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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, 2015
OR
☐☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-36709
SIENTRA, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
20-5551000
(I.R.S. Employer Identification No.)
420 South Fairview Avenue, Suite 200, Santa Barbara, California
(Address of Principal Executive Offices)
93117
(Zip Code)
(805) 562-3500
(Registrant’s Telephone Number, Including Area Code)
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 Section 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 and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted 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 and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐
(Do not check if a smaller reporting company)
Accelerated filer ☒
Smaller reporting company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The a ggregate market value of registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant's common stock
on June 30, 2015 as reported by NASDAQ Global Select Market on such date was approximately $112,745,351 . Shares of the registrant's common stock held by each
executive officer, director and holder of 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 7, 2016 , there were 18,066,345 shares of the registrant’s common stock, par value $0.01 per share, outstanding.
Portions of the registrant’s definitive Prox y Statement relating to its 2016 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual
Report on Form 10-K where indicated. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal
year to which this report relates.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
Table of Contents
PART I
Item 1
.
Item
4.
PART II
Item 5
.
Item 6
.
Item
7.
Item
7A
.
Item 8
.
Item 9
.
Item
9A
.
Item
B usiness .........................................................................................................................................................
Risk Factors .................................................................................................................................................
1A
.
Item
1B .
Item 2
.
Item 3
.
Item
Unresolved Staff Comments .........................................................................................................................
P roperties ...................................................................................................................................................
Legal Proceedings .......................................................................................................................................
Mine Safety Disclosures ...............................................................................................................................
M arket for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data ...............................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...............................
Quantitative and Qualitative Disclosure s a bout Market Risk ...........................................................................
Financial Statements and Supplementary Data .............................................................................................
Changes in and Disagreements w ith Accountants on Accounting and Financial Disclosure .............................
C ontrols and Procedures .............................................................................................................................
Other Information .........................................................................................................................................
9B .
PART III
Item
10 .
Directors, Executive Officers , and Corporate Governance .............................................................................
Item
11 .
Item
12 .
Executive Compensation ...............................................................................................................................
Security Ownership of Certain Benef i cial Owners and Management and Related Stockholder Matters .............
Item
Item
13 .
Certain Relationships and Related Transactions and Director Independence .................................................
Principal Accountant Fees and Services .......................................................................................................
14 .
PART IV
Item
15 .
Exhibits, Financial Statements and Schedule .................................................................................................
Signatures
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SPECIAL 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, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. These forward ‑looking statements involve risks and uncertainties as well as assumptions that, if they never
materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward
‑looking statements.
Forward ‑looking statements are often identified by the use of words such as, “anticipate,” “believe,” “may,” “might,”
“could,” “will,” “aim,” “estimate,” “continue,” “intend,” “expect,” “plan,” or the negative of those terms, and similar expressions
that convey uncertainty of future events or outcomes to identify these forward ‑looking statements. These statements are based on
the beliefs and assumptions of our management based on information currently available to management. Such forward ‑looking
statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain
events to differ materially from future results expressed or implied by such forward ‑looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those discussed in the section titled “ Risk Factors ” included
under Part I, Item 1A below. Forward ‑looking statements in this Annual Report on Form 10 ‑K include, but are not limited to,
statements about:
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
our history of reliance on a foreign, sole source, third ‑party to manufacture and supply our silicone gel breast implants,
tissue expanders and other products;
the date that our products will return to the U.S. market;
the timing and availability of alternative manufacturing sources to supply our silicone gel breast implants, tissue
expanders and other products;
our history of net operating losses and uncertainty regarding our ability to achieve profitability;
our dependence on sales of silicone gel breast implants to generate a significant amount of our net sales;
the ability of our products to achieve and maintain market acceptance;
our limited operating history and any difficulties encountered by us as a result of being a company early in its
commercialization;
our ability to successfully commercialize our products;
our inability to operate in a competitive industry and compete successfully against competitors that have greater
resources than we do;
pricing pressure from customers and our competitors;
concern about the safety and efficacy of our products, which is based on limited long ‑term clinical data;
our ability to comply with the applicable governmental regulations to which our products and operations are subject;
our ability to retain a high percentage of our customer base;
our ability to expand our sales force and marketing programs;
the productivity of our sales representatives and ability to achieve expected growth;
our assumptions about the breast implant market;
our ability to protect our intellectual property;
our ability to successfully defend against certain securities class actions filed against us and our officers;
the accuracy of our estimates regarding expenses, net sales, capital requirements and needs for additional financing; and
our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act.
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks,
uncertainties and other factors that are important to you. In addition, we cannot guarantee future results, level of activity,
performance or achievements. Any forward ‑looking statement made by us in this Annual Report on Form 10 ‑K speaks only as
of the date of this report. Except as required by law, we undertake no obligation to update any forward ‑looking statements,
whether as a result of new information, future events or otherwise, after the date of such statements.
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Item 1. Busines s
Overview
PART I
We are a medical aesthetics company committed to making a difference in patients’ lives by enhancing their body
image, growing their self ‑esteem and restoring their confidence. We were founded to provide greater choice to board ‑certified
plastic surgeons and patients in need of medical aesthetics products. We have developed a broad portfolio of products with
technologically differentiated characteristics, supported by independent laboratory testing and strong clinical trial outcomes. We
sell our breast implants and breast tissue expanders, or Breast Products, exclusively to board ‑certified and board ‑admissible
plastic surgeons and tailor our customer service offerings to their specific needs, which we believe helps secure their loya lty and
confidence.
Our primary products are silicone gel breast implants for use in breast augmentation and breast reconstruction
procedures, which we offer in over 195 variations of shapes, sizes , fill volumes and textures. Our breast implants are primarily
used in elective procedures which are generally performed on a cash ‑pay basis. Many of our breast implants incorporate one or
more differentiated technologies, including a proprietary high ‑strength, cohesive silicone gel and proprietary texturing branded
TRUE Texture ® . Our breast implants offer a desired balance between strength, shape retention and softness due to the high
‑strength, cohesive silicone gel used in our manufacturing process. TRUE Texture ® provides texturing on the implant shell that
is designed to reduce the incidence of malposition, rotation and capsular contracture. We also offer breast tissue expanders and a
range of other aesthetic and specialty products. We do not have any patents or patent applications, but rely on trade secrets,
proprietary know ‑how and regulatory barriers to protect our products and technologies.
Our breast implants were approved by the U.S. Food and Drug Administration, or FDA, in 2012, based on data we
collected from our ongoing, long ‑term clinical trial , or the Study, of our breast implants in 1,788 women across 36
investigational sites in the United States , which included 3,506 implants (approximately 53% of which were smooth and 47% of
which were textured) . Our clinical trial is the largest prospective, long ‑term safety and effectiveness pivotal study of breast
implants in the United States and included the largest magnetic resonance imaging, or MRI, cohort with 571 patients . The MRI
cohort is a subset of study patients that underwent regular MRI screenings in addition to the other aspects of the clinical trial
protocol prior to FDA approval. Post-approval, all patients in the Study are subject to serial MRI screening as part of the clinical
protocol . The clinical data we collected over a n eight ‑year follow ‑up period demonstrated rupture rates, capsular contracture
rates and reoperation rates that were comparable to or better than those of our competitors, at similar time points . In addition to
our pivotal study, our clinical data is supported by our Continued Access Study of 2,497 women in the United States. We have
also commissioned a number of bench trials run by independent laboratories that we believe further demonstrate the advantages
of our breast implants over those of our competitors.
We sell our Breast Products exclusively to board ‑certified and board ‑admissible plastic surgeons, as determined by the
American Board of Plastic Surgery, who we refer to as Plastic Surgeons. These surgeons have completed the extensive multi
‑year plastic surgery residency training required by the American Board of Plastic Surgery. While aesthetic procedures are
performed by a wide range of medical professionals, including dermatologists, otolaryngologists, obstetricians, gynecologists,
dentists and other specialists, the majority of aesthetic surgical procedures are performed by Plastic Surgeons. Plastic Surgeons
are thought leaders in the medical aesthetics industry. According to the American Society of Plastic Surgeons, or ASPS, there are
approximately 6,400 board ‑certified plastic surgeons in the United States. We seek to provide Plastic Surgeons with
differentiated services, including enhanced customer service offerings, a ten ‑year limited warranty that is the best ‑in ‑the
‑industry based on providing patients with the largest cash reimbursement for certain out ‑of ‑pocket costs related to revision
surgeries in a covered event; a lifetime no ‑charge implant replacement program for covered ruptures; and our industry ‑first
CapCon Care Program, or C3 Program, through which we offer no ‑charge replacement implants to breast augmentation patients
who experience capsular contracture within the first five years after implantation with our smooth or textured breast implants.
We commenced sales of our breast implants in the United States in the second quarter of 2012. Our net sales were $38.1
million, $44.7 million and $35.2 million for the years ended December 31, 2015 , 2014 and 2013 , respectively. Our net loss
was $41.2 million, $5.8 million and $19.1 million for the years ended December 31, 2015 , 2014 and 2013 , respectively.
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Between October 9, 2015 and March 1, 2016, we voluntarily suspended the sale of all Sientra devices manufactured by
our sole manufacturer and supplier Silimed Industria de Implantes Ltda. (formerly, Silimed-Silicone e Instrumental Medico-
Cirugio e Hospitalar Ltda.), or Silimed , due to the suspension of Silimed’s CE certificate by TUV SUD, Silimed’s notified body
under EU regulations, followed by Brazilian regulatory inquiries and a temporary suspension by the Brazilian regulatory agency
ANVISA and the Department of the Secretary of State of Rio de Janeiro of the manufacturing and shipment of all medical devices
made by Silimed, and recommended that plastic surgeons discontinue implanting the devices until further notice. As of March 1,
2016, after ongoing discussions with the FDA and our own review of the matter with the assistance of independent experts in
quality management systems, Good Manufacturing Practices, or GMP, and data-based risk assessment, we lifted this temporary
hold on sale and also sent a letter to our Plastic Surgeons informing them of our market re-entry plans. In addition, on October 22,
2015, there was a fire in the manufacturing building where Silimed primarily manufactures our breast implants. We are working
with Silimed to seek clarity as to the near and long-term capabilities of Silimed’s manufacturing operations. See “Business —
Manufacturing and Quality Assurance” and “Risk Factors — Risks Relating to Our Business and Our Industry ” for further detail.
Our Market
The overall market for medical aesthetic procedures is significant, and awareness and acceptance of these procedures is
growing in the United States. According to the American Society for Aesthetic Plastic Surgery, or ASAPS, in 201 4 , consumers
in the United States spent approximately $12.4 billion on aesthetic procedures overall, including both surgical and non ‑invasive
cosmetic treatment s. Of this amount, more than $7.5 billion was spent on aesthetic surgical procedures.
Breast augmentation surgery remains the leading aesthetic surgical procedure by dollars and number of procedures in the
United States. According to ASAPS, over 287 ,000 primary breast augmentation procedures and 72 ,000 revision augmentation
procedures were perfor med in the United States in 2014 . These procedures provide cosmetic solutions generally to enhance
breast size and shape, correct breast asymmetries or help restore fullness after breastfeeding. For breast reconstruction, ASPS
estimates that approximately 102 ,000 procedures were performed in the United States in 201 4 . These procedures are a surgical
solution generally used to restore a breast to near normal shape and appearance following a mastectomy and typically utilize a
breast tissue expander prior to implantation of a breast implant. Based on the number of procedures reported by ASAPS and by
ASPS, and our estimates of average selling price, implant mix and implants per procedure, we estimate that the U.S. market for
breast implants and breast tissue expanders exceeded $6 30 million in 201 4 .
Our Opportunity
We believe a significant opportunity exists in the U.S. marketplace due to the high barriers to entry in the U.S. breast
implant market and the historical lack of product and service innovation for Plastic Surgeons.
For more than 20 years prior to the FDA approval of our breast implants in 2012, only two companies manufactured and
distributed breast implants in the United States. We believe that this market concentration is largely a result of the considerable
costs and risks associated with the lengthy regulatory approval process required by the FDA, which has created a significant
barrier to entry in the U.S. breast implant market. All new breast implants require pre ‑market approval, or PMA, from the FDA
before they may be marketed in the United States. The PMA application process is lengthy and uncertain, and the PMA
application must be supported by valid scientific evidence, which typically requires long ‑term follow ‑up of a large number of
enrolled patients, as well as extensive technical, pre ‑clinical, clinical and manufacturing data to demonstrate safety and
effectiveness. At present, we are not aware of any ongoing clinical studies in the United States for silicone gel breast implants
other than those post ‑approval studies being performed by us and our two U.S. competitors. We believe that in the near term, it is
likely that the companies currently providing silicone gel breast implants in the United States will continue to be the only
companies servicing the U.S. silicone breast implant market.
We believe the rigorous FDA approval process and the existence of only two competitors in the U.S. market have
historically contributed to a lack of technological innovation in the U.S. breast implant industry resulting in limited product
choices. Until the FDA approval of our breast implants in 2012 , surgeons in the United States were only able to purchase basic
round breast implants from our two U.S. competitors, while surgeons outside of the United States were able to purchase
technologically ‑advanced round and anatomically ‑shaped breast implants.
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Our Competitive Strengths
We believe that we are well positioned to take advantage of opportunities afforded by current market dynamics. By
focusing on products with technologically differentiated characteristics, demonstrating strong clinical data, offering more product
choice and providing services tailored specifically to the needs of Plastic Surgeons, we believe we can continue to enhance our
position in the breast implant market. Our competitive strengths include:
Differentiated
silicone
gel
and
texturing
technologies.
We incorporate differentiated technologies into our breast
implants, including a proprietary high ‑strength, cohesive silicone gel and proprietary texturing branded TRUE Texture ® . Our
breast implants offer a desired balance between strength, shape retention and softness due to the high-strength, cohesive silicone
gel used in our manufacturing process. In addition, TRUE Texture ® technology provides texturing on the implant shell that is
designed to reduce the incidence of malposition, rotation and capsular contracture. We do not have any patents or patent
applications, but rely on trade secrets, proprietary know ‑how and regulatory barriers to protect our products and technologies.
Strong
clinical
trial
outcomes.
Our clinical trial results demonstrate the safety and effectiveness of our breast implants.
Our breast implants were approved by the FDA based on data we collected from our ongoing, long ‑term clinical trial of our
breast implants in 1,788 women across 36 investigational sites in the United States. The clinical data we collected over an eight-
year follow-up period demonstrated rupture rates, capsular contracture rates and reoperation rates that were comparable to or
better than those of our competitors, based on our competitors’ published eight ‑year data.
Innovative
services
that
deliver
an
improved
customer
experience.
Our customer service offerings are intended to
accommodate and anticipate the needs of Plastic Surgeons so that they can focus on providing better services to their patients. W
e provide a ten ‑year limited warranty that is the best ‑in ‑the ‑industry based on providing patients with the largest cash
reimbursement for certain out ‑of ‑pocket costs related to revision surgeries in a covered event ; a lifetime no ‑charge implant
replacement program for covered rupture s; and our industry ‑first C3 Program through which we offer no ‑charge replacement
implants to breast augmentation patients who experience capsular contracture within the first five years after implantation with
our smooth or textured breast implants. We also offer specialized educational initiatives and a streamlined ordering, shipping and
billing process.
Board
‑‑certified
plastic
surgeon
focus.
We sell our Breast Products exclusively to board ‑certified and board
‑admissible plastic surgeons who are thought leaders in the medical aesthetics industry. We address the specific needs of Plastic
Surgeons through continued product innovation, expansion of our product portfolio and enhanced customer service offerings. We
believe that securing the loyalty and confidence of Plastic Surgeons is essential to our success and that our association with
Plastic Surgeons enhances our credibility and aligns with our focus on making a difference in patients’ lives.
Proven
and
experienced
leadership
team.
We have a highly experienced management team at both the corporate and
operational levels with significant experience in the medical aesthetics industry. Members of our senior management team have
extensive experience in the medical aesthetics industry.
Our Strategy
Our objective is to become a leading global provider of differentiated medical aesthetic products and services tailored to
meet the needs of Plastic Surgeons, allowing us to deliver on our commitment to enhance and make a difference in patients’ lives.
We are currently focused on growing the breast implant and breast tissue expander markets and our share of them in the United
States, and intend to leverage our capabilities into new or complementary aesthetic products or technologies and new geographic
markets or market segments. To achieve our objective, we are pursuing the following business strategies:
Create
awareness
of
our
differentiated
technologies,
products
and
services
with
Plastic
Surgeons
and
consumers.
Since we commenced commercial operations , we have focused most of our marketing efforts on Plastic Surgeons to promote and
create awareness of the benefits of our products. Among other marketing programs targeted at Plastic Surgeons, we offer
educational initiatives exclusively to Plastic Surgeons through our Sientra Education Forums. Recently, we have increased our
consumer-directed efforts including an expanded exclusive collaboration with RealSelf.com. We believe that continuing to invest
in expanding marketing initiatives will have a positive impact on our business .
Selectively
pursue
acquisitions
and
expand
into
new
markets
.
We may selectively pursue domestic and international
acquisitions of businesses or technologies that may allow us to leverage our relationships with Plastic
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Surgeons and our existing commercial infrastructure to provide us with new or complementary products or technologies, and
allow us to compete in new geographic markets or market segments or to increase our market share.
Broaden
our
product
portfolio
and
launch
new
products
and
services.
We plan to continue to develop products that
address the unmet needs of Plastic Surgeons and patients by leveraging our innovative technologies in combination with our
regulatory and product development expertise. We have a number of new Breast Products under development with different
characteristics and configurations. We believe these expanded product choices will allow Plastic Surgeons to potentially achieve
better outcomes for their patients.
Enhance
our
sales
capabilities
and
marketing
programs
to
drive
adoption
of
our
products.
We intend to increase our
direct sales capabilities through the hiring of additional, experienced sales representatives and support staff. We believe that
continued expansion of our sales team will allow us to broaden our market reach and educate a broader group of Plastic Surgeons
on the benefits of our products.
Invest
in
clinical
studies
and
peer
reviewed
articles
with
key
opinion
leaders.
We intend to continue to invest in
clinical studies in order to provide published peer reviewed articles that support the clinical benefits of our products and
technologies over those of our competitors. We believe our relationship with Plastic Surgeons and our continued focus on
providing differentiated products and services will allow us to leverage our existing capabilities to increase our share of the breast
implant market specifically and the medical aesthetics market generally.
Our Products
Our portfolio of products has been specifically tailored to the needs of the Plastic Surgeons we serve. We believe that
our broad portfolio of products with technologically differentiated characteristics enable Plastic Surgeons to deliver better
outcomes for their patients.
Breast
Augmentation
and
Breast
Reconstruction
Products
Breast Implants. We offer the following breast implants:
·
·
·
Anatomically ‑shaped textured. A full line of textured, anatomically ‑shaped HSC+ breast implants, all of which
incorporate our high ‑strength, cohesive silicone gel and TRUE Texture ® technology. Our anatomically ‑shaped
implants are engineered for shape retention and feature a gradual upper ‑pole slope and distributed volume that mimics
the characteristics of a natural breast. They also provide a desired balance between strength, shape retention and softness
and are designed to enhance tissue adherence to reduce malposition and capsular contracture. Due to the unique
relationship between our implant gel and our implant shells, our anatomically ‑shaped implants have enhanced ability to
retain their shape without sacrificing the desired softness. We offer these anatomically ‑shaped implants in three
configurations: round ‑base, classic ‑base and oval ‑base. Our round ‑base implants are available in eight volumes, our
classic ‑base implants are available in eight volumes and our oval ‑base implants are available in three projection
profiles and 25 volumes.
Round textured. A full line of textured, round HSC breast implants, all of which incorporate our high ‑strength, cohesive
silicone gel and TRUE Texture ® technology. Our textured, round implants maintain softness and are designed to
enhance tissue adherence that reduces malposition and capsular contracture. We offer these textured, round implants in
three projection profiles: low, moderate and high. Our low projection implants are available in 15 volumes, our moderate
plus projection implants are available in 16 volumes and our high projection implants are available in 14 volumes.
Round smooth. A full line of smooth, round HSC and HSC+ breast implants, all of which incorporate our high ‑strength,
cohesive silicone gel. Our smooth, round implants are designed to deliver full upper ‑pole aesthetic results without
compromising softness. We offer these smooth, round implants in five projection profiles: low, moderate, moderate plus,
moderate high and high . Additionally, in the third quarter of 2015 , we introduced two implant projection profiles
available in HSC+ gel in 30 new volumes mirroring the existing HSC moderate plus and high projection profiles.
Breast Tissue Expanders. We offer a full line of breast tissue expanders, most of which are marketed as ACX, in 25
different shapes and sizes that include single and double chamber tissue expanders. Our double chamber tissue
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expanders are unique to the marketplace and feature technology that was designed to allow controlled and differentiated
expansion of breast tissue. Our breast tissue expanders are used in breast reconstruction and implanted during or after the
completion of a mastectomy and before the patient has enough tissue to adequately cover a breast implant. Our breast tissue
expanders are temporary devices intended to aid in the process of recreating tissue coverage to allow for the placement of the
final implant to reconstruct the breast.
Other
Products
We also offer a range of other aesthetic products that have received 510(k) clearance from the FDA, including:
body contouring and other implants, including gluteal, pectoral, calf, facial and nasal implants, and nasal stents, all made
from single pieces of silicone elastomer;
silicone elastomer oval carving blocks that can be shaped and sized by surgeons to address congenital and other
deformities caused by trauma or tumor removal ;
scar management products under the brand Medgel that use a compound of biocompatible, medical ‑grade silicone gel or
sheeting specifically formulated to treat or prevent various types of scars;
temporary, single ‑use, saline ‑filled breast implant sizers that can be used to help identify the correct style and size
implant for an individual patient; and
non ‑breast tissue expanders, which are temporary devices intended to aid in the process of expanding tissue and skin
surface area for burn care and other reconstructive use.
·
·
·
·
·
Our Technology
Our current portfolio of breast implants utilizes what we believe are the most advanced technologies currently available
on the market. These technologies are supported by rigorous product testing, analytics and clinical data. The advanced
technologies in our products include:
High
‑‑strength,
cohesive
silicone
gel.
Our HSC and HSC+ breast implants offer a desired balance between strength,
shape retention and softness due to the high ‑strength, cohesive silicone gel used in our manufacturing process. The use of high
‑strength, cohesive silicone gel in our HSC and HSC+ breast implants allows the breast implants to hold a controlled shape while
maintaining a soft feel.
The silicone material used in our breast implants has been designed to provide the characteristics desired by Plastic
Surgeons for breast implants. At present, we are the only company in the United States that has received FDA approval to use this
specific silicone material in our products.
We have completed a number of studies conducted by independent laboratories to demonstrate the competitive
advantages of using high ‑strength, cohesive silicone gel in our breast implants. We believe this technology differentiates our
breast implants for the following reasons:
·
·
·
our implant gel is stronger, which is evidenced by its resistance to gel fracture;
due to the unique relationship between our implant gel and our implant shells, our implants have an enhanced ability to
retain their shape while preserving the shape of anatomically ‑shaped implants without sacrificing the desired softness;
and
our shaped implants are softer and more elastic than our competitors’ shaped implants.
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We believe the beneficial properties of our implants arise from the characteristics of the gel, as well as the unique
integration of the gel with our implant shell. Inside each of our implants, the gel adheres to the shell, creating additional structural
strength and shape retention in the implant. This results in the ability to deliver strength and shaping capability without a stiffer
gel or implant and without sacrificing the desired softness. We typically evaluate these characteristics using the following metrics:
·
Peel ‑force. Peel ‑force is measured by the amount of force, measured in pound ‑force, or lbf, necessary to separate the
outer shell of the implant from the intern al gel filling. A greater peel ‑ force measurement indicates greater gel ‑shell
integration. In the case of anatomically ‑shaped implants, greater peel ‑force can also be an indication of the ability of
the implant to retain its shape, particularly the upper portions of the implant, also referred to as the upper pole. Upper
pole stability is of particular importance in preserving the desired anatomical shape of an implant over time.
· Gel strength. Gel strength is measured by the amount of force, measured in lbf, required to cause permanent fractures in
the gel. A larger value indicates greater strength.
· Gel elasticity and implant elasticity. Gel elasticity and implant elasticity can be measured by the level of resistance,
measured in millimeters, or mm, to an applied constant force. A higher value represents greater softness and a lower
deformation value represents greater firmness.
TRUE
Texture
®
.
We sell breast implants that are available with a smooth outer surface or with an outer surface that is
textured using TRUE Texture ® technology. We believe our textured breast implants using TRUE Texture ® technology offer us
clinical advantages over our competitors’ textured products, including:
·
·
better tissue adherence to reduce the incidence of malposition and rotation; and
reduction in the rate of capsular contracture, a complication in which the patient’s body creates a scar ‑tissue capsule
around the implant that can tighten and squeeze the implant potentially causing discomfort, pain and even dislocation of
the implant. While we have neither sought nor obtained FDA approval to state that TRUE Texture ® technology reduces
the incidence of capsular contracture, we believe it may significantly reduce this risk, as evidenced by the lower rates of
capsular contraction reported over a five ‑year follow ‑up period in our ongoing clinical trial.
On a breast implant, the desired texture should have a proportionate amount of surface disruption, as overly aggressive
texture can result in double ‑capsule formation while not enough texturing can result in a lack of adherence resulting in
malposition or rotation. We believe that TRUE Texture ® technology has the right combination of surface disruption without
overly aggressive texturing.
We use the competitive advantages demonstrated by the independent laboratory results above and our clinical results for
our breast implants incorporating high ‑strength, cohesive silicone gel and TRUE Texture ® technology to market and
differentiate our products to Plastic Surgeons.
Our Clinical Data
In 2012, our breast implants were approved by the FDA, based on data we co llected from our ongoing, long ‑ term
clinical trial of our breast implants in 1,788 women across 36 investigational sites in the United States, which included 3,506
implants (approximately 53% of which were smooth and 47% of which were textured). Our clinical trial results demonstrate the
safety and effectiveness of our breast implants and provide Plastic Surgeons and their patients the security and confidence to
choose our products.
Our clinical trial is the largest prospective, long ‑term safety and effectiveness pivotal study of breast implants in the
United States and included the largest magnetic resonance imaging, or MRI, cohort with 571 patients. The MRI cohort is a subset
of study patients that underwent regular MRI screenings in addition to the other aspects of the clinical trial protocol prior to FDA
approval. Post-approval, all patients in the Study are subject to serial MRI screening as part of the clinical protocol . The clinical
data we collected over an eight ‑year follow ‑up period demonstrated rupture rates, capsular contracture rates and reoperation
rates that were comparable to or better than those of our competitors, at similar time points. In addition to our pivotal study, our
clinical data is supported by our Continued Access Study of 2,497 women in
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the United States. We have also commissioned a number of bench trials run by independent laboratories that we believe further
demonstrate the advantages of our breast implants over those of our competitors.
We, and our two competitors were required to run independent ten ‑year clinical studies to obtain PMA approval from
the FDA. Our clinical study was not designed to facilitate head ‑to ‑head comparisons. However, our clinical data and our
competitors’ clinical data are publicly available to both surgeons and patients who are able to use such data to compare and contra
s t competing implants.
Our Services
Our services are designed to cater to the specific needs of Plastic Surgeons to enable them to maintain and grow their
practices. We provide our Plastic Surgeons with superior warranty programs, enhanced customer service offerings and specialized
educational initiatives. We believe that tailoring our customer service offerings to Plastic Surgeons helps secure their loyalty and
confidence.
Industry
‑‑Leading
Product
Programs
and
Warranties.
