that nothing contained in this letter agreement shall restrict the ability of the Company to amend or
terminate such plans, programs and arrangements at any time and from time to time.
5. Vacation. You will be eligible for vacation each year, in accordance with the Company's standard
vacation policy, and to those holidays observed by the Company. The Company's current vacation
policy permits four weeks of vacation per year for Vice President level and above employees, prorated
for your first year of employment based on your start date. Based upon our proration calculation, you
are eligible for 19.5 vacation days in 2020. Arrangements for all such absences must, of course, be
made to ensure that your responsibilities are properly covered. In addition, you will also be eligible
for 7 personal/sick days annually, pro-rated for your first year based on your
start date and otherwise in accordance with the Company's personal/sick days policy. Based on your
start date, you will be eligible for 6.5 personal/sick days in 2020.
6. Long Term Incentive. As long-term incentive compensation, you will also be granted restrictive stock
units under Neuronetics' 2018 Equity Incentive Plan with a target value (in accordance with
Neuronetics' methodology) of $440,000. You will vest in 33.33% of the restrictive stock units on the
first anniversary of your commencement of service, another 33.33% on the second anniversary of your
commencement of service and the final 33.34% on the third anniversary of your commencement of
service, in each case provided you remain employed by Neuronetics on the given vesting date. The
terms and conditions of the restricted stock units will be more fully described in the Company's 2018
Equity Incentive Plan and Restricted Stock Unit Award Agreement to be provided to you.
7. Relocation Assistance. You will be provided a lump sum amount of $60,000, grossed-up in
accordance with the Company's methodology to defray the tax liability associated with such payment
(collectively, the "Relocation Payment"), to assist in your relocation to the Greater Philadelphia area.
We will pay the Relocation Payment to you with the Company's first regularly scheduled payroll that
is at least (10) days following your start date. By signing this offer letter, you agree that if, within
twenty four (24) months of your start date, you voluntarily terminate employment with the Company
other than for Good Reason (as defined in the Severance Agreement discussed below) or if the
Company terminates your employment for Cause (as defined in the Severance Agreement), you will
reimburse the Company in the full amount of the Relocation Payment. The Company may, in its
discretion, deduct all or a portion of the Relocation Payment from your final paycheck (and, as a
condition of your employment, you will sign an authorization form agreeing to such deduction). You
promise to reimburse the Company for the remaining balance of the Relocation Payment after
deducting any portion of the Relocation Payment from your final paycheck.
8. Professional Fees. Expenses that you incur to remain a member in good standing of the bars of the
Commonwealth of Pennsylvania and the State of New Jersey, limited to fees for continuing education,
travel expense associated with such education (which should generally be ground travel in light of the
opportunities for such education in the Greater Philadelphia region) and annual registration fees, will
be considered reimbursable expenses to you, subject to your compliance with the Company's then-
current expense reimbursement policies.
9. Restrictive Covenant and Invention Assignment Agreement. Like all Company employees, you
will be required, as a condition to your employment with the Company, to sign the Company's
standard Restrictive Covenant and Invention Assignment Agreement, a copy of which is attached
hereto.
10. Period of Employment. Your employment with the Company will be "at will," meaning that either
you or the Company will be entitled to terminate your employment at any time and for any reason,
with or without cause. Any contrary representations which may have been made to you are superseded
by this letter agreement. This is the full and complete agreement between you and the Company on
this term. Although your job duties, title, compensation and benefits, as well as the Company's
personnel policies and procedures, may change from time to time, the "at will" nature of your
employment may not be changes, except by an express written agreement signed by you and a duly
authorized officer of the Company.
11. Severance. On your first day, you and the Company will enter into the Severance Agreement, a
copy of which is attached hereto.
12. Outside Activities. While you render services to the Company, you will not engage in any other gainful
employment, business or activity without the written consent of the Company. While you
render services to the Company, you also will not assist any person or organization in competing with
the Company, in preparing to compete with the Company or in hiring any employees of the Company.
13. Withholding Taxes. All forms of compensation referred to in this letter are subject to reduction to
reflect applicable withholding and payroll taxes.
14. Entire Agreement. This letter and the Exhibits attached hereto contain all of the terms of your
employment with the Company and supersede any prior understandings or agreements, whether oral or
written, between you and the Company.
15. Amendment and Governing Law. This letter agreement may not be amended or modified except by an
express written agreement signed by you and a duly authorized officer of the Company. The terms of
this letter agreement and the resolution of any disputes will be governed by the laws of the
Commonwealth of Pennsylvania.
We hope that you find the foregoing terms acceptable. This offer is available for your acceptance until the end of
business on December 2, 2019. Any acceptance postmarked after this date will be considered invalid. Please
countersign your acceptance of this offer in the space provided below and return to me along with the Restrictive
Covenant and Invention Assignment Agreement as soon as possible. This offer and your employment with the
Company is contingent upon your providing legal proof of your identity and authorization to work in the United
States as required by law, as well as satisfactory completion of reference and criminal background checks and drug
screening.
Please do not hesitate to contact me should you have any questions. We look forward to you joining the
Neuronetics team.
Sincerely,
NEURONETICS, INC.
By: /s/ Christopher Thatcher
Name: Christopher Thatcher
Title: President and Chief Executive Officer
The provisions of this offer of employment have been read, are understood, and the offer is herewith accepted. I
understand that my employment is contingent upon the successful completion of a drug screening test and
criminal history and background checks, as well as upon execution of the Restrictive Covenant and Invention
Assignment Agreement.