Through our C3 Program, we provide no ‑charge replacement
implants to patients who experience capsular contracture in the first five years following primary breast augmentation. We
provide this benefit to every patient implanted with our smooth or textured breast implants. We also provide a ten ‑year limited
warranty that is the best ‑in ‑the ‑industry , based on providing patients with the largest cash reimbursement for certain out ‑of
‑pocket costs related to revision surgeries in a covered event and a lifetime no ‑charge implant replacement program for covered
ruptures.
Enhanced
Customer
Service.
As we focus exclusively on Plastic Surgeons and their patients, we believe we are able to
tailor our customer service offerings to their specific needs. Our surgeon ‑facing customer service policies include:
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·
·
·
·
simplified account setup through our sales representatives and with pre ‑qualification and pre ‑approved credit terms;
no ‑charge shipping to and from accounts;
six ‑month pre ‑approved returns of unused products with no ‑charge return shipping and no restocking fees;
end ‑of ‑month statement billing, rather than one invoice per shipment, and 30 ‑day payment terms;
individualized consignment inventory; and
order acceptance by phone, fax, email or through our sales representatives.
Educational
and
Marketing
Initiatives.
We have implemented educational and marketing initiatives with a focus on
both Plastic Surgeons and their patients considering breast augmentation or reconstruction.
Plastic Surgeons. In order to educate Plastic Surgeons about our product lines and, in particular, about the
proper use of our anatomically ‑shaped breast implants, we provide a variety of education programs for Plastic Surgeons
under the banner of the Sientra Education Forum.
· we have developed a tablet ‑based mobile marketing tool for our sales representatives to use while calling on accounts
that includes access to our patient and surgeon labeling, published clinical studies, marketing literature, details on our
warranty and C3 programs, our educational iBooks and more.
· we host symposia with one or more key ‑note speakers who speak on topics ranging from our corporate identity and
customer service offerings to surgical tips and suggestions from thought ‑leading Plastic Surgeons.
· we produce comprehensive guides for Plastic Surgeons via the Internet, referred to as iBooks, to provide them training
and expertise on the implantation of anatomically ‑shaped breast implants.
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· we send a limited number of Plastic Surgeons to Europe to observe surgeries and train with world ‑renowned surgeons
who have been implanting anatomically ‑shaped breast implants for decades and, upon return to the United States, we
engage them as consultant ‑educators to conduct tr aining sessions for other U.S. ‑ based Plastic Surgeons.
· we periodically sponsor educational surgical preceptorships where a small group of Plastic Surgeons are able to observe
a live surgery conducted by one of our trained preceptors and train with that preceptor.
Patients. We have been engaging directly with consumers who are considering breast augmentation or
reconstruction. We initially focused our consumer educational and marketing activities on websites where consumers
come to research their breast augmentation or reconstruction options, including:
·
·
our own consumer website, branded with our “Feel So Good” campaign, that provides resources for consumers
considering breast augmentation or reconstruction, including referrals and commentaries, product descriptions, patient
planning guides and educational brochures and information regarding our rupture warranty and C3 programs; and
our exclusive collaboration with RealSelf, the leading online community helping people make confident choices in
elective cosmetic procedures. Together with RealSelf, we deliver fresh and meaningful content to the RealSelf
community that answers common questions patients have regarding breast augmentation. This content is featured on a
dedicated Sientra page on RealSelf’s website designed to build consumer engagement with the brand and open up the
online conversation around breast augmentation directly with Plastic Surgeons.
We believe that our innovative services, including industry ‑leading product programs and warranties, enhanced
customer service offerings and educational and marketing initiatives, deliver an improved customer experience to Plastic
Surgeons and their patients.
Sales and Marketing
As of December 31, 2015 , we had a sales organization of 51 employees, including sales representatives and sales
management. We assign sales territories based on the regions with the highest concentration of accounts. Our sales team is
supported by customer and sales experience teams, which provide full ‑time telephonic and email customer support to our sales
representatives and customers.
In addition, our marketing team leads our efforts in brand development, trade show attendance, educational forums,
product messaging, website development and advertising, among others.
Research and Development
We have incurred, and expect to continue to incur, significant research and development expenses. Our research and
development expenses were approximately $7.2 million, $4.7 million and $4.5 million for the years ended December 31, 2015 ,
2014 and 2013 , respectively. Our research and development expenses primarily consist of costs associated with our clinical and
post ‑approval studies, regulatory activity and product development, including our efforts to seek approval for a range of breast
implant line extensions that would allow us to sell Breast Products in additional styles, sizes and projections that we do not
currently offer.
Manufacturing and Quality Assurance
All of our products are listed under our FDA Medical Device Establishment Registration and Device Listing where it
indicates we are the specification developer of our products, and except for our breast implant sizers , we are the owner of our
products’ FDA approvals and clearances. This means that we are primarily responsible for the design, manufacturing and quality
assurance of our products. However, we do not manufacture our products ourselves. Instead, we rely on Silimed , our sole
source, third-party manufacturer located in Brazil , to manufacture and package our silicone gel breast implants, tissue expanders
and other products to our specifications. Silimed has over 35 years of experience manufacturing silicone ‑based implants and
distributes its products to over 60 countries worldwide. When we receive our products from Silimed, we inspect a representative
sample of packaging and labeling prior to shipping them to our customers. We maintain strategic levels of inventory at our
storage facilities located in Santa Barbara, California.
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We and Silimed are subject to the FDA’s Quality System Regulation, or QSR, reporting requirements and current Good
Manufacturing Practices, or cGMP , audits by the FDA. Under the QSR and cGMP requirements, manufacturers, including third
party manufacturers, must follow stringent design, testing, production, control, supplier and contractor selection, complaint
handling, documentation and other quality assurance procedures during all aspects of the manufacturing process. Both Silimed
and us have been inspected by the FDA regularly, and no FDA Form 483 observations, which are issued when an FDA inspector
has observed any conditions that in his or her judgment may constitute violations of the Food Drug and Cosmetic Act and related
Acts, or FD&C, may be in violation of FDA’s requirements. Silimed has had four FDA inspections in 14 years and is also audited
periodically by our quality department to ensure conformity with the specifications, policies and procedures for our products.
At present, except for our breast implant sizers, all of our products, including our silicone gel breast implants and breast
tissue expanders, are manufactured by Silimed pursuant to an amended and restated exclusivity agreement with Silimed , which
we refer to as the Silimed Agreement. Pursuant to the Silimed Agreement, Silimed manufactures and supplies products ordered
by us for distribution in the United States and Canada, which we refer to as the Territory. We agreed to use commercially
reasonable efforts to promote, sell and distribute the products in the Territory. In addition to Silimed’s existing products, we have
the exclusive right to sell and distribute any new products manufactured by Silimed during the term of the Silimed Agreement.
Silimed sells the products to us at a fixed cost, which may be increased by no more than a low single ‑digit percentage per annum.
The Silimed Agreement provides that Silimed will not provide its products to any third party in the Territory, with the
exception of the distribution of its gastric and urology products pursuant to pre ‑existing supply agreements that it has with third
‑party distributors, and we have agreed not to sell Silimed’s products to any third party if we have reason to believe that such
products have been or will be distributed outside of the Territory. We have also agreed not to distribute any product that directly
competes with a product manufactured by Silimed in the Territory.
In the event Silimed fails to supply products ordered by us, we may, under certain circumstances, exercise
manufacturing rights to manufacture the products directly or through a third party manufacturer. Pursuant to the Silimed
Agreement, Silimed granted to us an exclusive, royalty ‑free, non ‑transferable license to use certain of its trademarks in the
Territory, including in the event Silimed fails to supply the products to us and in connection with the marketing and sale of the
products in the Territory. In addition, the Silimed Agreement allocates intellectual property rights between the parties, including
that the parties will jointly own all developments, modifications, enhancements or alterations of products jointly created by the
parties, subject to certain restrictions concerning the use of such improvements outside of the Territory. Each party is subject to
certain limitations and other restrictions on the transfer of the other party’s technology to third parties.
The Silimed Agreement can be terminated by either party under certain limited circumstances, including in connection
with the other party’s breach of any of its material obligations which such breaching party fails to cure within 60 days of
receiving notice from the non ‑breaching party. If the breach relates only to single product, then the non ‑breaching party is
entitled to terminate the agreement with respect to that specific product. The parties may also terminate the agreement at any time
on a product ‑by ‑product basis upon mutual written agreement of the parties.
The term of the Silimed Agreement will continue until April 2017.
Several recent events have occurred which have affected our ability to rely on Silimed as our source for our silicone gel
breast implants, tissue expanders and other products in the short and long term, including the suspension of Silimed’s CE
certificate by TUV SUD, Silimed’s notified body under EU regulation, relating to particles on Silimed breast products , followed
by Brazilian regulatory inquiries and a temporary suspension by the Brazilian regulatory agency ANVISA and the Department of
the Secretary of State of Rio de Janeiro of the manufacturing and shipment of all medical devices made by Silimed, including
products manufactured for Sientra. As a result of this suspension, between October 9, 2015 and March 1, 2016, we voluntarily
placed a temporary hold on the sale of all Sientra devices manufactured by Silimed and recommended that plastic surgeons
discontinue implanting the devices until further notice . As of March 1, 2016, after ongoing discussions with the FDA and our
own review of the matter with the assistance of independent experts in quality management systems, GMP and data-based risk
assessment, we lifted this temporary hold on sale and also sent a letter to our Plastic Surgeons informing them of our market re-
entry plans.
In addition, on October 22, 2015, there was a fire in the manufacturing building where Silimed primarily manufactures
Sientra’s breast implants. We are working with Silimed to seek clarity as to the near and long-term capabilities of Silimed’s
manufacturing operations, including the status of equipment that is used to manufacture breast
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implants and the potential feasibility, production capacity and timing related to Silimed’s ability to manufacture our breast
implants.
Competition
The medical device industry is intensely competitive, subject to rapid change and highly sensitive to the introduction of
new products or other market activities of industry participants. We primarily compete with two companies that manufacture and
sell breast implants in the United States: Johnson & Johnson through its wholly owned subsidiary, Mentor Worldwide, LLC, or
Mentor, and Allergan plc, or Allergan.
Both of our U.S. competitors are either publicly ‑traded companies or divisions or subsidiaries of publicly ‑traded
companies with significantly more market share and resources than we have. These companies have greater financial resources
for sales, marketing and product development, broader established relationships with healthcare providers and third ‑party payors,
and larger and more established distribution networks. In some instances, our competitors also offer products that include features
that we do not currently offer. For example, Allergan sells temporary gel sizers for silicone gel implants and we sell only
temporary saline filled sizers. In addition, our competitors may offer pricing programs with discounts across their non ‑breast
aesthetic product portfolios.
We also face potential future competition from a number of companies, medical researchers and existing medical device
companies that may be pursuing new implant technologies, new material technologies and new methods of enhancing and
reconstructing the breast.
We believe the primary competitive factors in our markets include:
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breadth of portfolio;
technological characteristics of products;
clinical evidence;
product price;
customer service; and
support by key opinion leaders.
Government Regulation
Our products are medical devices subject to extensive regulation by the FDA and other federal and state regulatory
authorities, Health Canada and, if we commence international sales outside of the United States and Canada, other regulatory
bodies in other countries.
Regulation
by
the
FDA.
The Federal Food, Drug and Cosmetic Act, or FDCA, and the FDA’s implementing
regulations govern, among other things:
·
·
·
·
·
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product design and development;
pre ‑clinical and clinical testing;
establishment registration and product listing;
product manufacturing;
product labeling and storage;
pre ‑market clearance or approval;
post ‑market studies;
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·
·
·
·
·
·
advertising and promotion;
product sales and distribution;
recordkeeping and device tracking;
complaint handling;
recalls and field safety corrective actions; and
post ‑market
device malfunctions.
surveillance and adverse event
reporting,
including reporting of deaths,
serious injuries or
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in
the United States will require either a pre ‑market notification to the FDA requesting permission for commercial distribution
under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, or approval from the FDA of a pre ‑market approval, or
PMA, application. Both the 510(k) clearance and PMA approval processes can be expensive, lengthy and require payment of
significant user fees, unless an exemption is available.
The FDA classifies medical devices into one of three classes. Unless specifically exempted from certain requirements,
all three classes of devices are subject to general controls such as labeling, pre ‑market notification and adherence to the FDA’s
Quality System Regulation, or QSR, which cover manufacturers’ methods and documentation of the design, testing, production,
control, quality assurance, labeling, packaging, sterilization, storage and shipping of products. Devices deemed to pose low to
moderate risk are placed in Class I or II, which, absent an exemption, requires the manufacturer to obtain a 510(k) clearance.
Class II devices are subject to special controls such as performance standards, post ‑market surveillance, FDA guidelines, or
particularized labeling requirements, as well as general controls. Some low risk devices are exempted by regulation from the
510(k) clearance requirement, and/or the requirement of compliance with substantially all of the QSR. A PMA application is
required for devices deemed by the FDA to pose the greatest risk, such as life ‑sustaining, life ‑ supporting or certain implantable
devices, including all breast implants, or devices that are “not substantially equivalent” either to a device previously cleared
through the 510(k) process or to a “preamendment” Class III device in commercial distribution in the United states before
May 28, 1976 for which a regulation requiring a PMA application has not been issued by the FDA.
Our tissue expanders and our body contouring, facial and nasal implants received FDA clearance as Class II devices at
various dates prior to approval of our breast implants in March 2012. To obtain 510(k) clearance, we must submit a pre ‑market
notification demonstrating that the proposed device is substantially equivalent to a previously cleared 510(k) device or a
preamendment device. The FDA’s 510(k) clearance pathway usually takes from three to 12 months from the date the application
is completed, but it can take significantly longer and clearance is never assured. Although many 510(k) pre ‑market notifications
are cleared without clinical data, in some cases, the FDA requires significant clinical data to support substantial equivalence. In
reviewing a pre ‑market notification, the FDA may request additional information, including clinical data, which may
significantly prolong the review process. After a device receives 510(k) clearance, any modification that could significantly affect
its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance
or, depending on the modification, could require a PMA application. The FDA requires each manufacturer to make this
determination initially, but the FDA can review any such decision and can disagree with a manufacturer’s determination. If the
FDA disagrees with a manufacturer’s determination regarding whether a new pre ‑market submission is required for the
modification of an existing device, the FDA can require the manufacturer to cease marketing and/or recall the modified device
until 510(k) clearance or approval of a PMA application is obtained. If the FDA requires us to seek 510(k) clearance or approval
of a PMA application for any modifications to a previously cleared product, we may be required to cease marketing or recall the
modified device until we obtain this clearance or approval. In addition, in these circumstances, we may be subject to significant
regulatory fines or penalties for failure to submit the requisite PMA application(s). In addition, the FDA is currently evaluating
the 510(k) process and may make substantial changes to industry requirements.
Silicone gel ‑filled breast implants are treated as Class III devices and a full PMA is required. A PMA for our breast
implants was approved by the FDA in March 2012. The PMA application process is generally more costly and time consuming
than the 510(k) process and requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. Accordingly, a
PMA application must be supported by valid scientific evidence that typically includes, but is
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not limited to, extensive technical information regarding device design and development, pre ‑clinical and clinical trial data, and
manufacturing and labeling information to demonstrate to the FDA’s satisfaction the safety and effectiveness of the device for its
intended use. After a PMA application is submitted and found to be sufficiently complete, the FDA begins an in ‑depth review of
the submitted information. By statute, the FDA has 180 days to review the “accepted application,” although, generally, review of
the application takes between one and three years, but may take significantly longer. During this review period, the FDA may
request additional information or clarification of information already provided. Also during the review period, an advisory panel
of experts from outside the FDA may 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 generally will conduct a pre ‑approval inspection of the
manufacturing facility to evaluate compliance with QSR, which requires manufacturers to implement and follow elaborate design,
testing, control, documentation and other quality assurance procedures in the device 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 and 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 PMA
application supplements are required for significant modifications to the manufacturing process, labeling and design of a device
that could affect the safety or effectiveness of the device, including, for example, certain types of modifications to the device’s
indication for use, manufacturing process, labeling and design. PMA supplements often require submission of the same type of
information as a 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, depending on the nature of the proposed change.
Clinical
Trials.
A clinical trial is almost always required to support a PMA application and may be required for a
510(k) pre ‑market notification. In the United States, absent certain limited exceptions, human clinical trials intended to support
product clearance or approval require an Investigational Device Exemption, or IDE, application. Some types of studies deemed to
present “non ‑significant risk” are deemed to have an approved IDE once certain requirements are addressed and institutional
review board, or IRB, approval is obtained. If the device presents a “significant risk” to human health, as defined by the FDA, the
Sponsor must submit an IDE application to the FDA and obtain IDE approval prior to commencing the human clinical trials. The
IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to
evaluate the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in
advance by the FDA for a specified number of subjects, unless the product is deemed a non ‑significant risk device and eligible
for more abbreviated IDE requirements. Clinical trials for a significant risk device may begin once the IDE application is
approved by the FDA and the responsible institutional review boards at the clinical trial sites. There can be no assurance that
submission of an IDE will result in the ability to commence clinical trials. Additionally, 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 unacceptable health risks that
outweigh the benefits of participation in the study. During a study, we are required to comply with the FDA’s IDE requirements
for investigator selection, clinical trial monitoring, reporting, record keeping and prohibitions on the promotion of investigational
devices or making safety or efficacy claims for them. We are also responsible for the appropriate labeling and distribution of
investigational devices. Our clinical trials must be conducted in accordance with FDA regulations and federal and state
regulations concerning human subject protection, including informed consent and healthcare privacy. The investigators must also
obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of
investigational devices and comply with all reporting and recordkeeping requirements. The FDA’s grant of permission to proceed
with clinical testing does not constitute a binding commitment that the FDA will consider the study design adequate to support
clearance or approval. In addition, there can be no assurance that the data generated during a clinical study will meet chosen
safety and effectiveness endpoints or otherwise produce results that will lead the FDA to grant marketing clearance or approval.
Other
Regulatory
Requirements.
Even though our breast implants have been approved and commercialized, numerous
regulatory requirements apply after a device is placed on the market, regardless of its classification or pre ‑market pathway. These
include, but are not limited to:
·
establishment registration and device listing with the FDA;
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· QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, production,
control, supplier and contractor selection, complaint handling, documentation and other quality assurance procedures
during all aspects of the manufacturing process;
·
labeling regulations that prohibit the promotion of products for uncleared or unapproved, or “off ‑label,” uses, and
impose other restrictions on labeling, advertising and promotion;
· medical Device Reporting, or MDR, regulations, which require that manufacturers report to the FDA if their device may
have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to
a death or serious injury if the malfunction were to recur; and
·
corrections and removals 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. In addition, the FDA may order a mandatory recall if there is a reasonable
probability that the device would cause serious adverse health consequences or death.
Also, the FDA requires us to conduct post ‑market surveillance studies and to maintain a system for tracking our breast
implants through the chain of distribution to the patient level. The FDA and the Food and Drug Branch of the California
Department of Health Services enforce regulatory requirements by conducting periodic, unannounced inspections and market
surveillance. Inspections may include the manufacturing facilities of our subcontractors.
Failure by us or our manufacturer to comply with applicable regulatory requirements can result in enforcement actions
by the FDA and other regulatory agencies. These may include, but may not be limited to, any of the following sanctions or
consequences:
· warning letters or untitled letters that require corrective action;
·
·
·
·
·
·
·
·
·
fines and civil penalties;
unanticipated expenditures;
delays in or refusal to grant requests for 510(k) clearance or pre ‑market approval of new products or modified products;
FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries;
suspension or withdrawal of FDA clearance or approval;
product recall, detention or seizure;
operating restrictions, partial suspension or total shutdown of production;
injunctions and consent decrees; and
criminal prosecution.
We and our contract manufacturers and some suppliers of components or device accessories also are required to
manufacture our products in compliance with cGMP requirements set forth in the QSR. The QSR requires a quality system for the
design, manufacture, packaging, labeling, storage, installation and servicing of marketed devices, and it includes extensive
requirements with respect to quality management and organization, device design, buildings, equipment, purchase and handling
of components or services, production and process controls, packaging and labeling controls, device evaluation, distribution,
installation, complaint handling, servicing, and record keeping. The FDA evaluates compliance with the QSR through periodic,
unannounced inspections that may include the manufacturing facilities of our subcontractors. If the FDA believes that we or any
of our contract manufacturers or regulated suppliers are not in compliance with these requirements, it can shut down our
manufacturing operations, require recall of our products, refuse
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to approve new marketing applications, institute legal proceedings to detain or seize products, enjoin future violations or assess
civil and criminal penalties against us or our officers or other employees.
Healthcare
Regulatory
Laws.
Our business activities, including but not limited to, research, sales, marketing,
promotion, distribution, medical education and other activities are subject to regulation under additional healthcare laws by
numerous regulatory and enforcement authorities in the United States, in addition to the FDA. These laws include, without
limitation, state and federal anti ‑kickback , false claims, physician sunshine , and patient data privacy and security laws and
regulations, including but not limited to those described below.
Additionally, our relationships with healthcare providers and other third parties are subject to scrutiny under these laws.
Non ‑compliance with the laws described below may generally result in the imposition of civil, criminal and administrative
penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare,
Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings,
and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of
operations. Defending against any actions for non ‑compliance of such laws can be costly, time ‑ consuming and may require
significant financial and personnel resources. Therefore, even if we are successful in defending against any such actions that may
be brought against us, our business may be impaired.
Federal
Anti
‑‑Kickback
Law.
The federal Anti ‑Kickback Statute prohibits, among other things, knowingly or willfully
soliciting, receiving, offering, or paying remuneration, directly or indirectly, to induce, or in return for, either the referral of an
individual or the purchase, or recommendation, order or furnishing of an item or service reimbursable under a federal healthcare
program, such as the Medicare and Medicaid programs. The definition of “remuneration” has been broadly interpreted to include
anything of value, including such items as improper payments, gifts, discounts, the furnishing of supplies or equipment, credit
arrangements, waiver of payments and providing anything at less than its fair market value. There are a number of statutory
exceptions and regulatory safe harbors protecting certain common activities from prosecution. Failure to meet all of the
requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal
under the federal Anti ‑Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case ‑by ‑case basis
based on a cumulative review of all of its facts and circumstances.
The penalties for violating the federal Anti ‑Kickback Statute include imprisonment for up to five years, fines of up to
$25,000 per violation and possible exclusion from federal healthcare programs such as Medicare and Medicaid. Further, a person
or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to commit a violation . 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 federal civil False Claims Act, or FCA.
We have entered into consulting, speaker and other financial arrangements with physicians, including some who
prescribe or recommend our products to patients. We engage such physicians as consultants, advisors and to educate other
physicians. Noncompliance with the federal Anti ‑Kickback Statute could result in the penalties set forth above.
Federal
Civil
False
Claims
Act.
The FCA, prohibits any person from knowingly presenting, or causing to be presented,
a false claim for payment to the federal government, or knowingly making, using or causing to be made or used, a false record or
statement material to a false or fraudulent claim to the federal government. The FCA has been used to prosecute persons
submitting claims for payment that are inaccurate or fraudulent, that are for services not provided as claimed, or for services that
are not medically necessary. Manufacturers can be held liable under the FCA if they are deemed to “cause” the submission of
false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a
product off ‑label. Penalties for FCA violations include three times the actual damages sustained by the government, plus
mandatory civil penalties of between $5,500 and $11,000 for each separate false claim, the potential for exclusion from
participation in federal healthcare programs, and, although the federal FCA is a civil statute, FCA violations may also implicate
various federal criminal statutes.
In addition to actions initiated by the government itself, the statute authorizes actions to be brought on behalf of the
federal government by a private party having knowledge of the alleged fraud, known as “qui tam” whistleblower lawsuits.
Because the complaint is initially filed under seal, the action may be pending for some time before the defendant is even aware of
the action. If the government intervenes and is ultimately successful in obtaining redress in the matter, or if the plaintiff succeeds
in obtaining redress without the government’s involvement, then the plaintiff will receive a percentage of the recovery. Qui tam
actions have increased significantly in recent years, causing greater numbers of
16
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healthcare companies to have to defend a false claim action, pay fines or be excluded from Medicare, Medicaid or other federal or
state healthcare programs as a result of an investigation arising out of such action.
Federal
Criminal
False
Claims
Law
s
.
The federal criminal false claims laws prohibit, among other things, knowingly
and willfully making, or causing to be made, a false statement or representation of a material fact for use in determining the right
to any benefit or payment under a federal health care program. A violation of these laws may constitute a felony or misdemeanor
and may result in fines or imprisonment.
Civil
Monetary
Penalties
Law.
The f ederal Civil Monetary Penalties Law prohibits, among other things, the offering or
transferring of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence
the beneficiary’s selection of a particular supplier of Medicare or Medicaid payable items or services. Noncompliance can result
in civil money penalties of up to $10,000 for each wrongful act, assessment of three times the amount claimed for each item or
service and exclusion from the federal healthcare programs.
Health
Insurance
Portability
and
Accountability
Act
of
1996.
The Health Insurance Portability and Accountability Act
of 1996, or HIPAA, augmented two federal crimes: healthcare fraud and false statements relating to healthcare matters. The
healthcare fraud statute prohibits knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare
benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or
exclusion from governmental programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or
payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines or imprisonment.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and
their implementing regulations, including the F inal HIPAA O mnibus R ule published on January 25, 2013, mandates, among
other things, that certain types of entities and individuals adopts uniform standards for the electronic exchange of information in
common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health
information, which require the adoption of administrative, physical and technical safeguards to protect such information. Among
other things, HITECH makes certain of HIPAA’s standards and requirements directly applicable to “business associates”—
independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with
providing a service for or on behalf of a covered entity. HITECH also increased the civil and criminal penalties that may be
imposed against covered entities and business associates, and gave state attorneys general new authority to file civil actions for
damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with
pursuing federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain
circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and
may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can
result in the imposition of significant civil and/or criminal penalties.
Physician
Payments
Sunshine
Act.
The Patient Protection and Affordable Care Act, as amended by the Health Care
and Education Reconciliation Act of 2010, or collectively, PPACA, imposed, among other things, new annual reporting
requirements for certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under
Medicare, Medicaid, or the Children’s Health Insurance Program, for certain payments and “transfers of value” provided to
physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family
members. Failure to submit timely, accurately, and completely the required information for all payments, transfers of value and
ownership or investment interests may result in civil monetary penalties of up to an aggregate of $150,000 per year and up to an
aggregate of $1 million per year for “knowing failures , ” for all payments, transfers of value or ownership or investment
interests that are not timely, accurately, and completely reported in an annual submission. We are required to report detailed
payment data and submit legal attestation to the accuracy of such data by March 31st of each calendar year .
In addition, there has been a recent trend of increased federal and state regulation of payments and other transfers of
value provided to healthcare professionals and entities. Similar to the federal law, certain states also have adopted marketing
and/or transparency laws relevant to device manufacturers, some of which are broader in scope. Certain states, such as California
and Connecticut, also mandate that device manufacturers implement compliance programs. Other states, such as Massachusetts
and Vermont, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts,
compensation, and other remuneration to healthcare professionals and entities. The need to build
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Table of Contents
and maintain a robust compliance program with different compliance and/or reporting requirements increases the possibility that a
healthcare company may violate one or more of the requirements, resulting in fines and penalties
Additional
State
Healthcare
Laws.
Many states have also adopted some form of each of the aforementioned laws, some
of which may be broader in scope and may apply regardless of payor. Nevertheless, a determination of liability under such laws
could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Additionally, as some of these laws are still evolving, we lack definitive guidance as to the application of certain key
aspects of these laws as they relate to our arrangements with providers with respect to patient training. We cannot predict the final
form that these regulations will take or the effect that the final regulations will have on us. As a result, our provider and training
arrangements may ultimately be found to be not in compliance with applicable laws.
United
States
Foreign
Corrupt
Practices
Act.
The United States Foreign Corrupt Practices Act, or FCPA, prohibits
United States corporations and their representatives from offering, promising, authorizing or making corrupt payments, gifts or
transfers to any foreign government official, government staff member, political party or political candidate in an attempt to
obtain or retain business abroad. The scope of the FCPA would include interactions with certain healthcare professionals in many
countries.
International
Regulation.
We may evaluate international expansion opportunities in the future. International sales of
medical devices are subject to local government regulations, which may vary substantially from country to country. The time
required to obtain approval in another country may be longer or shorter than that required for FDA approval, and the requirements
may differ. There is a trend towards harmonization of quality system standards among the European Union, United States, Canada
and various other industrialized countries.
The primary regulatory body in Europe is that of the European Union, which includes most of the major countries in
Europe. Other countries, such as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European
Union with respect to medical devices. The European Union has adopted numerous directives and standards regulating the design,
manufacture, clinical trials, labeling and adverse event reporting for medical devices. Devices that comply with the requirements
of a relevant directive will be entitled to bear the CE conformity marking, indicating that the device conforms to the essential
requirements of the applicable directives and, accordingly, can be commercially distributed throughout Europe. The method of
assessing conformity varies depending on the class of the product, but normally involves a combination of self ‑assessment by the
manufacturer and a third party assessment by a “Notified Body.” This third ‑party assessment may consist of an audit of the
manufacturer’s quality system and specific testing of the manufacturer’s product. An assessment by a Notified Body of one
country within the European Union is required in order for a manufacturer to commercially distribute the product throughout the
European Union. Additional local requirements may apply on a country ‑by ‑country basis. Outside of the European Union,
regulatory approval would need to be sought on a country ‑by ‑country basis in order for us to market our products.
Coverage
and
Reimbursement.
Sales of our products depend, in part, on the extent to which the procedures using our
products will be covered by third ‑party payors, such as government health care programs, commercial insurance and managed
healthcare organizations. Breast augmentation procedures are generally performed on a cash ‑pay basis and are not covered by
third ‑party payors. In contrast, breast reconstruction procedures may be covered by third ‑party payors, but such third ‑party
payors are increasingly limiting coverage and reducing reimbursements for medical products and services. In addition, the U.S.
government, state legislatures and foreign governments have continued implementing cost ‑containment programs, including
price controls, restrictions on coverage and reimbursement. Third-party payors are increasingly challenging the price, examining
the medical necessity and reviewing the cost-effectiveness of medical drug products and medical services, in addition to
questioning their safety and efficacy. Adoption of price controls and cost ‑containment measures, and adoption of more
restrictive policies in jurisdictions with existing controls and measures, could further limit our net sales and results.
Moreover, t he process for determining whether a third-party payor will provide coverage for a product or procedure
may be separate from the process for establishing the reimbursement rate that such a payor will pay for the product or procedure .
A payor’s decision to provide coverage for a product or procedure does not imply that an adequate reimbursement rate will be
approved. Further, one payor’s determination to provide coverage for a product or procedure does not assure that other payors
will also provide coverage for the product or procedure . Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to ensure profitability .
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Table of Contents
Health
Reform.
The United States and some foreign jurisdictions are considering or have enacted a number of
legislative and regulatory proposals to change the healthcare system in ways that could affect our business. Among policy makers
and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the
stated goals of containing healthcare costs, improving quality or expanding access.
By way of example, in the United States, the recent implementation of PPACA is an example that has the potential to
substantially change healthcare financing and delivery by both governmental and private insurers, and significantly impact the
pharmaceutical and medical device industries. The PPACA imposed, among other things, a new federal excise tax of 2.3% on
certain entities that manufacture or import medical devices for sale in the United States and 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. The medical device excise
tax has been suspended by the Consolidated Appropriations Act of 2016, or the CAA, with respect to medical device sales during
calendar years 2016 and 2017. Absent further Congressional action, this excise tax will be reinstated for medical device sales
beginning January 1, 2018. The CAA also temporarily delays implementation of other taxes intended to help fund PPACA
programs. The full impact of the PPACA on our business remains unclear. There have been judicial and Congressional
challenges to certain aspects of the PPACA, and we expect there will be additional challenges and amendments in the future.
In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. On August 2,
2011, President Obama signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select
Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not
achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic
reduction to several government programs. This includes reductions to Medicare payments to providers of 2% per fiscal year,
which went into effect on April 1, 2013, following passage of the Bipartisan Budget Act of 2015, and will stay in effect through
2025 unless Congressional action is taken. On January 2, 2013, President Obama signed into law the American Taxpayer Relief
Act of 2012, or the ATRA, which, among other things, further reduced Medicare payments to several providers, including
hospitals.
We expect 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 services, which could result in reduced
demand for our products or additional pricing pressure.
Intellectual Property
Our intellectual property portfolio consists primarily of trademarks and trade secrets and does not presently consist of
any patents or patent applications. We do not currently intend to file any patent applications in the United States or elsewhere.
Our trademark portfolio consists of five registered U.S. trademarks and six pending Canadian trademark applications.
We maintain a program to protect our marks and will institute legal action where necessary to prevent others from using and
registering confusingly similar marks.
In addition, to protect our trade secrets and other intellectual property rights, we have entered into confidentiality
agreements with third parties, and confidential information and invention assignment agreements with employees, consultants and
advisors. However, there can be no assurance that these measures will be successful in any given case and third parties may still
obtain this information or we may be unable to protect our rights.
Employees
As of December 31, 2015 , we had 96 full ‑time employees. None of our employees are represented by a collective
bargaining agreement, and we have never experienced any work stoppage. We believe we have good relations with
our employees.
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Table of Contents
Facilities
Our headquarters located in Santa Barbara, California is approximately 20,000 square feet. The term of the lease for our
headquarters expires in February 2020. We also lease warehouse space located in Santa Barbara, California, which is
approximately 10, 000 square feet . The term of the lease for our warehouse expire s in January 2019 .
Legal Proceedings
On September 25, 2015, a lawsuit styled as a class action of our stockholders was filed in the United States District
Court for the Central District of California. The lawsuit names us and certain of our officers as defendants and alleges violations
of Sections 10(b) and 20(a) of the Exchange Act in connection with allegedly false and misleading statements concerning o ur
business, operations, and prospects. The plaintiff seeks damages and an award of reasonable costs and expenses, including
attorneys’ fees. On November 24, 2015, three stockholders (or groups of stockholders) filed motions to appoint lead plaint i ff(s)
and to approve their selection on lead counsel. On December 10, 2015, the court entered an order appointing lead plaintiffs and
approving their selection of lead counsel. On February 19, 2016, lead plaintiffs filed their consolidated amended complaint.
On October 28, November 5, and November 19, 2015, three la wsuits styled as class actions of our stockholders were
filed in the Superior Court of California for the County of San Mateo. The lawsuits name us , certain of our officers and directors,
and the underwriters associated with our follow-on public offering that closed on September 23, 2015 as defendants. The lawsuits
allege violations of Sections 11, 12(a)(2), and 15 of the Securities Act in connection with allegedly false and misleading
statements in o ur offering documents associated with the follow-on offering concerning o ur business, operations, and prospects.
The plaintiffs seek damages and an award of reasonable costs and expenses, including attorneys’ fees. On December 4, 2015,
defendants removed all three lawsuits to the United States District Court for the Northern District of California. On December 15
and December 16, 2015, plaintiffs filed motions to remand the lawsuits back to San Mateo Superior Court , or Motions to
Remand. On January 19, 2016, defendants filed their opposition to the Motions to Remand, and plaintiffs filed their reply in
support of the Motions to Remand on January 26, 2016.
It is possible that additional suits will be filed, or allegations made by stockholders, with respect to these same or other
matters and also naming us and/or our officers and directors as defendants. We believe we have meritorious defenses and intend
to defend these lawsuits vigorously. Due to the early stage of these proceedings, we are not able to predict or reasonably
estimate the ultimate outcome or possible losses relating to these claims.
Seasonality
We expect that, in the future, our net sales will fluctuate on a quarterly basis due to a variety of factors, including
seasonality of breast augmentation procedures. We believe that breast implant sales are subject to seasonal fluctuation due to
breast augmentation patients’ planning their surgery leading up to the summer season and in the period around the winter holiday
season.
Corporate Information
We incorporated in Delaware on August 29, 2003 under the name Juliet Medical, Inc. and subsequently changed our
name to Sientra, Inc. in April 2007. Our principal executive offices are located at 420 South Fairview Avenue, Suite 200, Santa
Barbara, California, 93117, and our telephone number is (805) 562 ‑3500. Our website is located at www.sientra.com, and our
investor relations website is located at http://investors.sientra.com . Our Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, reports on Form 8-K and our Proxy Statements are available through our investor relations website, free of charge, as
soon as reasonably possible after we file them with the SEC.
Item 1A. Risk Factor s
You should carefully consider the following risk factors, as well as the other information appearing elsewhere in this Annual
Report on Form 10-K , including our financial statements and related notes, before deciding whether to purchase, hold or sell
shares of our common stock. The occurrence of any of the following risks could harm our business, financial condition, results of
operations and/or growth prospects or cause our actual results to differ materially from those contained in forward-looking
statements we have made in this report and those we may make from time to time. You should consider all of the risk factors
described when evaluating our business.
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Table of Contents
Risks Relating to Our Business and Our Industry
We
currently
rely
on
a
foreign,
sole
source,
third-party
to
manufacture
and
supply
our
silicone
gel
breast
implants,
tissue
expanders
and
other
products.
We currently rely on Silimed , our sole source, third-party manufacturer located in Brazil, to manufacture and supply
our silicone gel breast implants, tissue expanders and other products. Several recent events have occurred which affect our ability
to rely on Silimed as our source for our silicone gel breast implants, tissue expa nders and other products in the short and long
term.
On September 23, 2015, the Medicines and Healthcare Products Regulatory Agency, or the MHRA, an executive agency
of the U.K., issued a press release announcing the suspension of sales and implanting in U.K . of all medical devices
manufactured by Silimed following the suspension of the CE certificate of these products issued by TUV SUD, Silimed’s notified
body under EU regulation. The suspension of Silimed’s CE certificate by TUV SUD followed TUV SUD’s inspection at
Silimed’s manufacturing facilities in Brazil, relating to particles on Silimed breast products .
On October 2, 2015, the Brazilian regulatory agency ANVISA and the Department of the Secretary of State of the State
of Rio de Janeiro announced that while they continue to review the technical compliance related to GMP of Silimed’s
manufacturing facility, and as a precautionary measure , they temporarily suspended the manufacturing and shipment of all
medical devices made by Silimed, including products manufactured for Sientra. Between October 9, 2015 and March 1, 2016, we
voluntarily placed a temporary hold on the sale of all Sientra devices manufactured by Silimed and recommended that plastic
surgeons discontinue implanting the devices until further notice. The Company has been in ongoing discussions with the FDA
regarding European and Brazilian regulatory inquiries into Silimed products, and conduct ed its own review of the matter with the
assistance of independent experts in quality management systems, GMP and data-based risk assessment. After extensive
independent, third-party testing and analyses indicated no anticipated significant safety concerns with the use of our products,
including our breast implants, as of March 1, 2016, we lifted the temporary hold on the sale of our devices manufactured by
Silimed and also sent a letter to our Plastic Surgeons informing them of the Company’s market re-entry plans.
Breast implants have stringent standards for manufacturing and robust quality systems, but there is no specific or defined
standard for particles on breast implants. Each of the FDA, ANVISA and MHRA noted that no risks to patient health have been
identified in connection with implanting Silimed products, and, accordingly, there is no need to adopt any procedure or action for
those patients who have received them. Additionally, the FDA and ANVISA indicated that that there have been no reports of
adverse events related to th is issue .
On January 27, 2016, after completing an analysis and risk assessment, ANVISA announced their authoriz ation of
Silimed to resume the commercialization and use of its previously manufactured products. ANVISA concluded there was no
evidence that the presence of surface particles on the silicone implants represented risks which are additional to the ones inherent
in the product. However, Silimed continues to be suspended from manufacturing and commercializing new batches of implants
until an inspection is performed to reassess the fulfillment of its GMP compliance .
Additionally, t he suspension of Silimed’s CE certificate by TUV SUD , and the suspension on the commercialization of
Silimed’s products in Europe by the MHRA remains in place and the determination of Silimed’s manufacturing facilities is still
under evaluation, and we cannot predict the outcome of these matter s . The FDA and other U.S. and foreign regulatory agencies
have substantial discretion to require additional testing, to impose restrictions on marketed products or on us, including the
withdrawal or recall of such products from the market. If Silimed is unable to resume manufacturing or becomes unwilling to
manufacture and supply our silicone gel breast implants, tissue expanders and other products, we will not be able to replace
Silimed quickly, and although we are exploring our strategic alternatives, we have not qualified another manufacturer to source
our implants.
Even if we were able to identify a replacement manufacturer for our silicone gel breast implants, tissue expanders and
other products, the replacement manufacturer would have to be qualified with the FDA, which is an expensive and time-
consuming process during which we may experience a supply interruption. There can be no guarantee that Silimed , or an
alternative manufacturer, will be able to meet our demand to manufacture and supply our products in a timely manner, and as a
result, our financial position and results of operations may be adversely affected.
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Table of Contents
In addition, our reliance on Silimed involves a numbe r of other risks, including that:
·
our products may not be manufactured in accordance with agreed upon specifications or in compliance with
regulatory requirements, or Silimed’s manufacturing facilities may not be able to maintain compliance with
regulatory requirements, which could negatively affect the safety or efficacy of our products or cause delays in
shipments of our products;
· we may not be able to timely respond to unanticipated changes in customer orders, and if orders do not match
forecasts, we may have excess or inadequate inventory of materials and components;
·
our current contract with Silimed expires in less than two years, in 2017, and there can be no assurance that Silimed
will agree to continue to manufacture and supply our products after the expiration of our contract;
· we may be subject to price fluctuations when a supply contract is renegotiated or if our existing contract is not
renewed;
·
our agreement with Silimed does not permit us to sell the products we obtain from Silimed in any country other than
the United States and Canada;
· we or Silimed may lose access to critical services and components, resulting in an interruption in the manufacture or
shipment of our products;
· we may not be able to find an alternate supplier in a timely manner if the products remain unavailable from Silimed;
· we may be required to obtain regulatory approvals related to any change in our supply chain;
·
·
Silimed may discontinue manufacturing and supplying products to us for risk management reasons; and
Silimed may encounter financial or other hardships unrelated to our demand for products, which could inhibit its
ability to fulfill our orders and meet our requirements.
Although we have resumed our sale and implanting of devices manufactured by Silimed, t he suspension of the sale and
manufacturing of Silimed’s products by foreign regulatory agencies, our uncertainty regarding the resolution of the regulatory
inquiries and the delay of sales pending such resolution, and the materialization of any other of these risks could significantly
increase our costs, our ability to generate net sales would be impaired, market acceptance of our products could be adversely
affected and customers may instead purchase or use our competitors’ products, which could materially adversely and severely
affect our business, financial condition and results of operations.
Our
sole
source,
third-party
manufacturer,
Silimed,
relies
on
a
sole
source,
third-party
supplier
of
the
medical-grade
silicone
used
in
its
silicone
gel
breast
implants,
tissue
expanders
and
other
products.
Our sole source, third-party manufacturer and supplier, Silimed, relies on Applied Silicone Corporation, or ASC, its sole
source, third-party supplier of medical-grade silicone based in Santa Paula, California, for the silicone gel used in its breast
implants, tissue expanders and other products. If ASC becomes unable or unwilling to supply medical-grade silicone to Silimed,
Silimed may not be able to find an alternate supplier in a timely manner, since the availability of suppliers of medical-grade
silicone is limited. In addition, ASC may discontinue manufacturing and supplying products to Silimed for risk management
reasons, lose access to critical services and components, resulting in an interruption in the manufacturing or shipment of our
products, or encounter financial or other hardships unrelated to Silimed and our demand for products, which could inhibit its
ability to fulfill Silimed’s orders. We may also be required to obtain regulatory approvals related to any change in our supply
chain. The materialization of any of these risks could adversely affect our business, financial condition and results of operations.
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Table of Contents
The
fire
at
one
of
Silimed’s
manufacturing
buildings
may
have
a
severe
impact
on
our
results
of
operations,
financial
position
and
market
share.
On October 22, 2015, there was a fire at one of Silimed’s two manufacturing buildings in Rio de Janeiro, Brazil. The fire
occurred in the building where Sientra’s breast implants are primarily manufactured, or building F2. Silimed has indicated to us
that a smaller production facility in Silimed’s second building, or building F1, which was not impacted by the fire, has the
potential to be modified for breast implant manufacturing. In order to commence the manufacturing of breast implants, certain
areas in building F1 would need to be reconfigured and receive certification and approval by appropriate regulatory bodies. We
are working with Silimed to seek clarity as to the near and long-term capabilities of Silimed’s manufacturing operations,
including the status of equipment that is used to manufacture breast implants and the potential feasibility, production capacity and
timing related to Silimed’s ability to manufacture our breast implants. The delay in the manufacturing of our breast implants
caused by the fire, our uncertainty regarding when Silimed’s facility will be operational and able to manufacture our breast
implants, and the extent of the damage caused by the fire may have a severe impact on our business, financial condition and
results of operations.
We
depend
on
a
positive
reaction
from
our
Plastic
Surgeons
and
their
patients
to
successfully
re-enter
the
market
after
our
voluntary
suspension
of
the
sale
of
Sientra
devices
manufactured
by
Silimed.
On March 1, 2016, we lifted the voluntary temporary hold on sale of all Sientra products manufactured by Silimed and also sent a
letter to our Plastic Surgeons informing them of our market re-entry plans. Although our market re-entry decision was based on
extensive and detailed independent third party reviews of our finished goods inventory, which concluded that our implants
continue to be a safe choice for both our surgeons and their patients, consistent with their FDA approval status in 2012, we
depend on a positive reception from our Plastic Surgeons and their patients to be able to reestablish the market position we had
prior to the voluntary suspension. Our re-entry into the market requires us to effectively and responsibly educate accounts on the
results of our testing and reconfirm our strong clinical data, while providing the same high levels of customer service to which our
Plastic Surgeons are accustomed. Our Plastic Surgery Consultants are working diligently to solidify the trust and support of all
our Plastic Surgeons during this important phase of our market re-entry, however, if we are not successful in re-establishing these
relationships, adapting our business systems, or competing effectively in this market, our sales revenues, market share and
financial performance will be affected negatively.
We
have
incurred
significant
net
operating
losses
since
inception
and
cannot
assure
you
that
we
will
achieve
profitability.
Since our inception, we have incurred significant net operating losses. As of December 31, 2015 , we had an
accumulated deficit of $175.3 million. To date, we have financed our operations primarily through sales of preferred stock,
borrowings under our term loans, sales of our products since 2012, our initial public offering and our recent follow-on public
offering of our common stock. We have devoted substantially all of our resources to the acquisition and clinical development of
our products, the commercial launch of our products, the development of a sales and marketing team and the assembly of a
management team to manage our business.
We commenced sales of our breast implants in the second quarter of 2012. For the year ended December 31, 2015 ,
our gross profit was $27.5 million. However, although we have achieved a positive gross profit, we had a net loss of $41.2
million for the year ended December 31, 2015 . The extent of our future operating losses and the timing of profitability are
uncertain, especially in light of our voluntary hold of the sale of all Sientra devices manufactured by Silimed between October 9,
2015 and March 1, 2016. We will need to generate significant sales to achieve profitability, and we might not be able to do
so. Even if we do generate significant sales, we might not be able to achieve, sustain or increase profitability on a quarterly or
annual basis in the future. If our sales grow more slowly than we have forecasted, or if our operating expenses exceed our
forecasts , our financial performance and results of operations will be adversely affected.
Our
future
profitability
depends
on
the
success
of
our
Breast
Products.
Sales of our Breast Products accounted for 98% , 97% and 97% of our net sales for the year s ended December 31,
2015 , 2014 and 2013 , respectively. We expect our net sales to continue to be based primarily on sales of our Breast Products,
and between October 9, 2015 and March 1, 2016, we stopped selling our Breast Products as a result of our voluntary hold on the
sale of all Sientra devices manufactured by Silimed. Our voluntary hold on the sale of Sientra devices
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Table of Contents
manufactured by Silimed, the potential loss of market acceptance of our Breast Products, and any adverse rulings by regulatory
authorities, including an adverse or time consuming resolution of the current regulatory inquiries regarding Silimed’s medical
devices, any adverse publicity or other adverse events relating to us or our Breast Products, or the introduction of competitive
products by our competitors and other third parties, may significantly impact our sales and profitability, which would adversely
affect our business, financial condition and results of operations.
Any
negative
publicity
concerning
our
products
could
harm
our
business
and
reputation
and
negatively
impact
our
financial
results.
The responses of potential patients, physicians, the news media, legislative and regulatory bodies and others to
information about complications or alleged complications of our products, including the suspension of Silimed’s CE certificate by
TUV SUD, and the subsequent suspension by ANVI SA on the manufacturing and shipment of all medical devices made by
Silimed, including products manufactured for Sientra while they review the technical compliance related to GMP of Silimed’s
manufacturing facility, could result in negative publicity and could materially reduce market acceptance of our products. These
responses or any investigations and potential resulting negative publicity may have a material adverse effect on our business and
reputation and negatively impact our financial condition, results of operations or the market price of our common stock. In
addition, significant negative publicity could result in an increased number of product liability claims against us.
There
are
inherent
risks
in
contracting
with
manufacturers
located
outside
of
the
United
States
such
as
in
Brazil.
Silimed is our sole source, third-party manufacturer and its manufacturing plant is located in Brazil. There are inherent
risks in contracting with manufacturers located outside of the United States such as in Brazil, including the risks of economic
change, recession, labor strikes or disruptions, political turmoil, new or changing tariffs or trade barriers, new or different
restrictions on importing or exporting, civil unrest, infrastructure failure, cultural differences in doing business, lack of contract
enforceability, lack of protection for intellectual property, war and terrorism. If any of these risks were to materialize, we and
Silimed would both be materially adversely affected and our business, financial condition and results of operations would suffer.
Various
factors
outside
our
direct
control
may
adversely
affect
manufacturing
and
supply
of
our
breast
implants,
tissue
expanders
and
other
products.
Manufacturing and supply of our breast
products is technically
challenging. Changes that our manufacturer may make outside the purview of our direct control can have an impact on our
processes, on quality and the successful delivery of products to Plastic Surgeons. Mistakes and mishandling are not uncommon
and can affect production and supply. Some of these risks include:
tissue expanders and other
implants,
·
·
·
·
·
failure of our manufacturer to follow cGMP requirements or mishandling of our products while in production or in
preparation for transit;
transportation and import and export risk, particularly given the global nature of our supply chain;
delays in analytical results or failure of analytical techniques that we depend on for quality control and release of
products;
natural disasters, labor disputes, financial distress, lack of raw material supply, issues with facilities and equipment
or other forms of disruption to business operations affecting our manufacturer or its suppliers; and
latent defects that may become apparent after products have been released and which may result in a recall of such
products.
The materialization of any of these risks could significantly increase our costs, impair our ability to generate net sales,
and adversely affect market acceptance of our products and customers may instead purchase or use our competitors’ products,
which could materially adversely and severely affect our business, financial condition and results of operations.
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We
may
not
realize
the
benefits
of
partnerships
with
other
companies,
acquisitions
of
complementary
products
or
technologies
or
other
strategic
alternatives.
From time to time, we may consider opportunities to partner with or acquire other businesses, products or technologies
that may enhance our product platform or technology, expand the breadth of our markets or customer base or advance our
business strategies. Potential partnerships or acquisitions involve numerous risks, including:
·
integration of the acquired products or technologies with our existing business;
· maintenance of uniform standards, procedures, controls and policies;
·
·
·
·
unanticipated costs associated with partnerships or acquisitions;
diversion of management’s attention from our existing business;
uncertainties associated with entering new markets in which we have limited or no experience; and
increased legal and accounting costs relating to the partnerships or acquisitions or compliance with regulatory
matters.
We do not know if we will be able to identify partnerships or acquisitions we deem suitable, whether we will be able to
successfully complete any such partnerships or acquisitions on favorable terms or at all, or whether we will be able to
successfully integrate any partnered or acquired products or technologies. Our potential inability to integrate any partnered or
acquired products or technologies effectively or realize anticipated synergies may adversely affect our business, financial
condition and results of operations.
We
have
a
limited
operating
history
and
may
face
difficulties
encountered
by
companies
early
in
their
commercialization
in
competitive
and
rapidly
evolving
markets.
We commenced operations in 2007 and began commercializing silicone gel breast implants in the second quarter of
2012. Accordingly, we have a limited operating history upon which to evaluate our business and forecast our future net sales and
operating results. In assessing our business prospects, you should consider the various risks and difficulties frequently
encountered by companies early in their commercialization in competitive markets, particularly companies that develop and sell
medical devices. These risks include our ability to:
·
·
·
implement and execute our business strategy;
expand and improve the productivity of our sales force and marketing programs to grow sales of our existing and
proposed products;
increase awareness of our brand and build loyalty among Plastic Surgeons;
· manage expanding operations;
·
·
·
·
·
respond effectively to competitive pressures and developments;
enhance our existing products and develop new products;
obtain regulatory clearance or approval to enhance our existing products and commercialize new products;
perform clinical trials with respect to our existing products and any new products; and
attract, retain and motivate qualified personnel in various areas of our business.
Due to our limited operating history, we may not have the institutional knowledge or experience to be able to effectively
address these and other risks that we may face. In addition, we may not be able to develop insights into trends
25
Table of Contents
that could emerge and negatively affect our business and may fail to respond effectively to those trends. As a result of these or
other risks, we may not be able to execute key components of our business strategy, and our business, financial condition and
operating results may suffer.
If
we
fail
to
compete
effectively
against
our
competitors,
both
of
which
have
significantly
greater
resources
than
we
have,
our
net
sales
and
operating
results
may
be
negatively
affected.
Our industry is intensely competitive and subject to rapid change from the introduction of new products, technologies
and other activities of industry participants. Our competitors, Mentor, a wholly owned subsidiary of Johnson & Johnson, and
Allergan are well-capitalized global pharmaceutical companies that have been the market leaders for many years and have the
majority share of the breast implant market in the United States. These competitors also enjoy several competitive advantages
over us, including:
·
·
·
·
·
·
·
greater financial and human resources for sales, marketing and product development;
established relationships with health care providers and third-party payors;
established reputations and name recognition among health care providers and other key opinion leaders in the
plastic surgery industry;
in some cases, an established base of long-time customers;
products supported by long-term clinical data;
larger and more established distribution networks;
greater ability to cross-sell products; and
· more experience in conducting research and development, manufacturing, performing clinical trials and obtaining
regulatory approval or clearance.
If we fail to compete effectively against our competitors, our net sales and operating results may be negatively affected.
Pricing
pressure
from
customers
and
our
competitors
may
impact
our
ability
to
sell
our
products
at
prices
necessary
to
support
our
current
business
strategies.
Our 2012 entry into the U.S. breast implant market represented a significant expansion of the breast implant choices and
technologies available in the United States. As a result of our entry into the U.S. breast implant market, our competitors
intensified competitive pricing pressure for traditional round-shaped breast implants. If we are not successful in convincing
customers or third-party payors of the differentiation of the gel technology used in our implants and selection of shapes and
products as compared to our competitors’ products, third-party payors may not cover or adequately reimburse our products and
customers may choose our competitors’ products.
The
long-term
safety
of
our
products
has
not
fully
been
established
and
our
breast
implants
are
currently
under
study
in
our
PMA
post-approval
studies,
which
could
reveal
unanticipated
complications.