SSN:
DOB: [***]
/s/ W. Andrew Macan
Date: 11/26/2019
_
Name: W. Andrew Macan
Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
Exhibit 10.27
AMENDED AND RESTATED RESTRICTIVE COVENANT AND SEVERANCE
AGREEMENT
This Amended and Restated Restrictive Covenant and Severance Agreement (this
“Agreement”) is made and entered into effective as of November 2, 2023 (the “A&R Effective
Date”), by and between Neuronetics, Inc., a Delaware corporation (“Company”) and Keith
Sullivan (“Executive”).
Recitals
WHEREAS, Company and Executive previously entered
into an Employment
Agreement dated July 14, 2020, which set forth the terms and conditions of Executive’s
employment with Company (as amended, the “Employment Agreement”); and
WHEREAS, Company and Executive previously executed a Restrictive Covenant and
Severance Agreement effective as of July 1, 2021 (the “Original Effective Date”), which
superseded certain terms of the Employment Agreement (such agreement, the “Original RCS
Agreement”);
WHEREAS, since the Original Effective Date, the Company’s Board of Directors (the
“Board”) has approved certain modifications to Executive’s employment arrangements, and the
Company has determined that such modifications should be reflected in the documents that
memorialize Executive’s employment relationship with the Company; and
WHEREAS, in furtherance of the foregoing, the parties wish to amend and restate the
Original RCS Agreement as set forth in this Agreement.
Agreement
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
obligations set forth below, the adequacy and sufficiency of which are hereby acknowledged,
Company and Executive hereby agree as follows:
1.
Term of Agreement; Amendment and Restatement.
1.1
The “Term” of this Agreement will begin on the A&R Effective Date and
continue until the earliest of: (i) termination of Executive’s employment by Company for
Cause, by Executive without Good Reason, or due to Executive’s death or Disability; (ii) if
Executive becomes entitled to benefits, payment of all benefits to which Executive is
entitled under this Agreement and satisfaction of all other obligations of Executive and
Company with respect to this Agreement, including Executive’s obligations pursuant to the
Restrictive Covenant Agreement (as defined herein); and (iii) termination pursuant to
Section 11 of this Agreement.
1.2
The Original RCS Agreement is hereby amended, restated, superseded, and
replaced by this Agreement in all respects.
Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
2.
At-Will Employment. Company and Executive acknowledge that Executive’s
employment will continue to be at-will as defined under applicable law, and either Company or
Executive may terminate the employment relationship at any time and for any reason. If
Executive’s employment with Company terminates for any reason, Executive shall not be entitled
to any payments, benefits, damages, awards, or compensation other than the payment of accrued
but unpaid wages, as required by law, and any unreimbursed business expenses, and as provided by
this Agreement.
3.
Termination.
3.1
Cause. Company in its sole discretion, may terminate Executive’s
employment and cancel all of Company’s obligations under this Agreement for Cause at
any time. The term “Cause” shall mean the occurrence of one or more of the following
events: any (a) act of fraud, embezzlement, or theft; (b) willful disregard of Company rules,
policies, or procedures or of the assigned duties of Executive or directions of the Board
(other than due to physical or mental illness or Disability), which has not been corrected (to
the extent correctable) within thirty (30) days of Executive receiving a written notice for
substantial correction from Company; (c) gross negligence, meaning an act or omission
exhibiting a conscious indifference or disregard of Company rules, policies, or procedures
or of the assigned duties of Executive, which has not been corrected (to the extent
correctable) within thirty (30) days of Executive receiving a written notice for substantial
correction from Company; (d) breach of fiduciary duty for personal gain during the course
of Executive’s employment with Company; (e) commission by Executive of a felony; (f)
intentional act or intentional failure to act by Executive which reasonably could be
expected to have a material adverse effect on Company’s business, reputation, or
operations, which has not been corrected (to the extent correctable) within thirty (30) days
of Executive receiving a written notice for substantial correction from Company; or (g)
determination that Executive intentionally omitted any requested information or falsified
any disclosed information either in Executive’s resume or during Executive’s interview
process with Company. Whether an event constituting “Cause” exists, and whether that
event is correctable, shall be determined in the sole discretion of Company.
In the event Company elects to terminate Executive’s employment in accordance with this
Section, such termination shall be without prejudice to any other remedy to which
Company may be entitled under law, equity, or this Agreement. Furthermore, the
termination will be effective as of the date of the original written notice of termination and
neither party shall have any further obligation to the other (including the payment of any
severance benefits by Company to Executive) except for Executive’s obligations set forth
in the Restrictive Covenant Agreement, which will remain in full force and effect.
Specifically, should Company terminate this Agreement for Cause, Executive shall not be
entitled to any further compensation other than Executive’s earned but unpaid base salary
(at the annual rate then in effect), any expense reimbursements to be paid in accordance
with Company policy, and payments for any accrued but unused vacation or paid time off
in accordance with Company’s policies and applicable law (the “Accrued Amounts”) up to
the effective date of termination of employment with Company (the “Termination Date”).
3.2
Resignation without Good Reason. Executive may resign Executive’s
employment without Good Reason at any time. Executive shall not be entitled to any
further compensation other than the Accrued Amounts up to the Termination Date.
Company, in its
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
sole discretion, may elect to have Executive immediately cease providing services to
Company upon receipt of Executive’s notice of resignation; provided, however, Company
shall pay the Accrued Amounts through the Termination Date.