We currently market our silicone gel breast implants in the United States. These products have received pre-market
approval from the FDA. However, there could still be unanticipated complications or unforeseen health consequences of being
implanted with our silicone gel breast implants over the long-term (defined as 10 years or more). Additionally, we rely on our
clinical data to make favorable comparisons of our product to our competitive products, and our longer term data may change
over time. Further, future studies or clinical experience may indicate that treatment with our products is not differentiated to
treatment with competitive products. Such results could slow the adoption of our products and significantly reduce our sales,
which could prevent us from achieving our forecasted sales targets or achieving or sustaining profitability. Moreover, if long-term
results and experience indicate that our products cause unexpected or
26
Table of Contents
serious complications, we could be subject to mandatory product recalls, suspension or withdrawal of FDA clearance or approval
and significant legal liability.
If
we
are
unable
to
train
Plastic
Surgeons
on
the
safe
and
appropriate
use
of
our
products,
we
may
be
unable
to
achieve
our
expected
growth.
An important part of our sales process includes the ability to educate Plastic Surgeons about the availability of
anatomically-shaped breast implants and train Plastic Surgeons on the safe and appropriate use of our products. If we become
unable to attract potential new Plastic Surgeon customers to our education and training programs, we may be unable to achieve
our expected growth.
There is a learning process involved for Plastic Surgeons to become proficient in the use of our anatomically-shaped
products. It is critical to the success of our commercialization efforts to train a sufficient number of Plastic Surgeons and provide
them with adequate instruction in the appropriate use of our products via preceptorships and additional demonstration
surgeries. This training process may take longer than expected and may therefore affect our ability to increase sales. Following
completion of training, we rely on the trained Plastic Surgeons to advocate the benefits of our products in the
marketplace. Convincing Plastic Surgeons to dedicate the time and energy necessary for adequate training is challenging, and we
cannot assure you that we will be successful in these efforts. If Plastic Surgeons are not properly trained, they may misuse or
ineffectively use our products. This may also result in, among other things, unsatisfactory patient outcomes, patient injury,
negative publicity or lawsuits against us, any of which could have an adverse effect on our business and reputation.
If
we
are
unable
to
continue
to
enhance
our
existing
Breast
Products
and
develop
and
market
new
products
that
respond
to
customer
needs
and
preferences
and
achieve
market
acceptance,
we
may
experience
a
decrease
in
demand
for
our
products
and
our
business
could
suffer.
We may not be able to compete effectively with our competitors, and ultimately satisfy the needs and preferences of our
customers, unless we can continue to enhance existing products and develop and market new innovative products. Product
development requires the investment of significant financial, technological and other resources. Product improvements and new
product introductions also require significant planning, design, development and testing at the technological, product and
manufacturing process levels and we may not be able to timely develop product improvements or new products. Our
competitors’ new products may beat our products to market, be more effective with new features, obtain better market acceptance
or render our products obsolete. Any new or modified products that we develop may not receive clearance or approval from the
FDA, or achieve market acceptance or otherwise generate any meaningful sales or profits for us relative to our expectations based
on, among other things, existing and anticipated investments in manufacturing capacity and commitments to fund advertising,
marketing, promotional programs and research and development.
If
changes
in
the
economy
and
consumer
spending,
reduce
consumer
demand
for
our
products,
our
sales
and
profitability
would
suffer.
We are subject to the risks arising from adverse changes in general economic and market conditions. Certain elective
procedures, such as breast augmentation and body contouring, are typically not covered by insurance. Adverse changes in the
economy may cause consumers to reassess their spending choices and reduce the demand for these surgeries and could have an
adverse effect on consumer spending. This shift could have an adverse effect on our net sales. Furthermore, consumer
preferences and trends may shift due to a variety of factors, including changes in demographic and social trends, public health
initiatives and product innovations, which may reduce consumer demand for our products.
We
are
required
to
maintain
high
levels
of
inventory,
which
could
consume
a
significant
amount
of
our
resources
and
reduce
our
cash
flows.
We need to maintain substantial levels of inventory to protect ourselves from supply interruptions, provide our
customers with a wide range of shapes and sizes of our breast implants, and account for the high return rates we experience as
Plastic Surgeons typically order our products in multiple sizes for a single surgery and then return what they do not use. As a
result of our substantial inventory levels, we are subject to the risk that a substantial portion of our inventory becomes obsolete. T
he materialization of any of these risks may have a material adverse effect on our earnings and cash flows due to the resulting
costs associated with the inventory impairment charges and costs required to replace such inventory .
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Table of Contents
Additionally, the suspension of Silimed’s manufacturing by ANVISA, the recent fire at Silimed’s facility that manufactures our
breast implants, including the status of equipment that is used to manufacture such implants and the potential feasibility,
production capacity and timing related to Silimed’s ability to manufacture breast implants in other facilities, or our ability to find
an alternate supplier in a timely manner, may affect our ability to maintain the level of inventory supply we require to protect
ourselves from supply interruptions which could have an unfavorable i mpact on our net sales .
Any
disruption
at
our
facilities
could
adversely
affect
our
business
and
operating
results.
Our principal offices are located in Santa Barbara, California. Substantially all of our operations are conducted at this
location, including customer service, development and management and administr ative functions. S ubstantially all of our
inventory of finished goods is held at a second location in Santa Barbara, California. Despite our efforts to safeguard our
facilities, including acquiring insurance, adopting health and safety protocols and utilizing off-site storage of computer data,
vandalism, terrorism or a natural or other disaster, such as an earthquake, fire or flood, could damage or destroy our inventory of
finished goods, cause substantial delays in our operations, result in the loss of key information and cause us to incur additional
expenses. Our insurance may not cover our losses in any particular case. In addition, regardless of the level of insurance
coverage, damage to our facilities may have a material adverse effect on our business, financial condition and operating results.
If
there
are
significant
disruptions
in
our
information
technology
systems,
our
business,
financial
condition
and
operating
results
could
be
adversely
affected.
The efficient operation of our business depends on our information technology systems. We rely on our information
technology systems to effectively manage sales and marketing data, accounting and financial functions, inventory, product
development tasks, clinical data, and customer service and technical support functions. Our information technology systems are
vulnerable to damage or interruption from earthquakes, fires, floods and other natural disasters, terrorist attacks, computer viruses
or hackers, power losses, and computer system or data network failures. In addition, a variety of our software systems are cloud-
based data management applications hosted by third-party service providers whose security and information technology systems
are subject to similar risks.
The failure of our or our service providers’ information technology could disrupt our entire operation or result in
decreased sales, increased overhead costs and product shortages, all of which could have a material adverse effect on our
reputation, business, financial condition and operating results.
We
may
be
adversely
affected
by
earthquakes
or
other
natural
disasters
and
our
business
continuity
and
disaster
recovery
plans
may
not
adequately
protect
us
from
a
serious
disaster.
Our corporate headquarters and other facilities are located in Santa Barbara, California, which in the past has
experienced both severe earthquakes and wildfires. We do not carry earthquake insurance. Earthquakes, wildfires or other
natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations,
financial condition and prospects.
If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our
headquarters, that damaged critical infrastructure, such as our enterprise financial systems or manufacturing resource planning
and enterprise quality systems, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to
continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place
currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur
substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly
when taken together with our lack of earthquake insurance, could have a material adverse effect on our business.
Failure
to
obtain
hospital
or
group
purchasing
organization
contracts
could
have
a
material
adverse
effect
on
our
financial
condition
and
operating
results.
A portion of our net sales is derived from sales to hospitals. Many hospital customers, through the contracting process,
limit the number of breast implant suppliers that may sell to their institution. Hospitals may choose to contract with our
competitors who have a broader range of products that can be used in a wider variety of procedures or our
28
Table of Contents
competitors may actively position their broader product portfolios against us during the hospital contracting process. Any
limitations on the number of hospitals to which we can sell our products may significantly restrict our ability to grow.
In addition, contracts with hospitals and group purchasing organizations, or GPOs, often have complex insurance and
indemnification requirements, which may not be beneficial to us, or we may not be able to successfully negotiate contracts with a
substantial number of hospitals and GPOs at all, which could adversely affect our business, financial condition and results of
operations.
Our
business
could
suffer
if
we
lose
the
services
of
key
personnel
or
are
unable
to
attract
and
retain
additional
qualified
personnel.
We are dependent upon the continued services of key personnel, including members of our executive management team
who have extensive experience in our industry. The loss of any one of these individuals could disrupt our operations or our
strategic plans. On November 12, 2015, Hani Zeini stepped down as our President and Chief Executive Officer and Jeffrey
Nugent was appointed as our Chairman and Chief Executive Officer. On February 16, 2016, Mr. Zeini resigned from our board of
director s . The announcement of the departure of Mr. Zeini from our board and as President and Chief Executive Officer may
have a negative effect on employee morale and on our customer relationships which is potentially mitigated by his continuing
consultancy with the Company. Additionally, our future success will depend on, among other things, our ability to continue to
hire and retain the necessary qualified sales, marketing and managerial personnel, for whom we compete with numerous other
companies, academic institutions and organizations. If we lose additional key employees, if we are unable to attract or retain other
qualified personnel, or if our management team is not able to effectively manage us through these events, our business, financial
condition, and results of operations may be adversely affected.
We
will
need
to
increase
the
size
of
our
organization,
and
we
may
experience
difficulties
in
managing
growth.
As of December 31, 2015 , we had approximately 96 full-time employees. Our management and personnel, and the
systems and facilities we currently have in place, may not be adequate to support future growth. Effectively executing our growth
strategy requires that we increase net sales through sales and marketing activities, recruit and retain additional employees and
continue to improve our operational, financial and management controls, reporting systems and procedures. If we are not able to
effectively expand our organization in these ways, we may not be able to successfully execute our growth strategy, and our
business, financial condition and results of operations may suffer.
Risks Related to Our Financial Results
Our
quarterly
net
sales
and
operating
results
are
unpredictable
and
may
fluctuate
significantly
from
quarter
to
quarter
due
to
factors
outside
our
control,
which
could
adversely
affect
our
business,
results
of
operations
and
the
trading
price
of
our
common
stock.
Our net sales and operating results may vary significantly from quarter to quarter and year to year due to a number of
factors, many of which are outside of our control and any of which may cause our stock price to fluctuate. Our net sales and
results of operations will be affected by numerous factors, including:
·
·
·
·
·
the length of time that Silimed is unable to manufacture our Breast Products as a result of ANIVSA’s suspension of
the manufacturing operations and the fire at Silimed’s facility;
the timing and availability of alternative manufacturing sources to supply our silicone gel breast implants, tissue
expanders and other products;
the impact of the buying patterns of patients and seasonal cycles in consumer spending;
our ability to drive increased sales of anatomically-shaped breast implants products;
our ability to establish and maintain an effective and dedicated sales organization;
29
Table of Contents
·
·
·
·
·
·
·
·
·
·
·
·
·
·
pricing pressure applicable to our products, including adverse third-party coverage and reimbursement outcomes;
results of clinical research and trials on our existing products;
the impact of the recent regulatory inquiries of Silimed’s medical devices on our brand and reputation;
timing of our research and development activities and initiatives;
the mix of our products sold due to different profit margins among our products;
timing of new product offerings, acquisitions, licenses or other significant events by us or our competitors;
the ability of our suppliers to timely provide us with an adequate supply of products;
the evolving product offerings of our competitors;
regulatory approvals and legislative changes affecting the products we may offer or those of our competitors;
increased labor and related costs;
interruption in the manufacturing or distribution of our products;
the effect of competing technological, industry and market developments;
changes in our ability to obtain regulatory clearance or approval for our products; and
our ability to expand the geographic reach of our sales and marketing efforts.
Many of the products we may seek to develop and introduce in the future will require FDA approval or clearance before
commercialization in the United States, and commercialization of such products outside of the United States would likely require
additional regulatory approvals, CE Certificates of Conformity and import licenses. As a result, it will be difficult for us to
forecast demand for these products with any degree of certainty. In addition, we will be increasing our operating expenses as we
expand our commercial capabilities. Accordingly, we may experience significant, unanticipated quarterly losses. If our quarterly
or annual operating results fall below the expectations of investors or securities analysts, the price of our common stock could
decline substantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of
our common stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily
meaningful and should not be relied upon as an indication of our future performance.
Our
future
capital
needs
are
uncertain
and
we
may
need
to
raise
additional
funds
in
the
future,
and
these
funds
may
not
be
available
on
acceptable
terms
or
at
all.
As of December 31, 2015 , we had $112.8 million in cash and cash equivalents. We believe that our available cash on
hand will be sufficient to satisfy our liquidity requirements for at least the next 12 months. However, the continued growth of our
business, including the expansion of our sales force and marketing programs, and research and development activities, will
significantly increase our expenses. In addition, we expect that the recent events involving Silimed, including our voluntary hold
on the sale and implanting of all Sientra devices manufactured by Silimed between October 9, 2015 and March 1, 2016, our
uncertainty regarding the amount of additional expenses we may incur in connection with regulatory inquiries and our own
review and testing, as well as expenses we may incur in connection with reestablishing our inventory supply as a result of the fire
in Silimed’s manufacturing facility and expenses we may incur defending against litigation claims, may have a material effect our
future cash outflows and Sientra’s liquidity. Additionally, following our repayment of all principal, interest, other amounts and
obligations owed to Oxford Finance LLC, or Oxford, under the term loans for a total of $24.5 million, the Company has no
outstanding debt obligations.
30
Table of Contents
Our future capital requirements will depend on many factors, including:
·
·
·
·
·
·
·
·
·
·
·
our continued ability to rely on Silimed to manufacture and supply our silicone gel breast implants, tissue expanders
and other products or the timing and availability of alternative manufacturing sources ;
net sales generated by our silicone gel breast implants and tissue expanders and any other future products that we
may develop and commercialize;
expenses we incur in connection with potential litigation or governmental investigations;
costs associated with our own review and testing at Silimed’s manufacturing facilities and of our own inventory;
costs associated with expanding our sales force and marketing programs;
cost associated with developing and commercializing our proposed products or technologies;
cost of obtaining and maintaining regulatory clearance or approval for our current or future products;
cost of ongoing compliance with regulatory requirements;
expenses we incur in connection with defending against the lawsuit filed against us and certain of our officers
alleging violations of Sections 10(b) and 20(a) of the Exchange Act in connection with allegedly false and
misleading statements concerning Sientra’s business, operations, and prospects;
anticipated or unanticipated capital expenditures; and
unanticipated general and administrative expenses.
As a result of these and other factors, we do not know whether and the extent to which we may be required to raise
additional capital. We may in the future seek additional capital from public or private offerings of our capital stock, borrowings
under term loans or other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may
experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our
existing stockholders. In addition, if we raise additional funds through collaborations, licensing, joint ventures, strategic
alliances, partnership arrangements or other similar arrangements, it may be necessary to relinquish valuable rights to our
potential future products or proprietary technologies, or grant licenses on terms that are not favorable to us.
If we are unable to raise additional capital, we may not be able to expand our sales force and marketing programs,
enhance our current products or develop new products, take advantage of future opportunities, or respond to competitive
pressures, changes in supplier relationships, or unanticipated changes in customer demand. Any of these events could adversely
affect our ability to achieve our strategic objectives, which could have a material adverse effect on our business, financial
condition and operating results.
Our
ability
to
use
net
operating
losses
to
offset
future
taxable
income
may
be
subject
to
certain
limitations.
As of December 31, 2015 , we had federal net operating loss carryforwards, or NOLs, of approximately $137.8 million,
which expire in various years beginning in 2027, if not utilized to offset taxable income. In general, under Section 382 of the
Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to
limitations on its ability to utilize its pre-change NOLs to offset future taxable income. In general, an “ownership change” occurs
if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year
period. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo one or
more ownership changes in connection with future transactions in our stock, our ability to utilize NOLs could be further limited
by Section 382 of the Code. As a result of these limitations, we may not be able to utilize a material portion of the NOLs
reflected on our balance sheet and for this reason, we have fully reserved against the value of our NOLs on our balance sheet. We
have not completed a Section 382 analysis to determine
31
Table of Contents
if an ownership change has occurred. Until such analysis is completed, we cannot be sure that the full amount of the existing
federal NOLs will be available to us, even if we do generate taxable income before their expiration.
Future
changes
in
financial
accounting
standards
may
cause
adverse
unexpected
net
sales
or
expense
fluctuations
and
affect
our
reported
results
of
operations.
A change in accounting standards could have a significant effect on our reported results and may even affect our
reporting of transactions completed before the change is effective. New pronouncements and varying interpretations of existing
pronouncements have occurred and may occur in the future. Changes to existing rules or current practices may adversely affect
our reported financial results of our business.
Risks Related to Our Intellectual Property and Potential Litigation
If
our
intellectual
property
rights
do
not
adequately
protect
our
products
or
technologies,
others
could
compete
against
us
more
directly,
which
would
hurt
our
profitability.
Our success depends in part on our ability to protect our intellectual property rights. Our intellectual property portfolio
consists of no patents or patent applications, and we do not currently plan to file for patent protection in the future, in the United
States or elsewhere. We instead rely on trade secrets, proprietary know-how and regulatory barriers to protect our products and
technologies and seek protection of our rights, in part, through confidentiality and proprietary information agreements. However,
these agreements may not provide sufficient protection or adequate remedies for violation of our rights in the event of
unauthorized use or disclosure of confidential and proprietary information. Without additional protection under the patent laws,
such unauthorized use or disclosure may enable competitors to duplicate or surpass our technological achievements. Moreover,
the laws of certain foreign countries do not recognize intellectual property rights or protect them to the same extent as do the laws
of the United States. Failure to protect our proprietary rights could seriously impair our competitive position.
The
medical
device
industry
is
characterized
by
patent
litigation
and
we
could
become
subject
to
litigation
that
could
be
costly,
result
in
the
diversion
of
management’s
time
and
efforts,
require
us
to
pay
damages
or
prevent
us
from
marketing
our
existing
or
future
products.
Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights of
others. Significant litigation regarding patent rights occurs in our industry. 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. Generally, we do not conduct independent reviews of
patents issued to third parties. We may not be aware of whether our products do or will infringe existing or future patents. In
addition, patent applications in the United States and elsewhere can be pending for many years, and may be confidential for 18
months or more after filing, and because pending patent claims can be revised before issuance, there may be applications of others
now pending of which we are unaware that may later result in issued patents that will prevent, limit or otherwise interfere with
our ability to make, use or sell our products. We may not be aware of patents that have already issued that a third party might
assert are infringed by our products. It is also possible that patents of which we are aware, but which we do not believe are
relevant to our product candidates, could nevertheless be found to be infringed by our products. 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
increase the risk of business assets and management’s attention being diverted to patent litigation. In the future, we may receive
communications from various industry participants alleging our infringement of their patents, trade secrets or other intellectual
property rights and/or offering licenses to such intellectual property. Any lawsuits resulting from such allegations could subject
us to significant liability for damages and invalidate our proprietary rights, even if they lack merit. 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;
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·
·
·
·
·
incur significant legal expenses;
pay substantial damages or royalties to the party whose intellectual property rights we may be found to be
infringing;
pay the attorney 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/or infeasible; or
attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on
reasonable terms or at all.
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. 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, all of which could have a material adverse effect on our business, results of
operations and financial condition.
In addition, we generally indemnify our customers with respect to infringement by our products of the proprietary rights
of third parties. Third parties may assert infringement claims against our customers. These claims may require us to initiate or
defend protracted and costly litigation on behalf of our customers, regardless of the merits of these claims. If any of these claims
succeed, we may be forced to pay damages on behalf of our customers 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.
We
may
be
subject
to
damages
resulting
from
claims
that
we
or
our
employees
have
wrongfully
used
or
disclosed
alleged
trade
secrets
of
our
competitors
or
are
in
breach
of
non-competition
or
non-solicitation
agreements
with
our
competitors.
Many of our employees were previously employed at other medical device companies, including our competitors or
potential competitors, in some cases until recently. We have been the subject of and may, in the future, be subject to claims that
we, our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other proprietary information of
these former employers or competitors. In addition, we have been and may in the future be subject to claims that we caused an
employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend
against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and
could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may lose
valuable intellectual property rights or personnel. Any litigation or the threat thereof may adversely affect our ability to hire
employees. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product
candidates, which could have an adverse effect on our business, results of operations and financial condition.
We
may
be
subject
to
substantial
warranty
or
product
liability
claims
or
other
litigation
in
the
ordinary
course
of
business
that
may
adversely
affect
our
business,
financial
condition
and
operating
results.
As a supplier of medical devices, we may be subject to substantial warranty or product liability claims alleging that the
use of our products has resulted in adverse health effects or other litigation in the ordinary course of business that may require us
to make significant expenditures to defend these claims or pay damage awards. The breast implant industry has a particularly
significant history of product liability litigation. The risks of litigation exist even with respect to products that have received or in
the future may receive regulatory approval for commercial sale, such as our Breast Products. In addition, our silicone gel breast
implants are sold with a warranty providing for no-charge replacement implants in the
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event of certain ruptures that occur any time during the life of the patient and this warranty also includes cash payments to offset
surgical fees if the rupture occurs within 10 years of implantation.
We maintain product liability insurance, but this insurance is limited in amount and subject to significant
deductibles. There is no guarantee that insurance will be available or adequate to protect against all claims. Our insurance
policies are subject to annual renewal and we may not be able to obtain liability insurance in the future on acceptable terms or at
all. In addition, our insurance premiums could be subject to increases in the future, which may be material. If the coverage limits
are inadequate to cover our liabilities or our insurance costs continue to increase as a result of warranty or product liability claims
or other litigation, then our business, financial condition and operating results may be adversely affected.
Fluctuations
in
insurance
cost
and
availability
could
adversely
affect
our
profitability
or
our
risk
management
profile.
We hold a number of insurance policies, including product liability insurance, directors’ and officers’ liability insurance,
general liability insurance, property insurance, employment practices, and workers’ compensation insurance. If the costs of
maintaining adequate insurance coverage increase significantly in the future, our operating results could be materially adversely
affected. Likewise, if any of our current insurance coverage should become unavailable to us or become economically
impractical, we would be required to operate our business without indemnity from commercial insurance providers. If we operate
our business without insurance, we could be responsible for paying claims or judgments against us that would have otherwise
been covered by insurance, which could adversely affect our results of operations or financial condition.
Risks Related to Our Legal and Regulatory Environment
We
are
subject
to
extensive
federal
and
state
healthcare
regulation,
and
if
we
fail
to
comply
with
applicable
regulations,
we
could
suffer
severe
criminal
or
civil
sanctions
or
be
required
to
restructure
our
operations,
any
of
which
could
adversely
affect
our
business,
financial
condition
and
operating
results.
As a device manufacturer, even though we do not control referrals or bill directly to Medicare, Medicaid or other third-
party payors, we are subject to healthcare fraud and abuse regulation and enforcement by the federal government and the states in
which we conduct our business, as well as other healthcare laws and regulations. The healthcare laws and regulations that may
affect our ability to operate include:
·
·
·
·
the federal Anti-Kickback Statute, which applies to our business activities, including our marketing practices,
educational programs, pricing policies and relationships with healthcare providers, by prohibiting, among other
things, knowingly and willfully soliciting, receiving, offering or providing any remuneration (including any bribe,
kickback or rebate) directly or indirectly, overtly or covertly, in cash or in kind, intended to induce or in return for
the purchase or recommendation of any good, facility, item or service reimbursable, in whole or in part, under a
federal healthcare program, such as the Medicare or Medicaid programs. A person or entity does not need to have
actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to commit a violation.
In addition, following passage of the PPACA violations of the federal Anti-Kickback Statute became per se
violations of the False Claims Act;
federal civil and criminal false claims laws and civil monetary penalty laws, including the federal civil False Claims
Act, or FCA, that prohibit, among other things, knowingly presenting, or causing to be presented, claims for
payment from Medicare, Medicaid or other government payors that are false or fraudulent, or making a false
statement material to an obligation to pay or transmit money or property to the federal government, and which may
apply to entities that provide coding and billing advice to customers;
the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, and its implementing
regulations, which created additional federal criminal laws that prohibit, among other things, knowingly and
willfully executing, or attempting to execute a scheme to defraud any healthcare benefit program or making false
statements relating to healthcare matters ;
and, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or the
HITECH Act, also imposes certain regulatory and contractual requirements on certain types of people and entities
regarding the privacy, security and transmission of individually identifiable health information;
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·
·
the federal Physician Payments Sunshine Act, enacted under the PPACA, which requires certain manufacturers of
drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the
Children’s Health Insurance Program, with specific exceptions, to make annual reports to the Centers for Medicare
& Medicaid Services, or CMS, regarding any “transfers of value” provided to physicians and teaching hospitals.
Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per
year and up to an aggregate of $1 million per year for “knowing failures,” for all payments, transfers of value or
ownership or investment interests that are not timely, accurately, and completely reported in an annual submission.
We are required to report detailed payment data and submit legal attestation to the accuracy of such data by March
31st of each calendar year; and
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply
to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require
device companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance
guidance promulgated by the federal government or otherwise restrict payments that may be provided to healthcare
providers and entities; state laws that require device manufacturers to report information related to payments and
other transfers of value to physicians and other healthcare providers and entities or marketing expenditures; and
state laws governing the privacy and security of certain health information, many of which differ from each other in
significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws, it is possible that some of our business activities, including our relationships with
physicians and other health care providers and entities, some of whom recommend, purchase and/or prescribe our products, could
be subject to challenge under one or more of such laws. Any action against us for violation of these laws, even if we successfully
defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of
our business. If our operations are found to be in violation of any of the laws described above or any other governmental
regulations that apply to us, we may be subject to penalties, including, without limitation, administrative, civil and/or criminal
penalties, damages, fines, disgorgement, contractual damages, reputational harm, exclusion from governmental health care
programs, 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 our financial results.
Our
medical
device
products
and
operations
are
subject
to
extensive
governmental
regulation
both
in
the
United
States
and
abroad,
and
our
failure
to
comply
with
applicable
requirements
could
cause
our
business
to
suffer.
Our medical device products and operations are subject to extensive regulation by the FDA and various other federal,
state and foreign governmental authorities, such as Health Canada. Government regulation of medical devices is meant to assure
their safety and effectiveness, and includes regulation of, among other things:
·
·
·
·
design, development and manufacturing;
testing, labeling, content and language of instructions for use and storage;
clinical trials;
product safety;
· marketing, sales and distribution;
·
·
·
·
regulatory clearances and approvals including pre-market clearance and approval;
conformity assessment procedures;
product traceability and record keeping procedures;
advertising and promotion;
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Table of Contents
·
·
·
·
product complaints, complaint reporting, 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 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.
Before we can market or sell a new regulated product or a significant modification to an existing product in the United
States, we must obtain either clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or FDCA, or an
approval of a pre-market approval, or PMA, application unless the device is specifically exempt from pre-market review. In the
510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the
market, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, in order to clear the
proposed device for marketing. Clinical data is sometimes required to support substantial equivalence. In the PMA approval
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. The PMA process is typically
required for devices for which the 510(k) process cannot be used and that are deemed to pose the greatest risk, such as life-
sustaining, life-supporting or implantable devices. Modifications to products that are approved through a PMA application
generally need FDA approval. Similarly, some modifications made to products cleared through a 510(k) may require a new
510(k). The FDA’s 510(k) clearance process usually takes from three to 12 months, but may 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 submitted to the FDA until an approval is obtained.
In the United States, our silicone gel breast implants are marketed pursuant to a PMA order issued by the FDA in March
2012, and our tissue expanders are marketed pursuant to pre-market clearance under Section 510(k) of the FDCA. 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, our product introductions or modifications could be delayed or canceled, which could cause our sales to
decline. The FDA may demand that we obtain a PMA prior to marketing certain of our future products. In addition, if the FDA
disagrees with our determination that a product we market is subject to an exemption from pre-market review, the FDA may
require us to submit a 510(k) or PMA in order to continue marketing the product. Further, even with respect to those future
products where a PMA is not required, we cannot assure you that we will be able to obtain the 510(k) clearances with respect to
those products.