3.3 Without Cause or Resignation for Good Reason.
(a)
Executive’s employment may be terminated at any time by
Company, without any requirement of Cause, upon delivery to Executive of thirty
(30) days’ prior written notice of its intention to terminate Executive’s employment
(the “Termination Period”). Company, in its sole discretion, may elect to have
Executive
the
Termination Period; provided, however, Company shall pay the Accrued Amounts
through the end of the Termination Period, whether or not Company elects to
continue Executive’s services during all or a portion of the Termination Period.
immediately cease providing services
to Company during
(b)
Subject to the terms and conditions of this Agreement, in the event
of (A) Executive’s termination of employment by Company without Cause, or (B)
Executive’s resignation for Good Reason, Executive’s obligations pursuant to the
Restrictive Covenant Agreement will remain in full force and effect. Executive and
Company also agree that in the event Executive’s termination or resignation in
accordance with this Section constitutes a separation from service within the
meaning of Treasury Regulation Section 1.409A-1(h), Company, in addition to the
Accrued Amounts for the Termination Period, will provide Executive:
(1)
severance at a rate equal to Executive’s monthly base salary
in effect at the time of such termination or resignation for a period of twelve
(12) months (the “Severance Period”);
(2)
any unpaid annual incentive bonus, if any, determined in
Company’s sole discretion in accordance with the incentive bonus program
established by Company for senior executives of Company (the “Incentive
Bonus”), payable to Executive for the fiscal year that ended immediately
preceding Executive’s termination of employment, regardless of any
requirement that Executive be employed on the date of payment;
(3)
if Executive (and Executive’s spouse or dependents, as
applicable) timely elects to continue health, dental, and/or vision coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985
(“COBRA”), Company will pay the full premium cost associated with such
COBRA continuation coverage consistent with such coverages as are
offered to then active employees until the earliest to occur of (i) the
expiration of the Severance Period; (ii) the date Executive first becomes
eligible for health, dental, or vision coverage with a subsequent employer;
(iii) the date Executive is no longer eligible for continuation coverage under
COBRA; or (iv) the date Executive violates the provisions of the Restrictive
Covenant Agreement. Notwithstanding
if Company
determines that it cannot provide the benefit required by this Paragraph (4)
without potentially violating applicable law (including Section 2716 of the
Public Health Service Act) or incurring an excise tax, Company shall in lieu
thereof provide to Executive a
foregoing,
the
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
taxable monthly payment for the period described herein in an amount equal
to the monthly COBRA premium that Executive would be required to pay to
continue Executive’s and Executive’s dependents’ COBRA continuation
coverage based on the premium for the first month of COBRA continuation
coverage; and
(4)
an amount equal to Executive’s Incentive Bonus for the fiscal
year of Executive’s termination of employment, assuming attainment of
performance goals at target, multiplied by a fraction (not to exceed one), (i)
the numerator of which equals the number of days during the current fiscal
year that Executive was employed by Company through the Termination
Date, and (ii) the denominator of which is 365.
(c)
“Good Reason” means Executive’s “separation from service” within
the meaning of Treasury Regulation Section 1.409A-1(h) following the initial
existence of one or more of the following conditions arising without Executive’s
consent:
(1)
a material adverse change of Executive’s position with
Company that reduces Executive’s title, level of authority, duties, and/or
responsibilities from those in effect immediately prior to the reduction;
(2)
a reduction in base salary or target incentive compensation
opportunity;
(3)
any failure to provide that Executive is eligible to participate
in Company benefit plans on a basis that is generally comparable to
similarly-situated senior corporate officers of Company;
(4)
a relocation of Executive’s principal worksite of more than
35 miles one way unless such relocation reduces Executive’s commute to
such worksite; or
(5)
any action or inaction that constitutes a material breach by
Company of any employment agreement between Executive and Company,
if applicable, or a material breach of this Agreement (including a failure to
assume this Agreement by any successor to Company).
Within 30 days following the initial existence of a condition described above,
Executive must provide written notice to Company of the existence of the
condition, and Company must fail to remedy the condition within 120 days of
receipt of such notice. If Company fails to remedy the condition, Executive must
separate from service with Company within 30 days of the end of the 120-day cure
period. If Executive does not separate from service with Company within such 30-
day period, Executive will not have incurred a separation from service for Good
Reason.
3.4
Change in Control.
(a)
For purposes of this Agreement, “Change in Control” shall have the
meaning set forth in the Neuronetics, Inc. 2018 Equity Incentive Plan, as may be
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
amended from time to time (the “Equity Plan”); provided, however, that if any
amounts under this Agreement are determined to be subject to Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”), then a transaction will
not be deemed a Change in Control for purposes of this Agreement unless the
transaction qualifies as a change in control event within the meaning of Code
Section 409A.
(b)
Subject to the terms and conditions of this Agreement, if, during the
three (3) month period immediately preceding, through the twelve (12) month
period immediately following, the occurrence of a Change in Control, (A) Company
terminates Executive’s employment without Cause, or (B) Executive resigns for
Good Reason, Company will provide Executive:
(1)
the amounts described in Subparagraphs (1), (2), and (3) of
Section 3.3(b) of this Agreement; provided, however, that the Severance
Period shall be extended to twenty-four (24) months;
(2)
an amount equal to Executive’s target Incentive Bonus for
the fiscal year of Executive’s termination of employment, multiplied by 1.5;
and
(3)
immediate and full vesting (and the ability to exercise, if
applicable) of all outstanding unvested restricted stock, stock options, and
other equity incentives awarded to Executive by Company.
In the event Executive is entitled to payments pursuant to this Section 3.4, then this
Section shall supersede Section 3.3 of this Agreement.
3.5
Death; Disability. In the event Executive’s employment ends due to
Executive’s death or Disability, this Agreement shall terminate and Executive shall not be
entitled to any further compensation under this Agreement other than the Accrued Amounts
up to the Termination Date. For purposes of this Agreement, “Disability” means a
condition entitling Executive to benefits under Company’s long-term disability plan, policy,
or arrangement; provided, however, that if no such plan, policy, or arrangement is then
maintained by Company and applicable to Executive, “Disability” will mean Executive’s
inability to perform Executive’s duties to Company due to a physical or mental condition
that can be expected to result in death or that can be expected to last (or has already lasted)
for a continuous period of 90 days or more, or for 120 days in any 180 consecutive day
period, as determined by an independent physician reasonably satisfactory to Executive and
Company whose fees shall be paid by Company. Termination as a result of a Disability will
not be construed as a termination by Company “without Cause.”
3.6
Release; Timing of Payment.
(a)
Company shall not be obligated to make any severance payment to
Executive under Section 3.3 or 3.4 of this Agreement until Executive has timely
delivered to Company a separation agreement, which will include a release of all
claims against Company and a non-disparagement clause in favor of Company, in
form and substance satisfactory to Company (“Release”), no later than forty-five
(45) days following the Termination Date.
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
(b)
The base salary and COBRA continuation severance payable
pursuant to Sections 3.3 and 3.4 above shall be paid in substantially equal
installments in accordance with Company’s payroll practices over the Severance
Period; the Incentive Bonus severance described in Section 3.3(b)(2) above shall be
paid in a single lump sum on the date Incentive Bonus payments are paid to
employees generally; the Incentive Bonus severance described in Section 3.3(b)(4)
and Section 3.4(b)(2) above shall be payable in a single lump sum commencing
within the sixty (60) days immediately following the Termination Date; and any
equity awards will be payable in accordance with the Equity Plan, as applicable.
Notwithstanding the foregoing, no amounts will be paid pursuant to this Agreement
unless and until the Release has become effective and irrevocable under all
applicable law; provided, that if the period from the Termination Date until the date
of payment can encompass two consecutive calendar years, payment will not be
made until the later calendar year. The first payment after the Release has become
effective shall include all amounts that would have been paid following the
Termination Date had the Release been effective as of the Termination Date but
which were not yet paid.
3.7
Violation of Restrictive Covenant Agreement. Notwithstanding anything
herein to the contrary, Executive’s violation of the Restrictive Covenant Agreement at any
point during the Severance Period shall result in forfeiture of all unpaid amounts set forth
in Sections 3.3 and 3.4 above, Company shall be under no further obligation to make any
further payment to Executive, and Executive will be required to repay to Company the
gross amount of any payments made pursuant to this Agreement within thirty (30) days of
the demand by Company.
3.8
No Mitigation. Executive shall not be obligated to seek other employment
or take other action to mitigate the amounts payable to Executive hereunder.
3.9
No Additional Severance. Executive acknowledges and agrees that the
severance described in this Section 3 shall be in lieu of any other severance payments or
benefits to which Executive may be eligible or entitled to receive under any other severance
plan or arrangement of Company or its affiliates.
3.10 Clawback. Notwithstanding anything herein to the contrary, any amounts
payable pursuant to Section 3.3 or 3.4 above remain subject to Company’s clawback policy.
By entering into this Agreement, Executive acknowledges and agrees that Executive is
subject to any clawback and recoupment policies that may be applicable to Executive as an
employee of Company, as in effect (or as may be amended) from time to time.
4.
Restrictive Covenant Agreement. Executive acknowledges and agrees to abide by
the terms of the Confidentiality, Non-Competition and Inventions Assignment Agreement, as may
be amended from time to time, and substantially in the form previously executed by Executive and
Company, and/or any other restrictive covenant agreement in the form and substance determined in
the discretion of Company (the “Restrictive Covenant Agreement”). Executive acknowledges that
the Restrictive Covenant Agreement shall continue to remain in full-force and effect in accordance
with its terms following cessation of Executive’s employment with Company for any reason. If
Executive does not execute the Restrictive Covenant Agreement on or before the fifth (5th)
calendar day following the Original Effective Date, or does not have a prior Restrictive Covenant
Agreement
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
already in effect as of the Original Effective Date, this Agreement shall be deemed null and void
from the outset and Company shall have no obligations hereunder.
5.
Arbitration.
5.1
Executive and Company agree and stipulate that any claims, disputes, and
demands which may arise out of Executive’s employment with Company, Executive’s
termination of employment, the interpretation or application of any term, provision, and/or
language in this Agreement, and/or disputes, controversies or claims between Executive
and Company, regardless of whether said claims, disputes, or demands are based on
contract law, common law, federal or state statutes, federal or state constitutional
provisions, or otherwise, shall first be submitted to mediation administered by the
American Arbitration Association (“AAA”) under its Employment Arbitration Rules and
Medication Procedures, before resorting to arbitration. Thereafter, any unresolved claim,
dispute, or demand shall be submitted to final and binding arbitration pursuant to the
Federal Arbitration Act (“Act”) in accordance with the Employment Arbitration Rules (or
successor rules) of the AAA and Federal Rule of Civil Procedure 68; provided, however,
that nothing in this Section shall preclude either party from seeking or obtaining judicial
enforcement of the Restrictive Covenant Agreement, through injunctive or equitable relief
without arbitration as provided in the Restrictive Covenant Agreement. The FAA applies to
this Agreement because Company’s business involves interstate commerce. Specifically,
Company’s business affects interstate commerce because Company operates facilities in
various states outside of Pennsylvania; it purchases goods and services and other products
from vendors who are located outside of Pennsylvania; it ships goods and other products
and provides services to persons and entities in various states outside of Pennsylvania;
and/or it promotes its business in various states.