The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
· we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their
intended uses;
·
·
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.
In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing
regulations, or take other actions that may prevent or delay approval or clearance of our products under development or impact
our ability to modify our currently approved or cleared products on a timely basis. Any change in the laws or regulations that
govern the clearance and approval processes relating to our current and future products could make it more difficult and costly to
obtain clearance or approval for new products, or to produce, market and distribute existing products.
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The FDA could also reclassify some or all of our products that are currently classified as Class II to Class III requiring
additional controls, clinical studies and submission of a PMA for us to continue marketing and selling those products. We cannot
guarantee that the FDA will not reclassify any of our Class II devices into Class III and require us to submit a PMA for FDA
review and approval of the safety and effectiveness of our product. Any delay in, or failure to receive or maintain, clearance or
approval for our products under development could prevent us from generating sales from these products or achieving
profitability. Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or
inquiries, or other increased scrutiny on us, could dissuade some surgeons from using our products and adversely affect our
reputation and the perceived safety and efficacy of our products.
In addition, even after we have obtained the proper regulatory clearance or approval to market a product, the FDA has
the power to require us to conduct post marketing studies. For example, we are required to continue to study and report clinical
results to the FDA on our silicone gel breast implants. Failure to conduct this or other required studies in a timely manner could
result in the revocation of the PMA approval or 510(k) clearance for the product that is subject to such a requirement and could
also result in the recall or withdrawal of the product, which would prevent us from generating sales from that product in the
United States.
Failure to comply with applicable laws and 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 of the FDA or other regulator to grant future clearances or approvals;
· withdrawals or suspensions of current clearances or approvals, resulting in prohibitions on sales of our products;
and/or
·
in the most serious cases, criminal penalties.
Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material
adverse effect on our reputation, business, results of operations and financial condition.
If
we
or
our
third-party
manufacturer
fail
to
comply
with
the
FDA’s
good
manufacturing
practice
regulations,
it
could
impair
our
ability
to
market
our
products
in
a
cost-effective
and
timely
manner.
We and our third-party manufacturer are required to comply with the FDA’s Quality System Regulation, or QSR, which
covers the methods and documentation of the design, testing, production, control, quality assurance, labeling, packaging,
sterilization, storage and shipping of our products. The FDA audits compliance with the QSR through periodic announced and
unannounced inspections of manufacturing and other facilities. The FDA may conduct inspections or audits at any time. If we or
our manufacturer fail to adhere to QSR requirements, have significant non-compliance issues or fail to timely and adequately
respond to any adverse inspectional observations or product safety issues, or if any
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corrective action plan that we or our manufacturer propose in response to observed deficiencies is not sufficient, the FDA could
take enforcement action against us, which could delay production of our products and may include:
·
·
·
·
·
untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;
unanticipated expenditures to address or defend such actions;
customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
operating restrictions or partial suspension or total shutdown of production;
refusing or delaying our requests for 510(k) clearance or premarket approval of new products or modified products;
· withdrawing 510(k) clearances or pre-market approvals that have already been granted;
·
·
refusal to grant export approval for our products; or
criminal prosecution.
Any of the foregoing actions could have a material adverse effect on our reputation, business, financial condition and
operating results. Furthermore, our manufacturer may not currently be or may not continue to be in compliance with all
applicable regulatory requirements, which could result in our failure to produce our products on a timely basis and in the required
quantities, if at all.
There
is
no
guarantee
that
the
FDA
will
grant
510(k)
clearance
or
PMA
approval
of
our
future
products,
and
failure
to
obtain
necessary
clearances
or
approvals
for
our
future
products
would
adversely
affect
our
ability
to
grow
our
business.
Some of our future products may require FDA clearance of a 510(k) or FDA approval of a PMA. The FDA may not
approve or clear these products for the indications that are necessary or desirable for successful commercialization. Indeed, the
FDA may refuse our requests for 510(k) clearance or pre-market approval of new products.
Significant delays in receiving clearance or approval, or the failure to receive clearance or approval for our new products
would have an adverse effect on our ability to expand our business.
If
we
modify
our
FDA
approved
or
cleared
devices,
we
may
need
to
seek
additional
clearances
or
approvals,
which,
if
not
granted,
would
prevent
us
from
selling
our
modified
products.
In the United States, our silicone gel breast implants are marketed pursuant to a PMA order issued by the FDA in March
2012, and our tissue expanders are marketed pursuant to pre-market clearance under Section 510(k) of the FDCA. Any
modifications to a PMA-approved or 510(k)-cleared device that could significantly affect its safety or effectiveness, including
significant design and manufacturing changes, or that would constitute a major change in its intended use, manufacture, design,
components, or technology requires a new 510(k) clearance or, possibly, approval of a new PMA application or PMA
supplement. However, certain changes to a PMA-approved device do not require submission and approval of a new PMA or
PMA supplement and may only require notice to FDA in a PMA 30-Day Notice, Special PMA Supplement – Changes Being
Effected or PMA Annual Report. The FDA requires every manufacturer to make this 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 modified some of our 510(k) cleared products, and have determined based on our review of the
applicable FDA guidance that in certain instances the changes did not require new 510(k) clearances or PMA approvals. If the
FDA disagrees with our determination and requires us to seek new 510(k) clearances or PMA approvals for modifications to our
previously cleared or approved 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. Furthermore, our products could be subject to recall if the FDA determines, for any
reason, that our products are not safe or effective or that appropriate regulatory submissions were not made. Delays in receipt or
failure to receive
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Table of Contents
approvals, the loss of previously received approvals, or the failure to comply with any other existing or future regulatory
requirements, could reduce our sales, profitability and future growth prospects.
A
recall
of
our
products,
either
voluntarily
or
at
the
direction
of
the
FDA
or
another
governmental
authority,
or
the
discovery
of
serious
safety
issues
with
our
products
that
leads
to
corrective
actions,
could
have
a
significant
adverse
impact
on
us.
The FDA and similar foreign governmental authorities 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 an FDA finding that there is reasonable
probability that the device would cause serious injury or death. Manufacturers may also, under their own initiative, recall a
product if any material deficiency in a device is found or withdraw a product to improve device performance or for other
reasons. The FDA requires that certain classifications of recalls be reported to the FDA within 10 working days after the recall is
initiated . A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable
risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and
issues. Similar regulatory agencies in other countries have similar authority to recall devices because of material deficiencies or
defects in design or manufacture that could endanger health. Any recall would divert management attention and financial
resources and could cause the price of our stock to decline, expose us to product liability or other claims and harm our reputation
with customers. Such events could impair our ability to produce our products in a cost-effective and timely manner in order to
meet our customers’ demands. A recall involving our silicone gel breast implants could be particularly harmful to our business,
financial and operating results. Companies are required to maintain certain records of recalls, even if they are not reportable to
the FDA or similar foreign governmental authorities. We may initiate voluntary recalls involving our products in the future that
we determine do not require notification of the FDA or foreign governmental authorities. If the FDA or foreign governmental
authorities disagree with our determinations, they could require us to report those actions as recalls. A future recall
announcement could harm our reputation with customers and negatively affect our sales. In addition, the FDA or a foreign
governmental authority could take enforcement action for failing to report the recalls when they were conducted.
In addition, under the FDA’s medical device reporting regulations, we are required to report to the FDA any incident in
which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the
malfunction were to recur, would likely cause or contribute to death or serious injury. Repeated product malfunctions may result
in a voluntary or involuntary product recall. We are also required to follow detailed recordkeeping requirements for all firm-
initiated medical device corrections and removals, and to report such corrective and removal actions to FDA if they are carried
out in response to a risk to health and have not otherwise been reported under the medical device reporting
regulations. 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. We may also be required to bear other costs or take other actions that may have a negative impact on our sales as well as
face significant adverse publicity or regulatory consequences, which could harm our business, including our ability to market our
products in the future.
Any adverse event involving our products, whether in the United States or abroad, could result in future 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 defending ourselves in a lawsuit, will
require the dedication of our time and capital, distract management from operating our business and may harm our reputation and
financial results.
If
the
third
parties
on
which
we
rely
to
conduct
our
clinical
trials
and
to
assist
us
with
pre-clinical
development
do
not
perform
as
contractually
required
or
expected,
we
may
not
be
able
to
obtain
regulatory
clearance
or
approval
for
or
commercialize
our
products.
We often must rely on third parties, such as contract research organizations, medical institutions, clinical investigators
and contract laboratories to conduct our clinical trials and prepare our regulatory submissions. If these third parties do not
successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to
be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to
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Table of Contents
adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical
trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory clearance or approval for,
or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be
adversely affected. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for
reasons outside of their control.
We
may
be
subject
to
regulatory
or
enforcement
actions
if
we
engage
in
improper
marketing
or
promotion
of
our
products.
Our educational and promotional activities and training methods must comply with FDA and other applicable laws,
including the prohibition of the promotion of a medical device for a use that has not been cleared or approved by the FDA. Use
of a device outside of its cleared or approved indications is known as “off-label” use. Physicians may use our products off-label
in their professional medical judgment, as the FDA does not restrict or regulate a physician’s choice of treatment within the
practice of medicine. However, if the FDA determines that our educational and promotional activities or training constitutes
promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or
enforcement actions, including the issuance of warning letters, untitled letters, fines, penalties, injunctions, or seizures, which
could have an adverse impact on our reputation and financial results. It is also possible that other federal, state or foreign
enforcement authorities might take action if they consider our educational and promotional activities or training methods to
constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such
as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the products
could be impaired. Although our policy is to refrain from statements that could be considered off-label promotion of our
products, the FDA or another regulatory agency could disagree and conclude that we have engaged in off-label promotion. It is
also possible that other federal, state or foreign enforcement authorities might take action if they consider our business activities
constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil
and/or administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs,
and the curtailment or restructuring of our operations. In addition, the off-label use of our products may increase the risk of
product liability claims. Product liability claims are expensive to defend and could divert our management’s attention, result in
substantial damage awards against us, and harm our reputation.
Changes
in
existing
third-party
coverage
and
reimbursement
may
impact
our
ability
to
sell
our
products
when
used
in
breast
reconstruction
procedures.
Maintaining and growing sales of our products when used in breast reconstruction procedures depends, in part, on the
availability of coverage and adequate reimbursement from third-party payors, including government programs such as Medicare
and Medicaid, private insurance plans and managed care programs. Breast augmentation procedures are generally performed on a
cash ‑pay basis and are not covered by third ‑party payors. In contrast, breast reconstruction procedures may be covered by third
‑party payors. Therefore, h ospitals and other healthcare provider customers that purchase our products to use in breast
reconstruction procedures typically bill various third-party payors to cover all or a portion of the costs and fees associated with
the procedures in which our products are used, including the cost of the purchase of our products. Decreases in the amount third-
party payors are willing to reimburse our customers for breast reconstruction procedures using our products could create pricing
pressures for us. T he process for determining whether a third-party payor will provide coverage for a product or procedure may
be separate from the process for establishing the reimbursement rate that such a payor will pay for the product or procedure . A
payor’s decision to provide coverage for a product or procedure does not imply that an adequate reimbursement rate will be
approved. Further, one payor’s determination to provide coverage for a product or procedure does not assure that other payors
will also provide such coverage. Adequate third-party reimbursement may not be available to enable us to maintain our business
in a profitable way . We may be unable to sell our products on a profitable basis if third-party payors deny coverage or reduce
their current levels of payment, or if our costs of production increase faster than increases in reimbursement levels.
Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as
government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced
contract rates with service providers. Therefore, we cannot be certain that the breast reconstruction procedures using our products
will be reimbursed at a cost-effective level. Nor can we be certain that third-party payors using a methodology that sets amounts
based on the type of procedure performed, such as those utilized by government programs and in many privately managed care
systems, will view the cost of our products to be justified so as to incorporate such costs into the
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overall cost of the procedure. Moreover, we are unable to predict what changes will be made to the reimbursement
methodologies used by third-party payors in the future.
To the extent we sell our products internationally, market acceptance may depend, in part, upon the availability of
coverage and reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in
international markets vary significantly by country,
and include both government-sponsored healthcare and private
insurance. We may not obtain international coverage and reimbursement approvals in a timely manner, if at all. Our failure to
receive such approvals would negatively impact market acceptance of our products in the international markets in which those
approvals are sought.
Legislative
or
regulatory
health
care
reforms
may
make
it
more
difficult
and
costly
to
produce,
market
and
distribute
our
products
after
clearance
or
approval
is
obtained,
or
to
do
so
profitably.
Recent political, economic and regulatory influences are subjecting the health care industry to fundamental changes.
Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation
and regulations designed to contain or reduce the cost of health care, improve quality of care, and expand access to healthcare,
among other purposes. Such legislation and regulations may result in decreased reimbursement for medical devices and/or the
procedures in which they are used, which may further exacerbate industry-wide pressure to reduce the prices charged for medical
devices. This could harm our ability to market and generate sales from our products.
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 regulations or revisions or reinterpretations of existing regulations may impose
additional costs or lengthen review times of our products.
Federal and state governments in the United States have recently enacted legislation to overhaul the nation’s health care
system. For example, in March 2010, the PPACA was signed into law. While one goal of health care reform is to expand
coverage to more individuals, it also involves increased government price controls, additional regulatory mandates and other
measures designed to constrain medical costs. The PPACA substantially changes the way healthcare is financed by both
governmental and private insurers, encourages improvements in the quality of healthcare items and services and significantly
impacts the medical device industry. Among other ways in which the PPACA significantly impacts our industry, the PPACA:
·
·
·
·
·
imposes an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in
the United States, with limited exceptions;
expands eligibility criteria for Medicaid programs;
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;
implements 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 health care
services through bundled payment models; and
creates an independent payment advisory board that will submit recommendations to Congress to reduce Medicare
spending if projected Medicare spending exceeds a specified growth rate.
The medical device excise tax has been suspended by the CAA, with respect to medical device sales during calendar
years 2016 and 2017. Absent further Congressional action, this excise tax will be reinstated for medical device sales beginning
January 1, 2018. The CAA also temporarily delays implementation of other taxes intended to help fund PPACA programs. We
are unsure of the full impact that the PPACA will have on our business. There have been judicial and Congressional challenges to
certain aspects of the PPACA, and we expect there will be additional challenges and amendments in the future.
In addition, other legislative changes have been proposed and adopted since the PPACA was enacted. For example, on
August 2, 2011, the President signed into law the Budget Control Act of 2011, which, among other things,
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created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint
Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering
the legislation’s automatic reduction to several government programs. This includes reductions to Medicare payments to
providers of 2% per fiscal year, which went into effect on April 1, 2013 , following passage of the Bipartisan Budget Act of 2015,
and will stay in effect through 202 5 unless additional Congressional action is taken. Additionally, on January 2, 2013, President
Obama signed into law the A TRA, which, among other things, reduced Medicare payments to several providers, including
hospitals, imaging centers and cancer treatment centers and increased the statute of limitations period for the government to
recover overpayments to providers from three to five years.
In the future there may continue to be additional proposals relating to the reform of the U.S. healthcare system. Certain
of these proposals could limit the prices we are able to charge for our products, or the amount of reimbursement available for our
products, and could limit the acceptance and availability of our products, any of which could have a material adverse effect on our
business, results of operations and financial condition.
If
we
fail
to
obtain
and
maintain
regulatory
approval
in
Canada,
our
market
opportunities
will
be
limited.
In order to market our products in Canada, we must obtain and maintain separate regulatory approvals and comply with
numerous and varying regulatory requirements. We are currently not able to obtain Health Canada’s approval to market our
breast implant products in Canada due to the suspension of Silimed’s ISO 13485 certificate. Even if Silimed’s ISO certification is
reinstated, the time required to obtain regulatory approval in Canada may be longer than the time required to obtain FDA pre-
market approval and Health Canada may want additional information prior to approval as well . The Canadian regulatory
approval process includes many of the risks associated with obtaining FDA approval and we may not obtain Canadian regulatory
approval on a timely basis, if at all. FDA approval does not ensure approval by regulatory authorities in other countries, including
Canada, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign
countries. However, the failure to obtain clearance or approval in one jurisdiction may have a negative impact on our ability to
obtain clearance or approval elsewhere. If we do not obtain or maintain necessary approvals to commercialize our products in
Canada, it would negatively affect our overall market penetration.
Our
customers
and
much
of
our
industry
are
required
to
be
compliant
under
the
federal
Health
Insurance
Portability
and
Accountability
Act
of
1996,
the
Health
Information
Technology
for
Economic
and
Clinical
Health
Act
and
implementing
regulations
(including
the
final
Omnibus
Rule
published
on
January
25,
2013)
affecting
the
transmission,
security
and
privacy
of
health
information,
and
failure
to
comply
could
result
in
significant
penalties.
Numerous federal and state laws and regulations, including HIPAA, and the Health Information Technology for
Economic and Clinical Health Act, or the HITECH Act, govern the collection, dissemination, security, use and confidentiality of
health information that identifies specific patients. HIPAA and the HITECH Act require our surgeon and hospital customers to
comply with certain standards for the use and disclosure of health information within their companies and with third parties. The
Privacy Standards and Security Standards under HIPAA establish a set of standards for the protection of individually identifiable
health information by health plans, health care clearinghouses and certain health care providers, referred to as Covered Entities,
and the Business Associates with whom Covered Entities enter into service relationships pursuant to which individually
identifiable health information may be exchanged. Notably, whereas HIPAA previously directly regulated only these Covered
Entities, the HITECH Act, which was signed into law as part of the stimulus package in February 2009, makes certain of
HIPAA’s privacy and security standards also directly applicable to Covered Entities’ Business Associates. As a result, both
Covered Entities and Business Associates are now subject to significant civil and criminal penalties for failure to comply with
Privacy Standards and Security Standards.
HIPAA requires Covered Entities (like our customers) and Business Associates to develop and maintain policies and
procedures with respect to protected health information that is used or disclosed, including the adoption of administrative,
physical and technical safeguards to protect such information. The HITECH Act expands the notification requirement for
breaches of patient-identifiable health information, restricts certain disclosures and sales of patient-identifiable health information
and provides for civil monetary penalties for HIPAA violations. The HITECH Act also increased the civil and criminal penalties
that may be imposed against Covered Entities and Business Associates and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney fees and costs associated
with pursuing federal civil actions. Additionally, certain states have adopted comparable privacy and security laws and
regulations, some of which may be more stringent than HIPAA.
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We are not currently required to comply with HIPAA or HITECH because we are neither a Covered Entity nor a
Business Associate (as that term is defined by HIPAA). However, in administering our warranties and complying with FDA -
required device tracking, we do regularly handle confidential and personal information similar to that which these laws seek to
protect. We also occasionally encounter hospital customers who pressure us to sign Business Associate Agreements, or BAAs,
although, to date, we have refused, given that we do not believe we are business associates to such Covered Entities under HIPAA
or HITECH. If the law or regulations were to change or if we were to agree to sign a BAA, the costs of complying with the
HIPAA standards are burdensome and could have a material adverse effect on our business. In addition, under such situations
there would be significant risks and financial penalties for us if we were then found to have violated the laws and regulations that
pertain to Covered Entities and Business Associates.
We are unable to predict what changes to the HIPAA Privacy Standards and Security Standards might be made in the
future or how those changes could affect our business. Any new legislation or regulation in the area of privacy and security of
personal information, including personal health information, could also adversely affect our business operations. If we do not
comply with existing or new applicable federal or state laws and regulations related to patient health information, we could be
subject to criminal or civil sanctions and any resulting liability could adversely affect our financial condition.
An
adverse
outcome
of
a
sales
and
use
tax
audit
could
have
a
material
adverse
effect
on
our
results
of
operations
and
financial
condition.
We sell our products in all 50 states and each state (and some local governments) has its own sales tax laws and
regulations. We charge each of our customers sales tax on each order and report and pay that tax to the appropriate state
authority, unless we believe there is an applicable exception. In some states, there are no available exceptions; in some states, we
believe our products can be sold tax free. In other states, we believe we can sell our products tax free only for customers who
request tax-exempt treatment due to the nature of the devices we sell or due to the nature of the customer’s use of our device. We
may be audited by the taxing authorities of one or more states and there can be no assurance, however, that an audit will be
resolved in our favor. Such an audit could be expensive and time-consuming and result in substantial management distraction. If
the matter were to be resolved in a manner adverse to us, it could have a material adverse effect on our results of operations and
financial condition.
Risks Related to Our Common Stock
Our
stock
price
may
be
volatile,
and
you
may
not
be
able
to
resell
shares
of
our
common
stock
at
or
above
the
price
you
paid.
The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in
response to various factors, some of which are beyond our control. For example, our common stock price declined from $20.58
to $2.78 from September 23, 2015 to November 17, 2015 as a result of the recent events concerning Silimed. These factors
include those discussed in this “Risk Factors” section of this Form 10- K and others such as:
·
·
·
·
·
·
·
a determination that our Silimed-manufactured products are not in compliance with regulatory requirements, or its
facilities are not maintained in compliance with regulatory requirements;
a slowdown in the medical device industry, the aesthetics industry or the general economy;
actual or anticipated quarterly or annual variations in our results of operations or those of our competitors;
changes in accounting principles or changes in interpretations of existing principles, which could affect our financial
results;
actual or anticipated changes in our growth rate relative to our competitors;
changes in earnings estimates or recommendations by securities analysts;
fluctuations in the values of companies perceived by investors to be comparable to us;
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·
·
·
·
·
·
·
·
·
announcements by us or our competitors of new products or services, significant contracts, commercial
relationships, capital commitments or acquisitions;
competition from existing technologies and products or new technologies and products that may emerge;
the entry into, modification or termination of agreements with our sales representatives or distributors;
developments with respect to intellectual property rights;
sales, or the anticipation of sales, of our common stock by us, our insiders or our other stockholders, including upon
the expiration of contractual lock-up agreements;
our ability to develop and market new and enhanced products on a timely basis;
our commencement of, or involvement in, litigation;
additions or departures of key management or technical personnel; and
changes in laws or governmental regulations applicable to us.
In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may
significantly affect the market price of our common stock, regardless of our actual operating performance.
We
and
certain
of
our
executive
officers
and
directors
have
been
named
as
defendants
in
recently
initiated
securities
class
action
lawsuit
that
could
result
in
substantial
costs
and
divert
management’s
attention.
On September 25, 2015, a lawsuit styled as a class action of our stockholders was filed in the United States District
Court for the Central District of California. The lawsuit names us and certain of our officers as defendants and alleges violations
of Sections 10(b) and 20(a) of the Exchange Act in connection with allegedly false and misleading statements concerning our
business, operations, and prospects. On October 28, November 5, and November 19, 2015, three lawsuits styled as class
actions of our stockholders were filed in the Superior Court of California for the County of San Mateo. The lawsuits name us ,
certain of our officers and directors, and the underwriters associated with our follow-on public offering that closed on September
23, 2015 as defendants and alleges violations of Sections 11, 12(a)(2), and 15 of the Securities Act in connection with allegedly
false and misleading statements in our offering documents associated with the follow-on offering concerning our business,
operations, and prospects. We intend to engage in a vigorous defense of such litigation. If we are not successful in our defense of
such litigation, we could be forced to make significant payments to or other settlements with our stockholders and their lawyers,
and such payments or settlement arrangements could have a material adverse effect on our business, operating results or financial
condition. Even if these claims are not successful, the litigation could result in substantial costs and significant adverse impact on
our reputation and divert management’s attention and resources, which could have a material adverse effect on our business,
operating results or financial condition.
We
do
not
anticipate
paying
any
cash
dividends
in
the
foreseeable
future,
and
accordingly,
stockholders
must
rely
on
stock
appreciation
for
any
return
on
their
investment.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. As a result,
capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
Our
executive
officers,
directors
and
principal
stockholders
own
a
significant
percentage
of
our
stock
and
will
be
able
to
exert
significant
control
over
matters
subject
to
stockholder
approval.
As of March 7, 2016, our executive officers, directors and principal stockholders beneficially owned approximately
50.7% of our outstanding voting stock. As a result, these stockholders have the ability to influence us through their ownership
position and may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to
control elections of directors, amendments of our organizational documents, or approval
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of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition
proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.
We
are
an
“emerging
growth
company”
and
intend
to
take
advantage
of
reduced
disclosure
requirements
applicable
to
emerging
growth
companies,
which
could
make
our
common
stock
less
attractive
to
investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain
exemptions from various reporting requirements that apply to other public companies that are not “emerging growth companies.”
As an emerging growth company:
· we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our
internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;
· we are permitted to provide less extensive disclosure about our executive compensation arrangements in our
periodic reports, proxy statements and registration statements; and
· we are not required to give our stockholders non-binding advisory votes on executive compensation or golden
parachute arrangements.
In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition
period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this
exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are
not emerging growth companies.
We may remain an emerging growth company until December 31, 2019 (the last day of the fiscal year following the fifth
anniversary of our initial public offering). However, if certain events occur prior to the end of such five-year period, including if
we become a “large accelerated filer,” our annual gross revenue equals or exceeds $1.0 billion or we issue more than $1.0 billion
of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-
year period.
We
have
incurred
increased
costs
as
a
result
of
operating
as
a
public
company
and
our
management
is
required
to
devote
substantial
time
to
new
compliance
initiatives
and
corporate
governance
practices.
As a public company, and increasingly after we are no longer an “emerging growth company,” we will incur significant
legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act and rules
subsequently implemented by the SEC and NASDAQ impose numerous requirements on public companies, including
establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Also, the
Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and
operating results. Our management and other personnel will need to devote a substantial amount of time to compliance with these
laws and regulations. These requirements have increased and will continue to increase our legal, accounting and financial
compliance costs and have made and will continue to make some activities more time consuming and costly. For example, we
expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability
insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These rules and
regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our
board committees or as executive officers.
Overall, our incremental costs resulting from operating as a public company, including compliance with these rules and
regulations, was approximately $3.2 million for the year ended December 31, 2015 . However, these rules and regulations are
often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing
uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance
practices.
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As
a
public
company,
we
are
required
to
assess
our
internal
control
over
financial
reporting
on
an
annual
basis,
and
any
future
adverse
results
from
such
assessment
could
result
in
a
loss
of
investor
confidence
in
our
financial
reports
and
have
an
adverse
effect
on
our
stock
price.
As a public company, we are required to comply with certain of the requirements of Section 404 of the Sarbanes-Oxley
Act of 2002, as amended, regarding internal control over financial reporting. However, for as long as we remain an “emerging
growth company” as defined in the JOBS Act, we intend to utilize the provision exempting us from the requirement that our
independent registered public accounting firm provide an attestation on the effectiveness of our internal control over financial
reporting
Prior to becoming a public company, we were not required to comply with the requirements of Section 404 but
previously we had identified two material weaknesses in our internal control over financial reporting for certain financial
statement periods included in this report. A “material weakness” is a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. The identified material weaknesses related to our not
having properly designed controls in place to account for complex debt and equity transactions, including preferred stock and
warrants associated with debt issuances, and to record bonus accrual and related expense in the appropriate period. While we
believe we have remediated these previously reported material weaknesses, we cannot assure you that we will not be required to
take further remedial action with respect to those material weaknesses or that there will not be material weaknesses or significant
deficiencies in our internal controls in the future.
The process of becoming fully compliant with Section 404 may divert internal resources and will take a significant
amount of time and effort to complete, and may result in additional deficiencies and material weaknesses being identified by us or
our independent registered public accounting firm. We may experience higher than anticipated operating expenses, as well as
increased independent registered public accounting firm fees during the implementation of any required changes and thereafter.
Completing documentation of our internal control system and financial processes, remediation of control deficiencies and
management testing of internal controls will require substantial effort by us. If our internal control over financial reporting or our
related disclosure controls and procedures are not effective, we may not be able to accurately report our financial results or file
our periodic reports in a timely manner, which may cause investors to lose confidence in our reported financial information and
may lead to a decline in our stock price.