5.2
The arbitration shall be conducted before a single arbitrator who is licensed
to practice law in the Commonwealth of Pennsylvania and familiar with employment
disputes. The parties may select an arbitrator for their dispute by agreement. If the parties
cannot agree upon an arbitrator within thirty (30) days from either party’s request for
arbitration, either party may request a list of proposed arbitrators from AAA. AAA will
guide the parties through the selection of a neutral arbitrator in accordance with its Rules
and will provide the parties at least two complete panels from which a selection may be
made. The arbitration shall be scheduled within one hundred eighty (180) days after the
arbitrator has been selected with the hearing to take place in Chester County, Pennsylvania,
and the arbitrator shall issue a written decision within thirty (30) days after the close of the
hearing, unless otherwise agreed by the parties.
5.3
The parties shall have the right to file dispositive motions and post-hearing
briefs. The arbitrator’s authority and jurisdiction shall be limited to determining the matter
in dispute consistent with controlling law and this Agreement. Except as otherwise
provided herein, the arbitrator shall apply, and shall not deviate from, the substantive law of
the state in which the claim(s) arose and/or federal law, as applicable. The arbitrator shall
have the same authority to order remedies (e.g., emotional distress damages, punitive
damages, equitable relief, etc.) as would a court of competent jurisdiction. The arbitrator
shall not have the authority to hear disputes not recognized by existing law and shall
dismiss such claims upon motion by either party in accordance with the summary judgment
standards of the applicable jurisdiction. Similarly, the arbitrator shall not have the authority
to order any remedy that a
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
court would not be authorized to order. The arbitrator shall render a written award setting
forth the arbitrator’s findings of fact and conclusions of law within 30 days after the close
of the hearing, unless otherwise agreed by the parties. The arbitrator, and not any federal,
state, or local court, shall have exclusive authority to resolve any dispute relating to the
formation, enforceability, applicability, or interpretation of this Agreement, including
without limitation any claim that this Agreement is void or voidable. Thus, the parties
voluntarily waive the right to have a court determine the enforceability of this Agreement.
5.4
Any party hereto who refuses or fails to proceed to arbitration of a dispute
covered by this Agreement, after having received a written request from the other party that
it/he do so, will be liable to the party requesting arbitration for all attorney fees, costs, and
litigation expenses incurred in compelling arbitration.
5.5
The parties acknowledge that because of their relative positions, knowledge
and sophistication, they are capable of, and voluntarily consent to, an equal division of the
arbitrator compensation and administrative fees incurred in connection with any arbitration
conducted under this Section, so long as such an order would be consistent with the AAA’s
employment arbitration rules and mediation procedures. Each party shall be solely
responsible for payment of its own attorney’s fees, if any, relating to the arbitration, unless
otherwise required by statute or contract.
6.
Successors. This Agreement shall be binding upon any successor of Company and
any successor shall be deemed substituted for Company under the terms of this Agreement. As
used in this Agreement, the term “successor” shall include any person, firm, corporation, or other
business entity which at any time, whether by merger, purchase, or otherwise, acquires all or
substantially all of the assets or business of Company. Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially
all of the business or assets of Company to assume and agree to perform the obligations under this
Agreement in the same manner and to the same extent that Company would be required to perform
it if no such succession had taken place. Company shall be permitted to assign this Agreement to
its successors and assigns, and all covenants and agreements hereunder shall inure to the benefit of
and be enforceable by or against its successors and assigns.
7.
statements,
This Agreement supersedes any and all prior or
Entire Agreement.
representations, negotiations,
contemporaneous understandings, expectations,
promises, and agreements (regardless of whether written or oral, expressed or implied) between
Company and Executive relating to the subject matter hereof (including the Original RCS
Agreement and the Employment Agreement), other than the Restrictive Covenant Agreement and
except as provided herein. This Agreement, the Restrictive Covenant Agreement, and the
Employment Agreement (except Section 5 thereof, which is superseded by this Agreement)
incorporate and constitute the full, entire, and complete agreement between Company and
Executive with respect to the subject matter hereof and no other agreements, expectations,
understandings, representations, and/or promises between the parties and/or their representatives
shall be considered valid or effective unless expressly stated herein. Executive shall remain
subject to clawback policy of Company, as well as the personnel policies and procedures of
Company to the extent that such policies and procedures are not inconsistent with the terms and
provisions of this Agreement.
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
8.
409A Savings Clause. All amounts payable under this Agreement are intended to
comply with the “short term deferral” exception from Code Section 409A, specified in Treas. Reg.
§ 1.409A-1(b)(4) (or any successor provision) or the “separation pay plan” exception specified in
Treas. Reg. § 1.409A-1(b)(9) (or any successor provision), or both of them, and shall be
interpreted in a manner consistent with the applicable exceptions. Notwithstanding the foregoing,
to the extent that any amounts payable in accordance with this Agreement are subject to Code
Section 409A, this Agreement shall be interpreted and administered in such a way as to comply
with Code Section 409A to the maximum extent possible. Any reference in this Agreement to a
termination of employment means a “separation from service” as defined in Code Section 409A
and the applicable guidance issued thereunder. All rights to payments and benefits hereunder shall
be treated as rights to receive a series of separate payments and benefits to the fullest extent
allowed by Code Section 409A. If payment of any amount subject to Code Section 409A is
triggered by a separation from service that occurs while the Employee is a “specified employee”
(as defined by Code Section 409A) with the Company, and if such amount is scheduled to be paid
within six (6) months after such separation from service, the amount shall accrue without interest
and shall be paid on the first business day after the end of such six-month period, or, if earlier,
within 15 days after the appointment of the personal representative or executor of the Employee’s
estate following the Employee’s death.
Notwithstanding anything in this Agreement to the contrary, in no event shall Company commence
payment or distribution to Executive of any amount that constitutes “nonqualified deferred
compensation” within the meaning of Code Section 409A, earlier than the earliest permissible date
under Code Section 409A that such amount could be paid or distributed without the imposition of
additional taxes, interest, or penalties under Code Section 409A. If any payments or distributions
are delayed pursuant to the immediately preceding sentence, Company will accrue such amounts
without interest during such period as the payment or distribution may be required to be deferred
under Code Section 409A, and will become payable and be paid by Company in a lump-sum
payment on the first business day that such amount could be paid or distributed without additional
taxes, interest, or penalties being imposed under Code Section 409A.
9.
Section 280G.
9.1
In the event that part or all of the payments or benefits to be paid or
provided to the Executive under this Agreement together with the aggregate present value
of payments, consideration, compensation, and benefits under all other plans,
arrangements, and agreements applicable to the Executive (“Total Payments”) will be
subject to an excise tax under the provisions of Code Section 4999 (“Excise Tax”), the
Total Payments shall be reduced so that the maximum amount of the Total Payments (after
reduction) will be one dollar ($1.00) less than the amount that would cause the Total
Payments to be subject to the Excise Tax; provided, however, that the Total Payments shall
only be reduced to the extent the after-tax value of amounts received by the Executive after
application of the above reduction would exceed the after-tax value of the Total Payments
received by the Executive without application of such reduction. If applicable, the
particular payments that are to be reduced shall be subject to the mutual agreement of the
Executive and the Company, with a view to maximizing the value of the payments to the
Executive that are not reduced.
9.2
For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (a) all of the Total Payments
shall be
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
treated as “parachute payments” within the meaning of Code Section 280G(b)(2), unless in
the opinion of tax counsel (the “Tax Counsel”) reasonably acceptable to the Executive and
selected by the accounting firm (the “Auditor”) which was, immediately prior to the
Change in Control, the Company’s independent auditor, such other payments or benefits (in
whole or in part) do not constitute parachute payments, including by reason of Code
Section 280G(b)(4)(A), (b) all “excess parachute payments” within the meaning of Code
Section 280G(b)(1) shall be treated as subject to the Excise Tax unless, in the opinion of
Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered, within the meaning of Code Section 280G(b)
(4)(B), in excess of the base amount allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax, and (c) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance with the
principles set forth in Code Section 280G(d)(3) and (d)(4). Prior to the payment date set
forth in Section 3.4 of this Agreement, Company shall provide the Executive with its
calculation of the amounts referred to in this Section 9.2 and such supporting materials as
are reasonably necessary for the Executive to evaluate Company’s calculations. If the
Executive disputes Company’s calculations (in whole or in part), the reasonable opinion of
Tax Counsel with respect to the matter in dispute shall prevail.
10.
Taxes, Penalties, and Fees. It is the sole obligation of Executive, or Executive’s
estate or beneficiary, to remain aware of and to pay any and all taxes, fees, or penalties (including
any excise taxes) due now or in the future on benefits received under this Agreement, whether or
not Executive or Executive’s beneficiary has received cash from Company at the time the taxes,
fees, or penalties become due. Executive acknowledges that tax requirements may change during
the term of this Agreement and that it is Executive’s (or Executive’s estate’s or beneficiary’s)
obligation to remain aware of these changes and to fulfill these obligations. Any amounts payable
(or transfers of property) pursuant to this Agreement will be subject to federal, state, and local tax
withholding to the extent required by applicable law.
11.
change,
deletion,
alteration,
amendment,
Amendment. No
addition,
supplementation, clarification, or modification to this Agreement or any of its terms shall be valid
or of any effect unless, and only if, it is reduced to writing as a formal and specific amendment to
this Agreement and is signed by Executive and Company. Notwithstanding the foregoing, no
amendment to this Agreement may accelerate any amount payable to Executive unless the
amendment and acceleration are allowable by Code Section 409A, or the amounts payable are not
subject to Code Section 409A. Further notwithstanding the foregoing, no payment to Executive
shall occur upon termination of this Agreement unless the requirements of Code Section 409A
have been met, to the extent applicable. Company and Executive agree to execute any and all
amendments to this Agreement as they mutually agree may be necessary or appropriate to ensure
compliance with the distribution provisions of Code Section 409A or as otherwise needed to
ensure that this Agreement complies with, or remains exempt from, Code Section 409A.
12.
Severability. The invalidity or unenforceability of a particular provision of this
Agreement shall not affect the enforceability of any other provisions hereof and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision was omitted.
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
13. Waiver. The waiver by either party of a breach or violation of any provision of this
Agreement shall not operate as or be construed to be a waiver of any subsequent breach hereof or
of any other right herein.
14.
Notices. Any notice to be given under this Agreement by either party to the other
may be effective either by personal delivery in writing or by mail, certified mail, postage prepaid
with return receipt requested. Mailed notices shall be addressed to Executive’s current residence
or to Company’s principal business address. Notices delivered personally shall be deemed
communicated as of the actual receipt thereof, and mailed notices shall be deemed communicated
and received three (3) days after the mailing of same.
15.
Applicable Law; Venue. This Agreement shall be governed by and interpreted
under the laws of the Commonwealth of Pennsylvania, and all actions brought to enforce or
interpret this Agreement shall be in the courts applicable to Chester County, Pennsylvania.
16.
Construction of Agreement. The terms, provisions, and conditions of this
Agreement represent the results of negotiations between and among the parties hereto, each of
which has had the opportunity to be represented by counsel of its own choosing, and neither of
which has acted under duress or coercion whether legal, economic or otherwise. Accordingly, the
terms, provisions, and conditions of this Agreement shall be interpreted and construed in
accordance with their usual and customary meanings.
17.
Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together will constitute one and the same
instrument.
18.