Sales
of
a
substantial
number
of
shares
of
our
common
stock
in
the
public
market
could
cause
our
stock
price
to
decline.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales,
or the perception in the market that our officers, directors or the holders of a large number of shares of common stock intend to
sell shares, could reduce the market price of our common stock. As of March 7, 2016, we had approximately 18,066,345 shares
of common stock outstanding. Of these shares, all of the shares of our common stock sold in our initial public offering, which was
completed on November 3, 2014, and all of the shares sold in our follow-on public offering, which was completed on September
23, 2015 are freely tradable, without restriction, in the public market.
Each of our directors and officers and substantially all of our stockholders, optionholders and warrantholders entered
into lock-up agreements with the underwriters in connection with our initial public offering and our follow-on public offering.
The lock-up agreements for the IPO expired on April 27, 2015, and the lock-up agreements for the follow-on public offering
expired on December 23, 2015. Based on shares outstanding as of March 7, 2016, and information contained in Form 4s and
Schedule 13Gs filed with the SEC, up to an additional 4,947,083 shares of common stock became eligible for sale in the public
market, approximately 17,306 of which are held by our executive officers and directors and approximately 4,929,777 of which are
held by our affiliates (including stockholders affiliated with our directors) and subject to volume limitations under Rule 144 under
the Securities Act.
Holders of an aggregate of approximately 6,287,277 shares of our common stock have rights, subject to some
conditions, to require us to file registration statements covering their shares or to include their shares in registration statements
that we may file for ourselves or other stockholders.
As of March 7, 2016 , options to purchase an aggregate of 2,217,238 shares of our common stock were outstanding
under our 2007 Plan and our 2014 Plan, which have been registered on a Registration Statement on Form S-8, and an additional,
672,612 shares of common stock are reserved for issuance under our 2014 Plan are registered on the Registration Statement on
Form S-8. These shares can be freely sold in the public market upon issuance and once vested.
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In addition , on March 7, 2016, we adopted an Inducement Plan pursuant to which our board of directors may grant stock
options or restricted stock units which may be exercised or settled, as applicable, for up to an aggregate of 180,000 shares of our
common stock, to new employees as inducement material to such new employees entering into employment with us. We intend
to register the 180,000 shares of common stock reserved pursuant to our Inducement Plan on a Registration Statement on Form S-
8 after which shares issued pursuant to options or restricted stock awards granted under the Inducement Plan may be freely sold in
the public market once vested.
We cannot predict what effect, if any, sales of our shares in the public market or the availability of shares for sale will
have on the market price of our common stock. Future sales of substantial amounts of our common stock in the public market,
including shares issued upon exercise of outstanding options or warrants, or the perception that such sales may occur, however,
could adversely affect the market price of our common stock and also could adversely affect our future ability to raise capital
through the sale of our common stock or other equity-related securities of ours at times and prices we believe appropriate.
Future
sales
and
issuances
of
our
common
stock
or
rights
to
purchase
common
stock
,
including
pursuant
to
our
equity
incentive
plans,
could
result
in
additional
dilution
of
the
percentage
ownership
of
our
stockholders
and
could
cause
our
stock
price
to
fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including
conducting clinical trials, commercialization efforts, expanded research and development activities and costs associated with
operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one
or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or
other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to
our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common
stock.
Pursuant to the 2014 Plan, our management is authorized to grant stock options to our employees, directors and
consultants.
As of December 31, 2015, the number of shares of common stock reserved for issuance under our 2014 plan was
1,325,759 . The number of shares of our common stock reserved for issuance under the 2014 Plan automatically increase s on
January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 4% of the total
number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares
determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for future
grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall. Pursuant to the
foregoing provision, effective January 1, 2016, our board of directors increased the number of shares of common stock reserved
for issuance under the 2014 Plan by 4% of the number of shares of our capital stock outstanding on December 31, 201 5 , or
719,736 shares.
Our board of directors adopted our ESPP in July 2014 and our stockholders approved the ESPP in October 2014. Our
ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. The ESPP became effective upon
the completion of the IPO. As of December 31, 2015, the number of shares of common stock reserved for issuance under our
ESPP was 404,629 . The number of shares of our common stock reserved for issuance under the ESPP a utomatically increase s
on January 1 of each year, beginning on January 1, 2015 and continuing through and includi ng January 1, 2024, by 1 % of the
total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of
shares determined by our board of directors. Unless our board of directors elects not to increase the number of shares available for
future grant each year, our stockholders may experience additional dilution, which could cause our stock price to fall. Pursuant to
the foregoing provision, effective January 1, 2016, our board of directors increased the number of shares of common stock
reserved for issuance under the ESPP by 1 % of the number of shares of our capital stock outstanding on December 31, 201 5 ,
or 179,934 shares.
Pursuant to our Inducement Plan, our board of directors is authorized to grant stock options or restricted stock units
which may be exercised or settled, as applicable, for up to an aggregate of 180,000 shares of our common stock to new employees
as inducements material to such new employees entering into employment with us. The number of shares which may be granted
under the Inducement Plan may be increased in the future by our board of directors.
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Table of Contents
Our
management
team
may
invest
or
spend
the
proceeds
from
our
IPO
and
our
follow-on
public
offering
in
ways
with
which
you
may
not
agree
or
in
ways
which
may
not
yield
a
return.
Our management has considerable discretion in the application of the net proceeds from our public offerings, and you
will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately.
Because of the number and variability of factors that will determine our use of the net proceeds from our public offerings, their
ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways
that ultimately increase the value of your investment. We expect that we will use the net proceeds from our public offerings for
the following purposes: (i) we may acquire or invest in complementary products, technologies, businesses or international
expansion opportunities; however, we currently have no agreements or commitments to complete any such transaction, and (ii)
for working capital and other general corporate purposes. We also used a portion of the net proceeds from our public offerings to
repay our long-term debt. The failure by our management to apply these funds effectively could harm our business. Pending their
use, we may invest the net proceeds from our public offerings in high-quality, short-term interest- bearing obligations,
investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. These
investments may not yield a favorable return to our stockholders. If we do not invest or apply the net proceeds from our public
offerings in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock
price to decline.
Anti-takeover
provisions
in
our
organizational
documents
and
under
Delaware
law
may
discourage
or
prevent
a
change
of
control,
even
if
an
acquisition
would
be
beneficial
to
our
stockholders,
which
could
reduce
our
stock
price
and
prevent
our
stockholders
from
replacing
or
removing
our
current
management.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could
delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider
favorable. Some of these provisions include:
·
·
·
·
·
·
·
a board of directors divided into three classes serving staggered three-year terms, such that not all members of the
board will be elected at one time;
a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a
meeting of our stockholders;
a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the
chief executive officer, or by a majority of the total number of authorized directors;
advance notice requirements for stockholder proposals and nominations for election to our board of directors;
a requirement that no member of our board of directors may be removed from office by our stockholders except for
cause and, in addition to any other vote required by law, upon the approval of not less than two-thirds of all
outstanding shares of our voting stock then entitled to vote in the election of directors;
a requirement of approval of not less than two-thirds of all outstanding shares of our voting stock to amend any
bylaws by stockholder action or to amend specific provisions of our certificate of incorporation; and
the authority of the board of directors to issue preferred stock on terms determined by the board of directors without
stockholder approval and which preferred stock may include rights superior to the rights of the holders of common
stock.
We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which may
prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other
provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it
more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed
by our then-current board of directors, including a merger, tender offer or proxy contest involving our Company. Any delay or
prevention of a change of control transaction or changes in our board of directors could cause the market price of our common
stock to decline.
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Table of Contents
If
securities
or
industry
analysts
issue
an
adverse
or
misleading
opinion
regarding
our
stock,
our
stock
price
and
trading
volume
could
decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities
analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding
us, our business model, our intellectual property or our stock performance, or if our clinical trials and operating results fail to
meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us, or
fail to publish reports on us regularly, including the recent suspension of our rating by certain analysts as a result of recent events
involving Silimed, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to
decline.
Item 1B. Unresolved Staff Comment s
Not applicable.
Item 2. Propertie s
Our headquarters located in Santa Barbara, California is approximately 20,000 square feet. The term of the lease for our
headquarters expires in February 2020. We also lease warehouse space s located in Santa Barbara, California, which is
approximately 10,000 square feet . The lease term expir es in January 201 9 . We believe that our existing facilities are
adequate for our current needs. As additional space is needed in the future, we believe that suitable space will be available in the
required locations on commercially reasonable terms.
Item 3. Legal Proceeding s
On September 25, 2015, a lawsuit styled as a class action of the Company’s stockholders was filed in the United States
District Court for the Central District of California. The lawsuit names the Company and certain of our officers as defendants
and alleges violations of Sections 10(b) and 20(a) of the Exchange Act in connection with allegedly false and misleading
statements concerning our business, operations, and prospects. The plaintiff seeks damages and an award of reasonable costs
and expenses, including attorneys’ fees. On November 24, 2015, three stockholders (or groups of stockholders) filed motions to
appoint lead plaint i ff(s) and to approve their selection on lead counsel. On December 10, 2015, the court entered an order
appointing lead plaintiffs and approving their selection of lead counsel. On February 19, 2016, lead plaintiffs filed their
consolidated amended complaint.
On October 28, November 5 , and November 19 , 2015, three lawsuits styled as class actions of the Company’s
stockholders were filed in the Superior Court of California for the County of San Mateo. The lawsuits name the Company ,
certain of our officers and directors, and the underwriters associated with our follow-on public offering that closed on
September 23, 2015 as defendants. The lawsuits allege violations of Sections 11, 12(a)(2), and 15 of the Securities Act in
connection with allegedly false and misleading statements in our offering documents associated with the follow-on offering
concerning our business , operations, and prospects. The plaintiffs seek damages and an award of reasonable costs and expenses,
including attorneys’ fees. On December 4, 2015, defendants removed all three lawsuits to the United States District Court for the
Northern District of California. On December 15 and December 16, 2015, plaintiffs filed motions to remand the lawsuits back to
San Mateo Superior Court , or the Motions to Remand. On January 19, 2016, defendants filed their opposition to the Motions to
Remand, and plaintiffs filed their reply in support of the Motions to Remand on January 26, 2016.
It is possible that additional suits will be filed, or allegations made by stockholders, with respect to these same or other
matters and also naming the Company and/or our officers and directors as defendants. We believe we have meritorious defenses
and intend to defend these lawsuits vigorously. Due to the early stage of these proceedings, we are not able to predict or
reasonably estimate the ultimate outcome or possible losses relating to these claims.
Item 4. Mine Safety Disclosure s
Not applicable.
49
Table of Contents
PART I I
Item 5. Market for Registrant’s Common Equit y, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock has been traded on the NASDAQ Global Select Market under the symbol “SIEN” since our initial
public offering on October 29, 2014. Prior to this time, there was no public market for our common stock. The following table
shows the high and low sale prices per share of our common stock as reported on the NASDAQ Global Select Market for the
periods indicated:
Year ended December 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year ended December 31, 2014
Fourth Quarter (beginning October 29, 2014)
High
Low
$
$
20.93
26.67
25.94
10.61
14.02
15.93
9.38
2.78
$
19.99
$
12.53
On March 7, 2016 , the last reported sale price for our common stock on the NASDAQ Global Select Market was $8.07
per share.
Stock Performance Graph
The graph set forth below compares the cumulative total stockholder return on our common stock between October 29,
2014 (the date of our initial public offering) and December 31, 2015, with the cumulative total return of (a) the NASDAQ Health
Care Index and (b) the NASDAQ Composite Index, over the same period. This graph assumes the investment of $100 on
October 29, 2014 in our common stock, the NASDAQ Health Care Index and the NASDAQ Composite Index and assumes the
reinvestment of dividends, if any. The graph assumes our closing sales price on October 29, 2014 of $16.75 per share as the initial
value of our common stock and not the initial offering price to the public of $15.00 per share.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance
shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our
common stock. Information used in the graph was obtained from the Nasdaq Stock Market LLC, a financial data provider and a
source believed to be reliable. The Nasdaq Stock Market LLC is not responsible for any errors or omissions in such information.
50
Table of Contents
CUMULATIVE TOTAL RETURN SUMMARY
December 201 5
This performance graph shall not be deemed filed for purposes of Section 18 of the Exchange Act or otherwise subject to
liabilities under that section and shall not be deemed to be incorporated by reference into any filing of Sientra, Inc. under the
Securities Act, except as shall be expressly set forth by specific reference in such filing.
Holders of Record
As of March 7, 2016 , there were approximately 118 holders of record of our common stock. The actual number of
stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares
are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose
shares may be held in trust by other entities.
Dividends
We have not paid any cash dividends on our common stock since inception and do not anticipate paying cash dividends
in the foreseeable future.
Securities A uthorized for I ssuance u nder E quity C ompensation P lans
Information about our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual
Report on Form 10 ‑K.
Use of Proceeds from Public Offering of Common Stock
On November 3, 2014, we closed the sale of 5,750,000 shares of common stock to the public (inclusive of 750,000
shares of common stock sold by us pursuant to the full exercise of an overallotment option granted to the underwriters) at a price
of $15.00 per share. The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to registration
statements on Form S ‑1 (File No. 333 ‑198837), which was filed with the SEC, on September 19, 2014 and amended
subsequently and declared effective on October 28, 2014. Piper Jaffray & Co. and Stifel, Nicolaus & Company, Incorporated
acted as managing underwriters of the offering. We raised approximately $77.0 million in net proceeds after deducting
underwriting discounts and commissions of approximately $6.0 million and other offering expenses of approximately
$3.2 million. None of these expenses consisted of payments made by us to directors, officers or persons owning 10% or more of
our common stock or to their associates, or to our affiliates.
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Table of Contents
On September 23, 2015, we closed the sale of 3,000,000 shares of common stock in a f ollow-on public offering at a
price of $22.00 per share. The offer and sale of the shares in the follow-on offering were registered under the Securities Act
pursuant to registration statements on Form S-1 (File No. 333-206755), which was filed with the SEC and declared effective on
September 17, 2015. Piper Jaffray & Co. and Stifel, Nicolaus & Company, Incorporated acted as joint book-running managers
and Leerink Partners, LLC and William Blair & Company, LLC . acted as co-managers. We raised approximately $61.4 million
in net proceeds after deducting underwriting discounts and commissions of approximately $4.0 million and other offering
expenses of approximately $0.6 million. None of these expenses consisted of payments made by us to directors, officers or
persons owning 10% or more of our common stock or to their associates, or to our affiliates.
Upon receipt, the net proceeds from our IPO and our follow-on public offering were held in cash and cash equivalents,
primarily bank money market accounts. There has been no material change in our planned use of the net proceeds from the
offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on October 29,
2014, or from our follow-on public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under
the Securities Act on September 23, 2015. The amount and timing of our actual expenditures depend on numerous factors,
including the ongoing status of and results from clinical trials, as well as any unforeseen cash needs. Accordingly, our
management will have broad discretion in the application of the net proceeds.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
There were no repurchases of shares of common stock made during the year ended December 31, 2015 .
Item 6. Selected Financial Dat a
The following selected financial data should be read in conjunction with “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”, the financial statements and related notes, and other financial information
included in this Annual Report on Form 10 ‑K.
We derived the financial data for the years ended December 31, 2015 , 2014 and 2013 and as of December 31, 2015
and 2014 from our financial statements, which are included elsewhere in this Annual Report on Form 10 ‑K. The financial data
for the year ended December 31, 2012 and as of December 31, 2013 are derived from audited financial statements which are not
included in this Form 10-K. Historical results are not necessarily indicative of the results to be expected in future periods.
Statement of operations data
Net sales
Gross profit
Net loss
Net loss per share
Basic and diluted
Weighted average shares
Basic and diluted
Balance sheet data
Working capital
Total assets
Long-term debt, excluding current position
Stockholders' equity (deficit)
Year Ended December 31,
2015
2014
2013
2012
(in thousands, except share data)
$
38,106 $
27,452
(41,230)
44,733 $ 35,171 $ 10,447
26,579
33,233
8,095
(23,433)
(19,125)
(5,811)
$
(2.61) $
(2.28) $
(82.25) $
(85.01)
15,770,972
2,545,371
232,512
275,642
As of December 31,
2015
2014
2013
(in thousands)
$ 118,609 $ 103,151 $
140,805
—
118,871
139,078
21,671
95,639
52
24,509
53,166
15,092
(126,673)
Table of Contents
Item 7. Management’s Discussion and Analysi s 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 financial statements and related notes appearing elsewhere in this Annual Report on Form 10 ‑K. This discussion
contains forward ‑looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual
results and the timing of certain events could differ materially from those anticipated in these forward ‑looking statements as a
result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and
elsewhere in this Annual Report. See “Special Note Regarding Forward ‑Looking Statements” in this Annual Report.
Overview
We are a medical aesthetics company committed to making a difference in patients’ lives by enhancing their body
image, growing their self ‑esteem and restoring their confidence. We were founded to provide greater choice to board ‑certified
plastic surgeons and patients in need of medical aesthetics products. We have developed a broad portfolio of products with
technologically differentiated characteristics, supported by independent laboratory testing and strong clinical trial outcomes. We
sell our breast implants and breast tissue expanders, or Breast Products, exclusively to board-certified and board-admissible
plastic surgeons and tailor our customer service offerings to their specific needs, which we believe helps secure their loyalty and
confidence.
Our primary products are silicone gel breast implants for use in breast augmentation and breast reconstruction
procedures, which we offer in over 195 variations of shapes, sizes , fill volumes and textures. Our breast implants are primarily
used in elective procedures which are generally performed on a cash ‑pay basis. Many of our breast implants incorporate one or
more differentiated technologies, including a proprietary high ‑strength, cohesive silicone gel and proprietary texturing branded
TRUE Texture ® . Our breast implants offer a desired balance between strength, shape retention and softness due to the high-
strength, cohesive silicone gel used in our manufacturing process. TRUE Texture ® provides texturing on the implant shell that is
designed to reduce the incidence of malposition, rotation and capsular contracture. We also offer breast tissue expanders and a
range of other aesthetic and specialty products. We do not have any patents or patent applications, but rely on trade secrets,
proprietary know ‑how and regulatory barriers to protect our products and technologies.
Our breast implants were approved by the U.S. Food and Drug Administration, or FDA, in 2012, based on data we
collected from our ongoing, long ‑term clinical trial of our breast implants in 1,788 women across 36 investigational sites in the
United States , which included 3,506 implants (approximately 53% of which were smooth and 47% of which were textured). Our
clinical trial is the largest prospective, long-term safety and effectiveness pivotal study of breast implants in the United States and
included the largest magnetic resonance imaging, or MRI, cohort with 571 patients. The MRI cohort is a subset of study patients
that underwent regular MRI screenings in addition to the other aspects of the clinical trial protocol prior to FDA approval. Post-
approval, all patients in the Study are subject to serial MRI screening as part of the clinical protocol . The clinical data we
collected over an eight-year follow-up period demonstrated rupture rates, capsular contracture rates and reoperation rates that
were comparable to or better than those of our competitors, at similar time points. In addition to our pivotal study, our clinical
data is supported by our Continued Access Study of 2,497 women in the United States. We have also commissioned a number of
bench trials run by independent laboratories that we believe further demonstrate the advantages of our breast implants over those
of our competitors .
We sell our Breast Products exclusively to board-certified and board-admissible plastic surgeons, who we refer to as
Plastic Surgeons. We seek to provide Plastic Surgeons with differentiated services, including enhanced customer service
offerings, a ten-year limited warranty that is the best-in-the-industry based on providing patients with the largest cash
reimbursement for certain out-of-pocket costs related to revision surgeries in a covered event; a lifetime no-charge implant
replacement program for covered ruptures; and our industry-first CapCon Care Program, or C3 Program, through which we offer
no-charge replacement implants to breast augmentation patients who experience capsular contracture within the first five years
after implantation with our smooth or textured breast implants .
We sell our products in the United States through a direct sales organization consisting of 51 employees, including 43
sales representatives and 8 sales managers, as of December 31, 2015 .
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Silimed Related Developments
On September 23, 2015, MHRA, an executive agency of the U.K., issued a press release announcing the suspension of sales and
implanting in U.K . of all medical devices manufactured by Silimed following the suspension of the CE certificate of these
products issued by TUV SUD, Silimed’s notified body under EU regulation. The suspension of Silimed’s CE certificate by TUV
SUD followed TUV SUD’s inspection at Silimed’s manufacturing facilities in Brazil, relating to particles on Silimed breast
products.
On October 2, 2015, the Brazilian regulatory agency ANVISA and the Department of the Secretary of State of the State of Rio de
Janeiro announced that while they continue to review the technical compliance related to GMP of Silimed’s manufacturing
facility, and as a precautionary measure, they temporarily suspended the manufacturing and shipment of all medical devices made
by Silimed, including products manufactured for Sientra. ANVISA reiterated that no risks to patient health have been identified in
connection with implanting Silimed products, and, accordingly, there is no need to adopt any procedure or action for those
patients who have received them. Furthermore, ANVISA also indicated that, based on their contact to date with foreign regulatory
authorities, there have been no reports of adverse events related to this issue.
On October 9, 2015, we voluntarily placed a hold on the sale of all Sientra devices manufactured by Silimed and recommended
that plastic surgeons discontinue implanting the devices until further notice. The Company had ongoing discussions with the FDA
regarding European and Brazilian regulatory inquiries into Silimed products, and conducted its own review of the matter with the
assistance of independent experts in quality management systems, GMP and data-based risk assessment. The FDA also reiterated
that no reports of adverse events and no risks to patient health had been identified in connection with this issue.
On October 22, 2015, there was a fire at one of Silimed’s two manufacturing buildings in Rio de Janeiro, Brazil. The fire occurred
in the building where Sientra’s breast implants are primarily manufactured, or building F2. Silimed has indicated to the Company
that a smaller production facility in Silimed’s second building, or building F1, which was not impacted by the fire, has the
potential to be modified for breast implant manufacturing. In order to commence the manufacturing of breast implants, certain
areas in building F1 would need to be reconfigured and receive certification and approval by appropriate regulatory bodies. The
Company is working with Silimed to seek clarity as to the near and long-term capabilities of Silimed’s manufacturing operations,
including the status of equipment that is used to manufacture breast implants and the potential feasibility, production capacity and
timing related to Silimed’s ability to manufacture our breast implants.
Recent Developments
On January 27, 2016, after completing an analysis and risk assessment, ANVISA announced their authoriz ation of Silimed to
resume the commercialization and use of its previously manufactured products. ANVISA concluded there was no evidence to
prove that the presence of surface particles on the silicone implants represented risks which are additional to the ones inherent in
the product. However, Silimed continues to be suspended from manufacturing and commercializing new batches of implants
until an inspection is performed to reassess the fulfillment of its GMP compliance .
On March 1, 2016, after the completion of extensive independent, third-party testing and analyses of our Breast Products in the
U.S., we lifted the temporary hold on the sale of our devices manufactured by Silimed. We also sent a letter to our Plastic
Surgeons informing them of the Company’s market re-entry plans. The conclusive results of our testing indicate no anticipated
significant safety concerns with the use of our products, including our breast implants, consistent with their approval status since
2012.
Components of Operating Results
Net
Sales
We commenced sales of our breast implants in the United States in the second quarter of 2012 and our Breast Products
have historically accounted for substantially all of our net sales. Sales of our Breast Products accounted for 98% , 97% and 97%
of our net sales for the years ended December 31, 2015 , 2014 and 2013 , respectively .
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Table of Contents
We recognize revenue, net of sales discounts and estimated returns, as the customer has a standard six-month window to
return purchased products. There are several uncertainties regarding the recent events involving Silimed that may have a material
unfavorable impact on our net sales, including the suspension of the sale and manufacturing of Silimed’s products by certain
foreign regulatory agencies, our voluntary hold on the sale and implanting of all Sientra devices manufactured by Silimed
between October 9, 2015 and March 1, 2016, our uncertainty regarding the resolution of the regulatory inquiries , the delay of
sales pending such resolution , and our uncertainty of our customers responsiveness to our market re-entry . Additionally, the
recent fire at Silimed’s facility that manufactures our breast implants, including the status of equipment that is used to
manufacture such implants and the potential feasibility, production capacity and timing related to Silimed’s ability to manufacture
breast implants in other facilities, may affect inventory adjustments and have an additional unfavorable impact on our net sales.
We expect that, in the future, assuming a favorable outcome of the aforementioned recent events, that our net sales will
fluctuate on a quarterly basis due to a variety of factors, including seasonality of breast augmentation procedures. We believe that
breast implant sales are subject to seasonal fluctuation due to breast augmentation patients’ planning their surgery leading up to
the summer season and in the period around the winter holiday season.
Cost
of
Goods
Sold
and
Gross
Margin
Cost of goods sold consists primarily of costs of finished products purchased from our third ‑party manufacturer, reserve
for product warranties and warehouse and other related costs.
Our silicone gel breast implants, tissue expanders and other products are manufactured under an exclusive contract with
Silimed. Under our contract with Silimed, each particular style of implant has a fixed unit cost. In addition to product costs, we
provide a commercial warranty on our silicone gel filled breast implants. The warranty covers device ruptures in certain
circumstances. Estimated warranty costs are recorded at the time of sale. Our warehouse and other related costs include labor,
rent, product shipments from our third party manufacturer and other related costs.
We expect our overall gross margin, which is calculated as net sales less cost of goods sold for a given period divided by
net sales, to fluctuate in future periods primarily as a result of quantity of units sold, manufacturing price increases, the changing
mix of products sold with different gross margins, overhead costs and targeted pricing programs.
Sales
and
Marketing
Expenses
Our sales and marketing expenses primarily consist of salaries, bonuses, benefits, incentive compensation and travel for
our sales, marketing and customer support personnel. Our sales and marketing expenses also include expenses for trade shows,
our no ‑charge customer shipping program and no-charge product evaluation units , as well as educational, promotional and
marketing activities, including direct and online marketing. We expect our sales and marketing expenses to fluctuate in future
periods as a result of headcount and timing of our marketing programs. However, we generally expect these costs will increase in
absolute dollars.
Research
and
Development
Expenses
Our research and development, or R&D, expenses primarily consist of clinical expenses, product development costs,
regulatory expenses, consulting services, outside research activities, quality control and other costs associated with the
development of our products and compliance with Good Clinical Practices, or cGCP, requirements. R&D expenses also include
related personnel and consultant compensation and stock ‑based compensation expense. We expense R&D costs as they are
incurred.
We expect our R&D expenses to vary as different development projects are initiated, including improvements to our
existing products, expansions of our existing product lines, new product acquisitions and our FDA ‑required PMA post ‑approval
studies of our breast implants. However, we generally expect these costs will increase in absolute terms over time as we continue
to expand our product portfolio and add related personnel.
General
and
Administrative
Expenses
Our general and administrative, or G&A, expenses primarily consist of salaries, bonuses, benefits and stock ‑based
compensation for our executive, financial, legal, business development and administrative functions. Other G&A expenses
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include outside legal counsel and litigation expenses, independent auditors and other outside consultants, corporate insurance,
employee benefits, facilities and information technologies expenses. Beginning in 2013, G&A expenses also include the federal
excise tax on the sale of medical devices in the United States.
In addition, for the years ended December 31, 2015, 2014 and 2013, we incurred $0.0 million, $0.0 million and
$1.2 million, respectively, of G&A expenses related to the Grader Street arbitration.
We expect future G&A expenses to increase as we build our finance, legal, information technology, human resources
and other general administration resources to continue to advance the commercialization of our products. In addition, we expect
to incur increased G&A expenses in connection with becoming a public company, which may increase further when we are no
longer able to rely on the “emerging growth company” exemption we are afforded under the Jumpstart Our Business Startups Act,
or the JOBS Act , and legal counsel and litigation expenses in connection with the recently filed lawsuits styled as class actions of
the Company’s stockholders .