Consultation with Attorney. Executive acknowledges and agrees that Executive
has been afforded the opportunity to review this Agreement with Executive’s legal counsel prior to
execution hereof.
IN WITNESS WHEREOF, the parties have hereto set their hand to this Agreement as set
out below.
NEURONETICS, INC.
By:
Name: W. Andrew Macan
Title: Executive Vice President, General Counsel,
and Chief Compliance Officer
KEITH J. SULLIVAN
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Amended and Restated Restrictive Covenant and Severance Agreement – Keith Sullivan
ATTEST:
By:
Date:
- 12 -
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the registration statements (Nos. 333-226343, 333-252233 and 333-
266606) on Form S-8 and (No. 333-266617) on Form S-3 of our report dated March 7, 2024, with respect to the financial
statements of Neuronetics, Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
March 7, 2024
Exhibit 31.1
I, Keith J. Sullivan, certify that:
1. I have reviewed this Annual Report on Form 10-K of Neuronetics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report, any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 7, 2024
/s/ Keith J. Sullivan
By:
Name: Keith J. Sullivan
Title: President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Stephen Furlong, certify that:
1. I have reviewed this Annual Report on Form 10-K of Neuronetics, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on such evaluation; and
(d) Disclosed in this report, any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: March 7, 2024
/s/ Stephen Furlong
By:
Name: Stephen Furlong
Title: EVP, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Keith J. Sullivan,
President and Chief Executive Officer of Neuronetics, Inc. (the “Company”), and Stephen Furlong, Senior Vice President,
Chief Financial Officer and Treasurer of the Company, each hereby certifies that, to the best of his or her knowledge:
1. The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, to which this
Certification is attached as Exhibit 32.1 (the “Annual Report”), fully complies with the requirements of Section 13(a)
or Section 15(d) of the Exchange Act; and
2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Dated: March 7, 2024
IN WITNESS WHEREOF, the undersigned have set their hands hereto as of the 7th day of March, 2024.
/s/ Keith J. Sullivan
By:
Name:Keith J. Sullivan
Title: President and Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Stephen Furlong
Name: Stephen Furlong
Title: EVP, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
“This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange
Commission and is not to be incorporated by reference into any filing of Neuronetics, Inc. under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-
K), irrespective of any general incorporation language contained in such filing.”
EMPLOYEE HANDBOOK
NEURONETICS, INC.
CLAWBACK POLICY
December 1, 2023
Introduction
The Board of Directors (the “Board”) of Neuronetics, Inc. (the “Company”) believes that it is in
the best interests of the Company and its shareholders to create and maintain a culture that
emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance
compensation philosophy. The Board has therefore adopted this policy which provides for the
recoupment of certain incentive-based executive compensation in the event of an accounting
restatement resulting from material noncompliance with financial reporting requirements
applicable to the Company under the federal securities laws (the “Policy”). This Policy is designed
to comply with Section 10D of the Securities Exchange Act of 1934 (the “Exchange Act”) and
with the requirements set forth in Listing Rule 5608 of the corporate governance rules of the
NASDAQ Stock Market, and shall be construed and interpreted in accordance with such intent.
Administration
Unless otherwise determined by action of the Board, this Policy will be administered by the
Board’s Compensation Committee (the “Compensation Committee”). Any determinations made
by the Board will be final and binding on all affected individuals. The Board may, in its discretion,
act under this Policy in lieu of the Compensation Committee in which case references herein to the
Compensation Committee will be deemed to mean the Board.
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the
Compensation Committee in accordance with Section 10D of the Exchange Act and the listing
standards of the national securities exchange on which the Company’s securities are listed from
time to time, and, in the discretion of the Compensation Committee, to any other employees of the
Company holding a title of Vice President or above (“Covered Executives”).
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” means any compensation that is granted,
earned, or vested based wholly or in part on the attainment of a Financial Reporting Measure (as
defined below).
For the avoidance of doubt, Incentive Compensation does not include compensation that is earned
exclusively based upon the passage of time.
“Financial Reporting Measures” are measures that are determined and presented in accordance
with the accounting principles used in preparing the Company’s financial statements, and any
measures that are derived wholly or in part from such measures. Stock price and total shareholder
return are also financial reporting measures. A financial reporting measure need not be presented
within the financial statements or included in a filing with the Commission.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial
statements as a result of the Company’s material noncompliance with United States Generally
Accepted Accounting Principles (a “Material Misstatement”), the Compensation Committee will
require reimbursement and/or forfeiture of any Excess Incentive Compensation (as defined below)
received on or after the Effective Date (as that term is defined below) by each Covered Executive
(a) after beginning service as a Covered Executive; (b) who served as a Covered Executive at any
time during the performance period for such Incentive Compensation; (c) while the Company had
a class of securities listed on a national securities exchange or a national securities association; and
(d) during the three completed fiscal years immediately preceding the Accounting Restatement
Date (as that term is defined below). In addition to such last three completed fiscal years, the
immediately preceding clause (d) includes any transition period that results from a change in the
Company’s fiscal year within or immediately following such three completed fiscal years;
provided, however, that a transition period between the last day of the Company’s previous fiscal
year end and the first day of its new fiscal year that comprises a period of nine to twelve months
shall be deemed a completed fiscal year. For purposes of this Policy, Incentive Compensation is
deemed “received” in the Company’s fiscal period during which the Financial Reporting Measure
specified in the Incentive Compensation award is attained, even if the payment or grant of the
Incentive Compensation occurs after the end of that period. For the avoidance of doubt, Incentive
Compensation that is subject to both a Financial Reporting Measure vesting condition and a
service-based vesting condition shall be considered received when the relevant Financial Reporting
Measure is achieved, even if the Incentive Compensation continues to be subject to the service-
based vesting condition.
“Accounting Restatement” means an accounting restatement due to the material noncompliance
of the Company with any financial reporting requirement under the securities laws, including any
required accounting restatement to correct an error in previously issued financial statements that is
material to the previously issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current
period.
“Accounting Restatement Date” means the earlier to occur of: (i) the date the Board, a committee
of the Board, or the officer or officers of the Company authorized to take such action if the Board
action is not required, concludes, or reasonably should have concluded, that the Company is
required to prepare an Accounting Restatement; and (ii) the date a court, regulator, or other legally
authorized body directs the Company to prepare an Accounting Restatement.
“Excess Incentive Compensation” means the amount of Incentive Compensation previously
received that exceeds the amount of Incentive Compensation that otherwise would have been
received had it been determined based on the restated amounts in such Accounting Restatement,
and must be computed without regard to any taxes paid by the relevant Covered Executive;
provided, however, that for Incentive Compensation based on stock price or total stockholder
return, where the amount of Excess Incentive Compensation is not subject to mathematical
recalculation directly from the information in an Accounting Restatement: (a) the amount of
Excess Incentive Compensation must be based on a reasonable estimate of the effect of the
Accounting Restatement on the stock price or total stockholder return upon which the Incentive
Compensation was received; and (b) the Company must maintain documentation of the
determination of that reasonable estimate and provide such documentation to the national stock
exchange on which the Company’s common stock is listed.
If the Compensation Committee cannot determine the amount of excess Incentive Compensation
received by the Covered Executive directly from the information in the accounting restatement,
2
then it will make its determination based on a reasonable estimate of the effect of the accounting
restatement.
Method of Recoupment
The Compensation Committee will determine, in its sole discretion, the method for recouping
Incentive Compensation hereunder which may include, without limitation:
● requiring repayment of cash Incentive Compensation previously paid;
● seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or
other disposition of any equity-based awards;
● to the extent otherwise permitted by law, offsetting the recouped amount from any
compensation otherwise owed by the Company to the Covered Executive;
● cancelling outstanding unvested equity awards; and/or
● taking any other remedial and recovery action permitted by law, as determined by the
Compensation Committee,
No Indemnification
Neither the Company nor any direct or indirect subsidiary of the Company will indemnify any
Covered Executives against the loss of any Excess Incentive Compensation or reimburse an
Covered Executive for purchasing insurance to cover any such loss or enter into any agreement
that exempts any Incentive Compensation that is granted, paid or awarded to an Covered Executive
from the application of this Policy or that waives the Company’s right to recovery of any Excess
Incentive Compensation.
Interpretation
The Compensation Committee is authorized to interpret and construe this Policy and to make all
determinations necessary, appropriate, or advisable for the administration of this Policy. It is
intended that this Policy be interpreted in a manner that is consistent with the requirements of
Section 10D of the Exchange Act and any applicable rules or standards adopted by the Securities
and Exchange Commission or any national securities exchange on which the Company’s securities
are listed.
Effective Date
This Policy will be effective as of the date set forth above (the “Effective Date”) and will apply to
Incentive Compensation that is received by a Covered Executives on or after October 2, 2023.
Amendment; Termination
Subject to the review and approval of the Board, the Compensation Committee may amend this
Policy from time to time in its discretion and will amend this Policy as it deems necessary to
reflect final regulations adopted by the Securities and Exchange Commission under Section 10D of
the Exchange Act and to comply with any rules or standards adopted by a national securities
exchange on which the Company’s securities are then-listed. Subject to the review and approval of
the Board, the Compensation Committee may terminate this Policy at any time.
3
Other Recoupment Rights
The Board intends that this Policy will be applied to the fullest extent of the law. The
Compensation Committee may require that any employment agreement, equity award agreement,
or similar agreement entered into on or after the Effective Date will, as a condition to the grant of
any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy.
Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies
or rights of recoupment that may be available to the Company pursuant to the terms of any similar
policy in any employment agreement, equity award agreement, or similar agreement and any other
legal remedies available to the Company.
Impracticability
The Compensation Committee will recover any Excess Incentive Compensation in accordance
with this Policy unless such recovery would be impracticable, as determined by the Compensation
Committee in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the
national securities exchange on which the Company’s securities are listed.
Successors
This Policy will be binding and enforceable against all Covered Executives and their beneficiaries,
heirs, executors, administrators or other legal representatives.
Acknowledgment
Each Covered Executive shall sign and return to the Company, within 30 calendar days following
the later of (i) the effective date of this Policy first set forth above or (ii) the date the individual
becomes a Covered Executive, the Acknowledgement Form attached hereto as Exhibit A, pursuant
to which the Covered Executive agrees to be bound by, and to comply with, the terms and
conditions of this Policy.
4
Exhibit A
to
Neuronetics, Inc. Clawback Policy
(see attached)
NEURONETICS, INC.
CLAWBACK POLICY
ACKNOWLEDGEMENT FORM
By signing below, the undersigned acknowledges and confirms that the undersigned has received and
reviewed a copy of the Neurone cs, Inc. (the “Company”) Clawback Policy (the “Policy”).
By signing this Acknowledgement Form, the undersigned acknowledges and agrees that the undersigned
is and will con nue to be subject to the Policy and that the Policy will apply both during and a er the
undersigned’s employment with the Company. Further, by signing below, the undersigned agrees to
abide by the terms of the Policy, including, without limita on, by returning any Excess Incen ve
Compensa on (as defined in the Policy) to the Company to the extent required by, and in a manner
consistent with, the Policy.
COVERED PERSON:
Signature
Print Name
Date