Other
(Expense)
Income,
net
Other (expense) income, net primarily consists of interest expense and amortization of debt discount associated with our
term loans and insurance recoveries.
In 2012, the Company filed a claim with the Hartford Insurance Company, or Hartford for reimbursement of legal costs
incurred in connection with litigation with a competitor that was resolved in 2013. The Company held a D&O insurance policy
with Hartford, and the Company and Hartford settled the matter in May 2014. The Company received settlement payments from
Hartford and recovery of costs associated with the litigation of $0 .0 million , $2 .4 million , and $ 0.4 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of
these financial statements requires management to make estimates and judgments that affect the reported amounts of assets,
liabilities, net sales and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate
our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that
we believe are reasonable under the circumstances, the results of which form the basis for making judgments about our financial
condition and results of operations that are not readily apparent from other sources. Actual results may differ from these
estimates.
While our significant accounting policies are more fully described in Note 2 to our financial statements, we believe that
the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial
statements.
Revenue
Recognition
We sell our products directly to customers in markets where we have regulatory approval. We offer a six ‑month return
policy; and we recognize revenue, net of sales discounts and returns, in accordance with the Financial Accounting Standards
Board, or FASB, Accounting Standards Codification 605, Revenue Recognition , or ASC 605. ASC 605 requires that six basic
criteria must be met before revenue can be recognized when a right of return exists:
·
·
·
·
·
·
the seller’s price to the buyer is substantially fixed or determinable at the date of sale;
the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of
the product;
the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the
product;
the buyer acquiring the product for resale has economic substance apart from that provided by the seller;
the seller does not have significant obligations for future performance to directly bring about resale of the product by the
buyer; and
the amount of future returns can be reasonably estimated.
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Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and
any notification of pending returns. The Company recognizes revenue when title to the product and risk of loss transfer to
customers, provided there are no remaining performance obligations required of the Company or any written matters requiring
customer acceptance. The Company allows for the return of product from customers within six months after the original sale and
records estimated sales returns as a reduction of sales in the same period revenue is recognized. Sales return provisions are
calculated based upon historical experience with actual returns. Actual sales returns in any future period are inherently uncertain
and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an adjustment to revenue in
the current or subsequent period would be recorded. The Company has established an allowance for sales returns of $0.7 million
and $10.0 million as of December 31, 2015 and 2014 , respectively, recorded net against accounts receivable in the balance sheet.
A portion of the Company’s revenue is generated from consigned inventory of breast implants maintained at doctor,
hospital, and clinic locations. The customer is contractually obligated to maintain a specific level of inventory and to notify the
Company upon use. For these products, revenue is recognized at the time the Company is notified by the customer that the
product has been implanted. Notification is usually through the replenishing of the inventory and the Company periodically
reviews consignment inventories to confirm accuracy of customer reporting. FDA regulations require tracking the sales of all
breast implants.
Warranty
Reserve
We offer a limited warranty and a lifetime product replacement program for our silicone gel breast implants. Under the
limited warranty program, we will reimburse patients for certain out ‑of ‑pocket costs related to revision surgeries performed
within ten years from the date of implantation in a covered event. Under the lifetime product replacement program, we provide no
‑charge replacement breast implants under a covered event. The programs are available to all patients implanted with our silicone
breast implants after April 1, 2012 and are subject to the terms, conditions, claim procedures, limitations and exclusions. Timely
completion of a device tracking and warranty enrollment form by the patient’s Plastic Surgeon is required to activate the
programs and for the patient to be able to receive benefits under either program.
We recorded expense for the accru al of warranties in the amounts of $0.4 million, $0.5 million and $0.4 million, for the
years ended December 31, 2015, 2014 and 2013 , respectively. As of December 31, 2015 and 2014, we held total warranty
liabilities of $1.3 million and $1.0 million, respectively.
Stock
‑‑Based
Compensation
Stock ‑based compensation cost is measured at the date of grant based on the estimated fair value of the award, net of
estimated forfeitures. We estimate the fair value of our stock ‑based awards to employees and directors using the Black ‑Scholes
option pricing model. The grant date fair value of a stock ‑based award is recognized as an expense over the requisite service
period of the award on a straight ‑line basis.
The Black ‑Scholes model requires the input of subjective assumptions, including the risk ‑free interest rate, expected
dividend yield, expected volatility and expected term, among other inputs. These estimates involve inherent uncertainties and the
application of management’s judgment. If factors change and different assumptions are used, our stock ‑based compensation
expense could be materially different in the future.
We recorded total non ‑cash stock ‑based compensation expense of $2.4 million, $0.6 million and $0.3 million for the
years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015 we had total unrecognized compensation
costs of $4.7 million related to our stock options and employee stock purchase plan. These costs are expected to be recognized
over a weighted average period of 2.95 years.
Warrant
Liabilities
We have issued warrants to Oxford to purchase shares of common stock in connection with our term loan agreement.
The warrants are recorded at fair value using either the Black ‑Scholes option pricing model, other binomial valuation model or
lattice model, depending on the characteristics of the warrants at the time of the valuation. The fair value of these warrants is re
‑measured at each financial reporting period with any changes in fair value being recognized as a component of other income
(expense) in the accompanying statements of operations. We will continue to re ‑measure the warrants to fair value until exercise
or expiration of the related warrant.
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As of December 31, 2015 and 2014, the fair value of our warrant liability was $0.0 million and $0.4 million,
respectively. We recognized a decrease of other (income) expense of $0.4 million for the change in fair value of warrants during
the year ended December 31, 2015, and an increase of $0.2 million and $0.0 million for the years ended D e cember 31, 2014 and
2013, respectively.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets of purchased businesses. Goodwill
is not amortized, but instead subject to impairment tests on at least an annual basis and whenever circumstances suggest that
goodwill may be impaired. Our annual test for impairment is performed as of October 1 of each fiscal year, pursuant to which we
make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying
amount before applying the two-step goodwill impairment test. If we conclude that it is not more likely than not that the fair value
of a reporting unit is less than its carrying amount, we are not required to perform the two-step impairment test for that reporting
unit.
Under the first step of the test, we are required to compare the fair value of a reporting unit with its carrying amount,
including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not
considered impaired and the second step of the test is not performed. If the results of the first step of the impairment test indicate
that the fair value of a reporting unit does not exceed its carrying amount, then the second step of the test is required. The second
step of the test compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The
impairment loss is measured by the excess of the carrying amount of the reporting unit goodwill over the implied fair value of that
goodwill.
On September 24, 2015, we experienced a significant decline in our common stock price, which was sustained through
September 30, 2015. The significant decline in our common stock price for a sustained period, along with the impact from
regulatory inquiries related to medical devices manufactured by Silimed, our contract manufacturer, were identified as potential
indicators of impairment of goodwill and other intangibles. As a result, we were required to assess whether or not an impairment
of our goodwill had occurred as of Septembe r 30, 2015. We assessed the impact of the recent downward volatility in our
common stock price and concluded that the sustained decline constituted a triggering event requiring an interim goodwill
impairment test. We conducted the first step of the goodwill impairment test described above for our single reporting unit as of
September 30, 2015. The fair value of the reporting unit exceeded its carrying value as of September 30, 2015 by 24.7%, and
therefore goodwill was determined to not be impaired as of September 30, 2015.
However, a s a result of the events described in “ Silimed Related Developments ”, adverse changes in operating results,
an extended period of our common stock trading significantly below book value per share, and unfavorable changes in c
ircumstances related to Silimed, we identified additional impairment indicators during the quarter ended December 31, 2015 .
For the quarter ended December 31,
we performed a step one analysis for possible goodwill
impairment. Determining the fair value of the Company as a single reporting unit as part of the step one analysis involves
significant judgment. For step one, we used a market approach to determine fair value and concluded that the carrying value of
the reporting unit exceeded the estimated fair value, and thus performed the step two analysis. For step two, we compared the
implied fair value of the Company’s goodwill with the carrying value of goodwill.
2015,
The implied fair value of goodwill is determined in the same manner as goodwill that is recognized in a business
combination. Significant judg ments and estimates are involved in the determination of the fair value of the assets and liabilities
of the reporting unit, and therefore directly impact the implied fair value of goodwill, as part of the step two analysis. The most
significant estimates involved relate to the fair value of intangible asset s. We estimated the value of the intangible asset s using a
discounted cash flow approach considering market comparable transactions. Th ese estimates are highly subjective and involve
many judgments .
For the quarter ended December 31, 2015, we recorded a goodwill impairment charge of $14.3 million. For additional
information on the goodwill impairment see Note 5 to the “Notes to Financial Statements ” included herein .
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Table of Contents
Recent Accounting Pronouncements
In May 2014, the FASB issued accounting standard update, or ASU, 2014-09, Revenue from Contracts with Customers
. The standard was issued to provide a single framework that replaces existing industry and transaction specific U . S . GAAP
with a five step analysis of transactions to determine when and how revenue is recognized. The accounting standard update will
replace most existing revenue recognition guidance in U . S . GAAP when it becomes effective. In August 2015, the FASB
issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, t o defer the
effective date of ASU 2014-09 by one year. Therefore, ASU 2014-09 will become effective for the Company beginning in fiscal
year 2018. Early adoption would be permitted for the Company beginning in fiscal year 2017. The standard permits the use of
either the retrospective or cumulative transition method. The Company is currently evaluating the accounting, transition and
disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
In April 2015, the FASB issued accounting standard update 2015-03 , Interest — Imputation of Interest . The standard
was issued to simplify the presentation of debt issuance costs and require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. This accounting standard update will be effective for the Company beginning in fiscal year 2016. The Company
anticipates there will be no material impact on its financial statement upon adoption of this guidance.
In April 2015, the FASB issued accounting standard update 2015-05 , Intangibles — Goodwill and Other — Internal-
Use Software . The standard was issued to provide guidance to customers about whether a cloud computing arrangement includes
a software license. If a cloud computing arrangement includes a software license, then the customer should account for the
software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing
arrangement does not include a software license, the customer should account for the arrangement as a service contract. This
accounting standard update will be effective for the Company beginning in fiscal year 2016. The Company anticipates there will
be no material impact on its financial statement upon adoption of this guidance.
In July 2015, the FASB issued accounting standard update 2015-11 , Inventory — Simplifying the Measurement of
Inventory . The standard simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower
of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the
lower of cost or market. The accounting standards update will not apply to inventories that are measured by using either the last-
in, first-out method or the retail inventory method. This accounting standard update will be effective for the Company beginning
in fiscal year 2017. The Company anticipates there will be no material impact on its financial statement upon adoption of this
guidance.
In November 2015, the FASB issued accounting standard update 2015-17, Income Taxes – Balance Sheet Classification
of Deferred Taxes. The standard simplifies the presentation of deferred income taxes by requiring deferred tax assets and
liabilities be classified as noncurrent in a classified statement of financial position. Current GAAP requires an entity to separate
deferred income tax liabilities and assets into current and noncurrent amounts. This accounting standard update will be effective
for the Company beginning in fiscal year 2017. The Company anticipates there will be no material impact to its financial
statement upon adoption of this guidance.
In February 2016, the FASB issued accounting standard update 2016-02, Leases (Topic 842) which supersedes FASB
Accounting Standard Codification Leases (Topic 840). The standard is intended to increase the transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about
leasing arrangements. This accounting standard update will be effective for the Company beginning in fiscal year 2019. The
Company is currently evaluating the impact that adoption of the standard will have on the financial statements and related
disclosures.
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Table of Contents
Results of Operations
Comparison
of
the
Years
Ended
December
31,
2015
and
2014
The following table sets forth our results of operations for the years ended December 31, 2015 and 2014 :
Statement of operations data
Net sales
Cost of goods sold
Gross profit
Operating Expenses
Sales and marketing
Research and development
General and administrative
Goodwill impairment
Total operating expenses
Loss from operations
Other (expense) income, net
Interest income
Interest expense
Other income (expense), net
Total other (expense) income, net
Net loss
Net
Sales
Year Ended
December 31,
2015
2014
(in thousands)
$
$
38,106 $
10,654
27,452
25,762
7,199
18,738
14,278
65,977
(38,525)
32
(3,097)
360
(2,705)
(41,230) $
44,733
11,500
33,233
23,599
4,707
10,712
—
39,018
(5,785)
—
(2,172)
2,146
(26)
(5,811)
Net sales decreased $6.6 million, or 14.8% , to $38.1 million for the year ended December 31, 2015 , as compared to
$44.7 million for the year ended December 31, 2014 . This decrease was primarily driven by our voluntary hold on the sale and
implanting of all Sientra devices manufactured by Silimed on October 9, 2015.
There are several uncertainties regarding the recent events involving Silimed that may have a material unfavorable
impact on our net sales, including the suspension of the sale and manufacturing of Silimed’s products by certain foreign
regulatory agencies, our voluntary hold on the sale and implanting of all Sientra devices manufactured by Silimed between
October 9, 2015 and March 1, 2016 , our uncertainty regarding the resolution of the regulatory inquiries and the delay of sales
pending such resolution. Additionally, the recent fire at Silimed’s facility that manufactures our breast implants, including the
status of equipment that is used to manufacture such implants and the potential feasibility, production capacity and timing related
to Silimed’s ability to manufacture breast implants in other facilities, may affect inventory adjustments and have an additional
unfavorable impact on our net sales.
As of December 31, 2015, our sales organization included 51 employees, as compared to 46 employees as of
December 31, 2014.
Cost
of
Goods
Sold
and
Gross
Margin
Cost of goods sold decreased $0.8 million, or 7.4% , to $10.7 million for the year ended December 31, 2015 , as
compared to $11.5 million for the year ended December 31, 2014 . This decrease was primarily due to a decrease in sales volume
driven by our voluntary hold on sales.
The gross margins for the years ended December 31, 2015 and 2014 were 72.0% and 74.3% , respectively. The decrease
in gross margin was primarily due to an incremental $0.3 million reserve for inventory obsolescence recorded in the third quarter
for product that we estimate to expire prior to being sold, greater fixed overhead as a percentage of net sales, and manufacturing
cost increases.
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Table of Contents
Sales
and
Marketing
Expenses
Sales and marketing expenses increased $2.2 million, or 9.2% , to $25.8 million for the year ended December 31,
2015 , as compared to $23.6 million for the year ended December 31, 2014 . This was primarily due to a $3.2 million increase in
employee related expense s for the sales department offset by a $0.9 million decrease in marketing costs.
Research
and
Development
Expenses
R&D expenses increased $2.5 million, or 52.9% , to $7.2 million for the year ended December 31, 2015 , as compared
to $4.7 million for the year ended December 31, 2014 . This was primarily due to an increase in product development costs.
General
and
Administrative
Expenses
G&A expenses increased $8.0 million, or 74.9% , to $18.7 million for the year ended December 31, 2015 , as
compared to $10.7 million for the year ended December 31, 2014 . This increase was primarily due to an increase in expenses
that relate to operating as a public company , termination benefits for certain former executives , and outside legal counsel costs.
Goodwill
Impairment
Goodwill impairment charges for the year ended December 31, 2015 was $14.3 million. For additional information on th ese
goodwill impairments, see “ Critical Accounting Policies and Significant Judgments and Estimates —Goodwill Impairment” and
Note 5 to our Financial Statements included herein.
Other
(Expense)
Income,
net
Total other (expense) income, net for the year ended December 31, 2015 was primarily associated with interest expense
on our term loans of $3.1 million, offset by income recognized for the change in fair value of warrants of $0.4 million. Total other
(expense) income, net for the year ended December 31, 2014 was primarily associated with interest expense on our term loans of
$2.2 million, offset by income from settlement payments from Hartford and recovery of costs associated with the litigation of $2.
4 million.
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Table of Contents
Comparison
of
the
Years
Ended
December
31,
2014
and
2013
The following table sets forth our results of operations for the years ended December 31, 2014 and 2013 :
Statement of operations data
Net sales
Cost of goods sold
Gross profit
Operating Expenses
Sales and marketing
Research and development
General and administrative
Total operating expenses
Loss from operations
Other (expense) income, net:
Interest expense
Other income (expense), net
Total other (expense) income, net
Net loss
Net
Sales
Year Ended
December 31,
2014
2013
(in thousands)
44,733 $
11,500
33,233
23,599
4,707
10,712
39,018
(5,785)
(2,172)
2,146
(26)
(5,811) $
35,171
8,592
26,579
22,229
4,479
18,078
44,786
(18,207)
(872)
(46)
(918)
(19,125)
$
$
Net sales increased $9.6 million, or 27.2%, to $44.7 million for the year ended December 31, 2014, as compared to
$35.2 million for the year ended December 31, 2013. This increase was primarily driven by sales of our Breast Products in the
United States resulting from increased sales and marketing activities and boarder adoption of Sientra’s product offerings by board
‑certified Plastic Surgeons. As of December 31, 2014, our sales organization included 46 employees, as compared to 39
employees as of December 31, 2013.
Cost
of
Goods
Sold
and
Gross
Margin
Cost of goods sold increased $2.9 million, or 33.8%, to $11.5 million for the year ended December 31, 2014, as
compared to $8.6 million for the year ended December 31, 2013. This increase was primarily due to an increase in sales volume.
The gross margins for the years ended December 31, 2014 and 2013 were 74.3% and 75.6%, respectively. The decrease
in gross margin was primarily due to a manufacturing price increase, and the launch of new line extension in the fourth quarter,
offset by holding fixed overhead relatively constant.
Sales
and
Marketing
Expenses
Sales and marketing expenses increased $1.4 million, or 6.2%, to $23.6 million for the year ended December 31, 2014,
as compared to $22.2 million for the year ended December 31, 2013. This was primarily due to a $1.8 million increase in
employee related expense for the sales department offset by a $0.4 million decrease in marketing costs.
Research
and
Development
Expenses
R&D expenses increased $0.2 million, or 5.1%, to $4.7 million for the year ended December 31, 2014, as compared to
$4.5 million for the year ended December 31, 2013. This was primarily due to an increase in employee related expenses and costs
associated with our PMA post ‑approval requirements.
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Table of Contents
General
and
Administrative
Expenses
G&A expenses decreased $7.4 million, or 40.7%, to $10.7 million for the year ended December 31, 2014, as compared
to $18.1 million for the year ended December 31, 2013. This decrease was primarily due to the $10.1 million decrease in
litigation expenses related to the Mentor litigation , partially offset by an increase in expenses related to accounting related costs
and federal excise tax.
Other
(Expense)
Income,
net
Total other (expense) income, net for the year ended December 31, 2014 was primarily associated with interest expense
on our term loans of $2.2 million and income from recovery of costs associated with the Mentor litigation of $2.4 million. Total
other (expense) income, net for the year ended December 31, 2013 was primarily associated with interest expense on our term
loans of $0.9 million.
Liquidity and Capital Resources
Since our inception, we have incurred significant net operating losses and anticipate that our losses will continue in the
near term. We expect our operating expenses will continue to grow as we expand our operations. We will need to generate
significant net sales to achieve profitability. To date, we have funded our operations primarily with proceeds from the sales of
preferred stock, borrowings under our term loans, sales of our products since 2012, and the proceeds from the sale of our common
stock in our initial public offering and recent follow-on offering . To date, we have received gross proceeds from the sales of
preferred stock totaling $151.0 million. We issued and sold preferred stock for aggregate gross proceeds of $65.0 million in
March 2012, which was our most recent issuance and sale of preferred stock. As of December 31, 201 5 , we had no long-term
debt.
On November 3, 2014, we completed our IPO of common stock in which we sold 5,000,000 shares at a price of $15.00
per share. Additionally, the underwriters exercised their option to purchase an additional 750,000 shares at $15.00 per share. As a
result of our IPO, we raised a total of approximately $77.0 million in net proceeds after deducting underwriting discounts and
commissions of approximately $6.0 million and offering expenses of approximately $3.2 million. Costs directly associated with
our IPO were capitalized and recorded as deferred IPO costs in other current assets prior to the completion of our IPO. Upon
completion of the IPO, the issuance costs were reclassified to additional ‑paid ‑in capital to offset the IPO proceeds. Upon
completion of our IPO, all outstanding shares of our convertible preferred stock were converted into 8,942,925 shares of common
stock.
On September 23, 2015, we completed our follow-on public offering of common stock in which we sold 3,000,000
shares at a price of $22.00 per share. As a result of our follow-on offering, we raised a total of approximately $61.4 million in net
proceeds after deducting underwriting discounts and commissions of approximately $4.0 million and offering expenses of
approximately $0.6 million.
As of December 31, 2015 , we had $112.8 million in cash and cash equivalents. Our historical cash outflows have
primarily been associated with research and development activities, especially related to obtaining FDA approval for our breast
implant portfolio and complying with the FDA’s post-approval requirements, the Mentor litigation, activities relating to
commercialization and increases in working capital, including the purchase of inventory as well as the expansion of our sales
force and marketing programs. We believe that our available cash on hand will be sufficient to satisfy our liquidity requirements
for at least the next 12 months. However, we expect that the recent events involving Silimed, including our voluntary hold on the
sale and implanting of all Sientra devices manufactured by Silimed between October 9, 2015 and March 1, 2016 , our uncertainty
regarding the amount of additional expenses we may incur in connection with regulatory inquiries and our own review and
testing, as well as expenses we may incur in connection with reestablishing our inventory supply as a result of the fire in
Silimed’s manufacturing facility and expenses we may incur defending against litigation claims, may have a material effect on
our future cash outflows and Sientra’s liquidity. Additionally, on October 28, 2015, following our repayment of all principal,
interest, other amounts and obligations owed to Oxford under the term loans for a total of $24.5 million, the Company has no
outstanding debt obligations. As a result of the recent events and the resulting potential demands on Sientra’s liquidity, we may be
required to seek additional funds in the future from public or private offerings of our capital stock, borrowings under term loans
or other sources.
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Table of Contents
Cash
Flows
The following table shows a summary of our cash flows provided by (used in) operating, investing and financing
activities for the periods indicated:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Cash
(used
in)
provided
by
operating
activities
Year Ended December 31,
2015
2014
(in thousands)
$
$
(18,184) $
(1,128)
35,384
16,072 $
450
(439)
86,996
87,007
Net cash used in operating activities was $18.2 million during the year ended December 31, 2015 as compared to net
cash provided by operating activities of $0.5 million during the year ended December 31, 2014. The $18.6 million increase in
cash used in operating activities between the years ended December 31, 2015 and 2014 was primarily associated with the increase
in net loss of $35.4 million, which was affected by our voluntary hold on the sale and implanting of all Sientra devices
manufactured by Silimed since October 9, 2015 , offset by a decrease in cash outflows from operating assets and liabilities
resulting from a decrease in inventory purchases and timing of accounts payable payments.
Cash
used
in
investing
activities
Net cash used in investing activities was $1.1 million during the year ended December 31, 2015 as compared to
$0.4 million during the year ended December 31, 2014. The increase in cash used in investing activities of $0.7 million between
the years ended December 31, 2015 and 2014 was primarily due to an increase in property and equipment purchases.
Cash
provided
by
financing
activities
Net cash provided by financing activities was $35.4 million during the year ended December 31, 2015 as compared to
$87.0 million during the year ended December 31, 2014. The decrease in cash provided by financing activities of $51.6 million
between the years ended December 31, 2015 and 2014 was primarily the result of the decrease in cash proceeds from the issuance
of our common stock, net of the underwriters discount in the IPO of $80.2 million during the year ended December 31, 2014, in
comparison to the cash proceeds from the issuance of our common stock, net of the underwriters discount in the follow-on
offering of $62.0 million during the year ended December 31, 2015, and further offset by the repayment of long-term debt of
$26.6 million during the year ended December 31, 2015.
Our liquidity position and capital requirements are subject to a number of factors. For example, our cash inflow and
outflow may be impacted by the following:
·
·
·
·
·
·
·
our continued ability to rely on Silimed to manufacture and supply our silicone gel breast implants, tissue expanders and
other products or the timing and availability of alternative manufacturing sources ;
net sales generated by our Breast Products and any other future products that we may develop and commercialize;
costs associated with expanding our sales force and marketing programs;
cost associated with developing and commercializing our proposed products or technologies;
cost of obtaining and maintaining regulatory clearance or approval for our current or future products;
cost of ongoing compliance with regulatory requirements;
expenses we incur in connection with potential litigation or governmental investigations;
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·
·
anticipated or unanticipated capital expenditures; and
unanticipated G&A expenses.
Our primary short ‑term capital needs, which are subject to change, include expenditures related to:
·
·
cost of ongoing compliance with recent regulatory inquiries involving Silimed;
costs associated with our own review and testing at Silimed’s manufacturing facilities and of our own inventory;
·
expenses we incur in connection with defending against the lawsuits filed against us alleging violations of the
Exchange Act and the Securities Act in connection with allegedly false and misleading statements concerning
Sientra’s business, operations, and prospects;
·
·
·
·
support of our sales and marketing efforts related to our current and future products;
new product acquisition and development efforts;
facilities expansion needs ; and
investment in inventory required to meet customer demands .
Although we believe the foregoing items reflect our most likely uses of cash in the short-term, we cannot predict with
certainty all of our particular short-term cash uses or the timing or amount of cash used. If cash generated from operations is
insufficient to satisfy our working capital and capital expenditure requirements, we may be required to sell additional equity or
debt securities or obtain additional credit facilities. Additional capital, if needed, may not be available on satisfactory terms, if at
all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include
restrictive covenants. For a discussion of other factors that may impact our future liquidity and capital funding requirements, see
“Risk Factors — Risks Related to Our Financial Results.”
Indebtedness
Term
Loan
Agreement
On January 17, 2013, we entered into a Loan and Security Agreement with Oxford, which was amended and restated on
June 30, 2014, or the Amended Term Loan Agreement.
In connection with the Amended Term Loan Agreement, we issued to Oxford (i) seven ‑year warrants in January 2013
to purchase shares of our common stock with a value equal to 3.0% of the tranche A, B and C term loans amounts and (ii) seven
‑year warrants in June 2014 to purchase shares of our common stock with a value equal to 2.5% of the tranche D term loan
amount. The warrants have an exercise price per share of $14.671.
On October 27, 2015, Oxford issued a notice to the Company indicating that, in connection with the recent events
involving Silimed and the Company, certain events of default have occurred and continue to exist under the Amended Term Loan
Agreement. On October 28, 2015, we repaid all principal, interest, other amounts and obligations owed to Oxford under the term
loans for a total of $24.5 million, following which the Company has no outstanding debt obligations.
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Contractual Obligations and Commitments
The following table summarizes our contractual obligations and commitments as of December 31, 2015 :
Payments Due by Period
Total
Less than 1 year 1 - 3 years
(in thousands)
3 - 5 years
More than
5 years
$
$
2,039 $
2,039 $
503 $
503 $
1,028 $
1,028 $
508 $
508 $
—
—
Operating lease obligations
Total contractual obligations
Off
‑‑Balance
Sheet
Arrangements
During the periods presented we did not have, nor do we currently have, any off ‑balance sheet arrangements as defined
under SEC rules.
Item 7A. Quantitative and Qualitative Disclosure s about Market Risks
We are exposed to market risks in the ordinary course of our business. Our cash and cash equivalents include cash in
readily available checking accounts.
Item 8. Financial Statements and Supplementary Dat a
The financial statements required to be filed pursuant to this Item 8 are appended to this report beginning on page F ‑1.
An index of those financial statements is included in Part IV, Item 15 below.
Item 9. Changes in and Disagreements with Accountant s on Accounting and Financial Disclosure
PricewaterhouseCoopers LLP, or PwC, was previously our independent auditors since 2007. On December 13, 2013, we
dismissed PwC and KPMG LLP was engaged as our independent auditors. The decision to change our independent auditors was
approved by our board of directors.
During the years ended December 31, 2011 and 2012 and the subsequent interim period through December 13, 2013,
there were no (i) disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which disagreements if not resolved to PwC’s satisfaction would have caused them to make
reference thereto in their reports on the financial statements for such years, or (ii) reportable events as defined in Item 304(a)(1)
(v) of Regulation S ‑K, except as described below. PwC did not issue any audit reports for the years ended December 31, 2012
and 2013.
During October 2013, PwC notified us that it was in disagreement with our revenue recognition policies relating to the
timing of revenue recognition given our terms and conditions and practices regarding returns. The subject matter of this
disagreement was not discussed between our board of directors and PwC prior to PwC’s dismissal. We authorized PwC to
respond fully to the inquiries of KPMG LLP concerning the subject matter of this disagreement. We requested PwC to provide us
with a letter addressed to the SEC stating whether or not PwC agrees with the above disclosures. A copy of PwC’s letter, dated
September 1, 2015 , is attached as Exhibit 16.1 to the registration statement on Form S ‑1 filed with the SEC on September 3,
2015 .
KPMG LLP audited our financial statements for the years ended December 31, 2012 and 2013 and the audit reports of
KPMG LLP for such years did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope or accounting principles. During the two fiscal years ended December 31, 2012 and through the
subsequent interim period prior to KPMG LLP becoming the Company’s independent auditors, the Company did not consult with
KPMG LLP on either (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) the
type of audit opinion that may be rendered on the Company’s financial statements; or (iii) any matter that was either the subject of
a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S ‑K, or a reportable event. We are unable to quantify the impact
of the matters subject to the disagreement and cannot state what the effect on our financial statements would have been as an
evaluation of such matters was not completed prior to the dismissal of our former independent auditors.
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Item 9A. Controls and Procedure s
Evaluation
of
Disclosure
Controls
and
Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has 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. The term “disclosure controls and procedures,” as defined in Rules 13a ‑15(e) and 15d ‑15(e) under the Exchange Act means
control and other procedures of a company 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 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 and
principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our
disclosure controls and procedures as of December 31, 2015 , our principal executive officer and principal financial officer have
concluded that as of such date, our disclosure controls and procedures were effective.
Management’s
Annual
Report
on
Internal
Control
over
Financial
Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is
defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and
with the participation of our management, including our principal executive officer and principal financial officer, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2015, our management assessed the effectiveness of our internal control over financial reporting
using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-
Integrated Framework , or the 2013 Framework. Based on this assessment, our management concluded that, as of December 31,
2015, our internal control over financial reporting was effective based on those criteria .
Inherent
Limitations
of
Internal
Controls
Our management, including our principal executive officer and principal financial officer , does not expect that our
disclosure controls and procedures or our internal controls will 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 met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the 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 control. The design of any system of controls also is 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 the policies or procedures may deteriorate. Because of the inherent limitations in a cost ‑effective control
system, misstatements due to error or fraud may occur and not be detected.
Changes
in
Internal
Control
over
Financial
Reporting
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Informatio n
On March 7, 2016, our board of directors adopted the Sientra, Inc. Inducement Plan, or the Inducement Plan, pursuant to
which we reserved 180,000 shares of our common stock for issuance under the Inducement Plan. The Inducement Plan provides
for the grant of stock options and restricted stock unit awards. The only persons eligible to
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Table of Contents
receive grants of stock awards under the Inducement Plan are individuals who satisfy the standards for inducement grants under
NASDAQ Marketplace Rule 5635(c)(4) and the related guidance under NASDAQ IM 5635-1. A person who previously served as
an employee or director of the Company will not be eligible to receive stock awards under the Inducement Plan, other than
following a bona fide period of non-employment. Our board of directors or a duly authorized committee has the authority to
administer the Inducement Plan, provided however, that the grant of stock awards under the Inducement Plan must be granted
either by our independent compensation committee or a majority of our independent directors within the meaning of Rule 5605(a)
(2) of the NASDAQ Listing Rules. The foregoing description of the terms of the Inducement Plan is qualified in its entirety by
reference to the Inducement Plan and forms of award agreements thereunder, which is filed with this Annual Report on Form 10-
K as exhibit 10.20 and incorporated herein by reference.
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Item 10. Directors, Executive Officers, and Corporate Governanc e
PART II I
Incorporated by reference from the information in our Proxy Statement for our 2016 Annual Meeting of Stockholders,
which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10 ‑K relates.
Item 11. Executive Compensatio n
Incorporated by reference from the information in our Proxy Statement for our 2016 Annual Meeting of Stockholders,
which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10 ‑K relates.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference from the information in our Proxy Statement for our 2016 Annual Meeting of Stockholders,
which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10 ‑K relates.
Item 13. Certain Relationships and Related Transaction s and Director Independence
Incorporated by reference from the information in our Proxy Statement for our 2016 Annual Meeting of Stockholders,
which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10 ‑K relates.
Item 14. Principal Accountant Fees and Service s
Incorporated by reference from the information in our Proxy Statement for our 2016 Annual Meeting of Stockholders,
which we will file with the SEC within 120 days of the end of the fiscal year to which this Annual Report on Form 10 ‑K relates.
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Table of Contents
PART I V
Item 15. Exhibits, Financial Statements and Schedule
(a)(1) Financial Statements.
The response to this portion of Item 15 is set forth under Item 8 above.
(a)(2) Financial Statement Schedule.
All schedules have been omitted because they are not required or because the required information is given in the
Financial Statements or Notes thereto set forth under Item 8 above.
(a)(3) Exhibits.
See the Exhibit Index immediately following the signature page of this Annual Report on Form 10 ‑K. The exhibits
listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report on Form 10 ‑K.
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Table of Contents
Sientra, Inc.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to Financial Statements
Schedule II—Valuation and Qualifying Accounts
71
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72
73
74
75
76
77
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Table of Contents
Report of Independent Registered Public Accounting Fir m
The Board of Directors and Stockholders
Sientra, Inc. :
We have audited the accompanying balance sheets of Sientra, Inc. (the Company) as of December 31, 2015 and 2014,
and the related statements of operations, convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of
the years in the three ‑year period ended December 31, 2015. In connection with our audits of the financial statements, we also
have audited the related financial statement schedule II – valuation and qualifying accounts. These financial statements and
financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial statement schedule referred to above present fairly, in all material
respects, the financial position of Sientra, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash
flows for each of the years in the three ‑year period ended December 31, 2015, in conformity with U.S. generally accepted
accounting principles.
Woodland Hills, California
March 1 0 , 201 6
(signed) KPMG LLP
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Table of Contents
S ientra , I nc .
Balance Sheets
( i n thousands, except per share data )
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $1,116 and $10,330 at December 31, 2015 and
2014, respectively
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt
Accounts payable
Accrued and other current liabilities
Customer deposits
Total current liabilities
Long-term debt, net of current portion
Warranty reserve and other long-term liabilities
Total liabilities
Commitments and contingencies (Note 8)
Stockholders’ equity:
December 31,
2015
2014
$
112,801 $
96,729
4,249
20,602
1,473
139,125
1,404
—
53
223
140,805 $
— $
4,069
6,959
9,488
20,516
—
1,418
21,934
5,198
20,174
1,782
123,883
555
14,278
114
248
139,078
3,757
2,589
5,772
8,614
20,732
21,671
1,036
43,439
$
$
Preferred stock, $0.01 par value – Authorized 10,000,000 shares; none issued or
outstanding
Common stock, $0.01 par value — Authorized 200,000,000 shares; issued 18,066,143 and
14,985,704 and outstanding 17,993,416 and 14,912,977 shares at December 31, 2015 and
2014, respectively
Additional paid-in capital
Treasury stock, at cost (72,727 shares at December 31, 2015 and 2014)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
180
294,227
(260)
(175,276)
118,871
140,805 $
150
229,795
(260)
(134,046)
95,639
139,078
$
See accompanying notes to financial statements.
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Table of Contents
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Sales and marketing
Research and development
General and administrative
Goodwill impairment
Total operating expenses
Loss from operations
Other (expense) income, net:
Interest income
Interest expense
Other income (expense), net
Sientra, Inc.
Statements of Operations
(in thousands, except per share data )
Year Ended December 31,
2015
2014
2013
$
38,106 $
10,654
27,452
44,733 $
11,500
33,233
35,171
8,592
26,579
22,229
4,479
18,078
—
44,786
(18,207)
—
(872)
(46)
(918)
(19,125)
—
(19,125)
25,762
7,199
18,738
14,278
65,977
(38,525)
32
(3,097)
360
(2,705)
(41,230)
—
(41,230) $
23,599
4,707
10,712
—
39,018
(5,785)
—
(2,172)
2,146
(26)
(5,811)
—
(5,811) $
(2.61) $
(2.28) $
(82.25)
Total other (expense) income, net
Loss before income taxes
Income taxes
Net loss
Basic and diluted net loss per share attributable to common
stockholders
Weighted average outstanding common shares used for net loss per
share attributable to common stockholders:
$
$
Basic and diluted
15,770,972
2,545,371
232,512
See accompanying notes to f inancial statements.
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Table of Contents
Sientra, Inc.
Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit )
(in thousands, except per share data)
Convertible preferred
stock
Common stock
Treasury stock
Shares
Amount
Shares
Amount
Shares
Amount
Additional
paid-in
capital
Accumulated
deficit
Total
stockholders’
equity
(deficit)
24,593,087
$
150,456
276,854
$
3
—
—
—
—
—
—
—
—
3,025
—
—
—
—
—
—
—
$
—
—
72,727
—
—
—
—
(260)
—
—
$
1,467
$
(109,110)
$
10
—
342
—
—
—
—
(19,125)
(107,640)
10
(260)
342
(19,125)
24,593,087
$
150,456
279,879
$
3
72,727
$
(260)
1,819
$
(128,235)
$
(126,673)
(24,593,087)
(150,456)
8,942,925
89
—
—
150,367
—
150,456
—
—
—
—
—
—
—
—
5,750,000
12,900
—
—
58
—
—
—
—
—
—
—
—
—
—
—
76,977
38
594
—
—
—
—
(5,811)
77,035
38
594
(5,811)
—
$
—
14,985,704
$
150
72,727
$
(260)
229,795
$
(134,046)
$
95,639
—
—
—
—
—
—
3,000,000
—
—
—
—
—
36,189
44,250
—
30
—
—
—
—
—
—
—
—
—
—
—
—
—
—
61,367
2,382
119
—
—
—
61,397
2,382
119
564
—
—
(41,230)
564
(41,230)
—
$
—
18,066,143
$
180
72,727
$
(260)
$
294,227
$
(175,276)
$
118,871
Balances at
December 31,
2012
Stock option
exercises
Repurchased
common
shares
Employee
stock-based
compensation
expense
Net loss
Balances at
December 31,
2013
Conversion
of
convertible
preferred
stock to
common
stock
Proceeds
from IPO, net
of costs
Stock option
exercises
Employee
stock-based
compensation
expense
Net loss
Balances at
December 31,
2014
Proceeds
from follow-
on offering,
net of costs
Employee
stock-based
compensation
expense
Stock option
exercises
Employee
stock
purchase
program
(ESPP)
Net loss
Balances at
December 31,
2015
See accompanying notes to financial statements.
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Table of Contents
Sientra, Inc.
Statements of Cash Flow s
(in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
2015
Year Ended December 31,
2014
2013
$
(41,230) $
(5,811) $
(19,125)
Goodwill impairment
Depreciation and amortization
Provision for doubtful accounts
Provision for warranties
Provision for inventory
Change in fair value of warrants
Non-cash interest expense
Stock-based compensation expense
Changes in assets and liabilities:
Accounts receivable
Prepaid expenses, other current assets and other assets
Inventories
Accounts payable
Accrued and other liabilities
Customer deposits
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchase of property and equipment
Contingent payment related to Silimed acquisition
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Repurchase of common stock
Proceeds from issuance of common stock, net of underwriters discount
Proceeds from issuance of common stock under employee stock purchase plan
Deferred equity issuance costs, IPO
Deferred equity issuance costs, follow-on offering
Proceeds from issuance of long-term debt
Repayment of long-term debt
Deferred financing costs
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
14,278
318
233
385
469
(360)
1,386
2,382
715
147
(898)
1,546
1,571
874
(18,184)
(1,128)
—
(1,128)
119
—
62,040
564
(71)
(643)
—
(26,625)
—
35,384
16,072
—
275
39
447
—
220
490
594
875
(864)
1,359
(2,266)
1,385
3,707
450
(439)
—
(439)
38
—
80,213
—
(3,107)
—
10,000
—
(148)
86,996
87,007
Cash and cash equivalents at:
Beginning of period
End of period
Supplemental disclosure of cash flow information:
Interest paid
Supplemental disclosure of non-cash investing and financing activities:
Accrued equity issuance costs
Property and equipment in accounts payable
$
$
96,729
112,801 $
9,722
96,729 $
1,884 $
1,577 $
—
22
71
44
See accompanying notes to financial statements.
76
—
280
107
392
—
46
179
342
(2,868)
195
(10,852)
1,904
(70)
3,593
(25,877)
(71)
(18,000)
(18,071)
10
(260)
—
—
—
—
15,000
—
(288)
14,462
(29,486)
39,208
9,722
641
—
—
Table of Contents
S ientra , I nc .
Notes to Financial Statements
( i n thousands, except per share data )
1) Formation and Business of the Company
(a)
Formation
Sientra, Inc., or the Company, was incorporated in the State of Delaware on August 29, 2003 under the name Juliet
Medical, Inc. and subsequently changed its name to Sientra, Inc. in April 2007. The Company acquired substantially all the assets
of Silimed, Inc., or Silimed, on April 4, 2007. The purpose of the acquisition was to acquire the rights to the silicone breast
implant clinical trials. Following this acquisition, the Company focused on completing the clinical trials to gain Food and Drug
Administration, or FDA, approval to offer its silicone gel breast implants in the United States.
In March 2012, Sientra announced it had received approval from the FDA for its portfolio of silicone gel breast
implants, and in the second quarter of 2012 the Company began commercialization efforts to sell its products in the United States.
The Company, based in Santa Barbara, California, is a medical aesthetics company that focuses on serving board-certified plastic
surgeons and offers a portfolio of silicone shaped and round breast implants, tissue expanders, and body contouring products.
(b)
Reverse
Stock
Split
On October 10, 2014, the board of directors and stockholders approved an amendment to the Company’s fourth
amended and restated certificate of incorporation, which was filed on October 17, 2014, which effected a 2.75 -to-1 reverse stock
split of the Company’s issued and outstanding shares of common stock. The par value of the common stock was not adjusted as a
result of the reverse stock split. All issued and outstanding shares of common stock, stock options and warrants and the related
per share amounts contained in the Company’s financial statements have been retroactively adjusted to reflect this reverse stock
split for all periods presented. Also, as a result of the reverse stock split of the common stock, the conversion ratios for all of the
Company’s convertible preferred stock have been adjusted such that the preferred stock are now convertible into shares of
common stock at a conversion rate of 2.75 -to-1 instead of 1 -to-1. The number of issued and outstanding shares of preferred
stock and their related per share amounts have not been affected by the reverse stock split and therefore have not been adjusted in
the Company’s financial statements. However, to the extent that the convertible preferred stock are presented on an as converted
to common stock basis, such share and per share amounts contained in the Company’s financial statements have been
retroactively adjusted to reflect this reverse stock split for all periods presented.
(c)
Initial
Public
Offering
On November 3, 2014, the Company completed an initial public offering, or IPO, whereby it sold a total of 5,750,000
shares of common stock at $15.00 per share inclusive of 750,000 shares sold to underwriters for the exercise of their option to
purchase additional shares. The Company received net proceeds from the IPO of approximately $77,035 , after deducting
underwriting discounts and commissions and offering expenses of approximately $9,215 . These expenses were recorded against
the proceeds received from the IPO.
The interest-only period for the tranche D term loan (see Note 4) was extended from August 1, 2015 to August 1, 2016
as a result of having raised at least $50,000 in gross proceeds in the IPO and the completion of the IPO before June 30, 2015.
The outstanding shares of convertible preferred stock were converted on a 2.75 -to-1 basis into shares of common stock
concurrent with the closing of the IPO. All of the outstanding shares of Series A, Series B and Series C preferred stock converted
into 8,942,925 shares of common stock. Following the closing of the IPO, there were no shares of preferred stock outstanding.
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Table of Contents
(d)
Follow-on
Offering
On September 23, 2015, the Company closed a follow-on public offering, whereby it sold 3,000,000 shares of its
common stock, at a price to the public of $22.00 per share. The Company received net proceeds from the follow-on offering of
approximately $61,397 , after deducting underwriting discounts and commissions of $3,960 and offering expenses of
approximately $643 .
(e)
Regulatory
Inquiries
Regarding
Products
M
anufactured
by
Silimed
There have been recent regulatory inquiries related to medical devices manufactured by Silimed Industria de
Implantes Ltda. (formerly, Silimed-Silicone e Instrumental Medico-Cirugio e Hospitalar Ltda.), or Silimed, the Company’s
contract manufacturer.
On September 23, 2015, the Medicines and Healthcare Products Regulatory Agency, or MHRA, an executive agency of
the United Kingdom, or U.K., issued a press release announcing the suspension of sales and implanting in the U.K. of all medical
devices manufactured by Silimed following the suspension of the CE certificate of these products issued by TUV SUD, Silimed’s
notified body under European Union, or EU, regulation. The suspension of Silimed’s CE certificate by TUV SUD followed TUV
SUD’s inspection at Silimed’s manufacturing facilities in Brazil, relating to particles on Silimed breast products . Breast implants
have stringent standards for manufacturing and robust quality systems, but there is no specific or defined standard for particles on
breast implants. MHRA noted that no risks to patient health have been identified in connection with implanting Silimed products,
and, accordingly, there is no need to adopt any procedure or action for those patients who have received them.
On October 2, 2015, the Brazilian regulatory agency ANVISA and the Department of the Secretary of State of the State
of Rio de Janeiro announced that while they continue to review the technical compliance related to GMP of Silimed’s
manufacturing facility, and as a precautionary measure , they temporarily suspended the manufacturing and shipment of all
medical devices made by Silimed, including products manufactured for Sientra. ANVISA reiterated that no risks to patient health
have been identified in connection with implanting Silimed products, and, accordingly, there is no need to adopt any procedure or
action for those patients who have received them. Furthermore, ANVISA also indicated that, based on their contact to date with
foreign regulatory authorities, there have been no reports of adverse events related to the use of Silimed products.
On October 9, 2015, the Company voluntarily placed a hold on the sale of all Sientra devices manufactured by Silimed
and recommended that plastic surgeons discontinue implanting the devices until further notice. The Company had ongoing
discussions with the FDA regarding European and Brazilian regulatory inquiries into Silimed products, and conduct ed its own
review of the matter with the assistance of independent experts in quality management systems, GMP and data-based risk
assessment. The FDA also reiterated that no reports of adverse events and no risks to patient health had been identified in
connection with this issue .
On January 27, 2016, after completing an analysis and risk assessment, ANVISA announced their authoriz ation of
Silimed to resume the commercialization and use of its previously manufactured products. ANVISA concluded there was no
evidence to prove that the presence of surface particles on the silicone implants represented risks which are additional to the ones
inherent in the product. However, Silimed continues to be suspended from manufacturing and commercializing new batches of
implants until an inspection is performed to reassess the fulfillment of its GMP compliance .
On March 1, 2016, after the completion of extensive independent, third-party testing and analyses of its devices
manufactured by Silimed, the Company lifted the temporary hold on the sale of such devices. The Company also sent a letter to
Plastic Surgeons informing them of the Company’s market re-entry plans. The conclusive results of the Company’s testing
indicate no anticipated significant safety concerns with the use of its products, including its breast implants, consistent with their
approval status since 2012.
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(2) Summary of Significant Accounting Policies
(a)
Basis
of
Presentation
and
Use
of
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America, or GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates. Assets and liabilities
which are subject to significant judgment and use of estimates include the allowance for doubtful accounts, sales return reserves,
provision for warranties, valuation of inventories, recoverability of long-lived assets, valuation allowances with respect to
deferred tax assets, useful lives associated with property and equipment and finite lived intangible assets, and the valuation and
assumptions underlying stock-based compensation and other equity instruments. On an ongoing basis, the Company evaluates its
estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of
assets and liabilities. In addition, the Company engages the assistance of valuation specialists in concluding on fair value
measurements in connection with stock-based compensation and other equity instruments.
(b)
Liquidity
Since inception, the Company has incurred net losses. During the years ended December 31, 2015, 2014, and 2013 the
Company incurred net losses of $41,230 , $5,811 , and $19,125 , respectively. The Company used $18,184 of cash in operations
for the year ended December 31, 2015, provided $450 cash from operations during the year ended December 31, 2014 and used
$25,877 of cash in operations during the year ended December 31, 2013. At December 31, 2015 and 2014 the Company had an
accumulated deficit of $175,276 and $134,046 , respectively. At December 31, 2015, the Company had cash and cash equivalents
of $112,801 . The accompanying financial statements have been prepared on a going concern basis, which implies the Company
will continue to realize its assets and discharge its liabilities in the normal course of business. Silimed is the Company’s sole
source manufacturer of silicone gel breast implants, tissue expanders and other products. The continuation of the Company as a
going concern is dependent upon many factors including the satisfactory resolution of the regulatory inquiries of Silimed’s
medical devices, Silimed’s ability to resume the manufacturing of the Company’s medical devices, the availability of alternative
manufacturing sources, and the resumption of the sale of the Company’s products. The Company’s ability to continue to meet its
obligations and to achieve its business objectives is dependent upon, amongst other things, generating sufficient revenues. The
Company believes that it has the ability to continue as a going concern for at least 12 months. These financial statements do not
include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
(c)
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. Cash equivalents consist primarily of checking accounts.
(d)
Concentration
of
Credit
and
Supplier
Risks
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily
of cash and cash equivalents. The Company’s cash and cash equivalents are deposited in demand accounts at a financial
institution that management believes is creditworthy. The Company is exposed to credit risk in the event of default by this
financial institution for cash and cash equivalents in excess of amounts insured by the Federal Deposit Insurance Corporation, or
FDIC. Management believes that the Company’s investments in cash and cash equivalents are financially sound and have
minimal credit risk and the Company has not experienced any losses on its deposits of cash and cash equivalents.
The Company currently purchases all of its Breast Products from one supplier under an exclusivity contract. The supplier and its
production facility are located in Brazil. The Company is exposed to risks of foreign regulations in Brazil that could hinder the
Company’s ability to import goods, as well as halts or limitations in productions due to events outside of the Company’s control
occurring at the production facility. This could result in the Company not being able to acquire the inventory needed to meet
customer demand, which would result in possible loss of sales and affect operating results adversely.
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Several recent events have occurred which have affected the Company’s ability to rely on Silimed as their source for
silicone gel breast implants, tissue expanders and other products in the short and long term, including the suspension of Silimed’s
CE certificate by TUV SUD, Silimed’s notified body under EU regulation, relating to particles on Silimed breast products,
followed by Brazilian regulatory inquiries and a temporary suspension by the Brazilian regulatory agency ANVISA and the
Department of the Secretary of State of Rio de Janeiro of the manufacturing and shipment of all medical devices made by
Silimed, including products manufactured for Sientra. As a result of this suspension, between October 9, 2015 and March 1, 2016,
the Company voluntarily placed a temporary hold on the sale of all Sientra devices manufactured by Silimed and recommended
that plastic surgeons discontinue implanting the devices. As of March 1, 2016, after ongoing discussions with the FDA and the
Company’s own review of the matter with the assistance of independent experts in quality management systems, GMP and data-
based risk assessment, the Company lifted the temporary hold on sales and also sent a letter to plastic surgeons informing them of
the Company’s market re-entry plans.
In addition, on October 22, 2015, there was a fire in the manufacturing building where Silimed primarily manufactures
Sientra’s breast implants. The Company is working with Silimed to seek clarity as to the near and long-term capabilities of
Silimed’s manufacturing operations, including the status of equipment that is used to manufacture breast implants and the
potential feasibility, production capacity and timing related to Silimed’s ability to manufacture the Company’s breast implants.
(e)
Fair
Value
of
Financial
Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and customer
deposits are reasonable estimates of their fair value because of the short maturity of these items. The fair value of the common
stock warrant liability is discussed in Note 2(f). As of December 31, 2015, the Company had no outstanding long-term debt.
(f)
Fair
Value
Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities
carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the
first two are considered observable and the last is considered unobservable:
·
·
·
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar
assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other
inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining
the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar
techniques.
The Company’s common stock warrant liabilities are carried at fair value determined according to the fair value
hierarchy described above. The Company has utilized an option pricing valuation model to determine the fair value of its
outstanding common stock warrant liabilities. The inputs to the model include fair value of the common stock related to the
warrant, exercise price of the warrant, expected term, expected volatility, risk-free interest rate and dividend yield. Prior to the
IPO, the Company determined the fair value per share of the underlying common stock by taking into consideration its most
recent sale of its convertible preferred stock as well as additional factors that the Company deems relevant. Subsequent to the
IPO, the warrants are valued using the fair value of common stock as of the measurement date. The Company historically has
been a private company and lacks company-specific historical and implied volatility information of its stock. Therefore, it
estimates its expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the
remaining contractual term of the warrants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve
for time periods approximately equal to the remaining contractual term of the warrants. The Company has estimated a 0%
dividend yield based on the expected dividend yield and the fact
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that the Company has never paid or declared dividends. As several significant inputs are not observable, the overall fair value
measurement of the warrants is classified as Level 3.
The following tables present information about the Company’s liabilities that are measured at fair value on a recurring
basis as of December 31, 2015 and 2014 and indicate the level of the fair value hierarchy utilized to determine such fair value:
Liabilities:
Liability for common stock warrants
Liabilities:
Liability for common stock warrants
Fair Value Measurements as of
December 31, 2015 Using:
Level 1
Level 2
Level 3
Total
—
—
60
60
Fair Value Measurements as of
December 31, 2014 Using:
Level 1
Level 2
Level 3
Total
—
—
420
420
$
$
The following table provides a rollforward of the aggregate fair values of the Company’s common stock warrants for
which fair value is determined by Level 3 inputs:
Balance, January 1, 2014
Fair value of warrants upon issuance during 2014
Increase in fair value through December 31, 2014
Balance, December 31, 2014
Decrease in fair value through December 31, 2015
Balance, December 31, 2015
$
$
90
110
220
420
(360)
60
The company recognized changes in the fair value of these warrants in other (expense) income, net in the statement of
operations.
(g)
Property
and
Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight ‑line
method over the estimated useful life of the asset; generally three years. Leasehold improvements are depreciated over the shorter
of the lease term or the estimated useful life of the related asset. Upon retirement or sale of an asset, the cost and related
accumulated depreciation or amortization are removed from the balance sheet and any resulting gain or loss is reflected in
operations in the period realized. Maintenance and repairs are charged to operations as incurred.
(h)
Goodwill
and
Other
Intangible
Assets
Goodwill represents the excess of the purchase price over the fair value of net assets of purchased businesses. Goodwill
is not amortized, but instead subject to impairment tests on at least an annual basis and whenever circumstances suggest that
goodwill may be impaired. The Company’s annual test for impairment is performed as of October 1 of each fiscal year. The
Company makes a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its
carrying amount before applying the two ‑step goodwill impairment test. If the Company concludes that it is not more likely than
not that the fair value of a reporting unit is less than its carrying amount, it is not required to perform the two ‑step impairment
test for that reporting unit.
Under the first step of the test, the Company is required to compare the fair value of a reporting unit with its carrying
amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not
considered impaired and the second step of the test is not performed. If the results of the first step of the impairment test indicate
that the fair value of a reporting unit does not exceed its carrying amount, then the second step of the test is required. The second
step of the test compares the implied fair value of the reporting unit goodwill with the
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carrying amount of that goodwill. The impairment loss is measured by the excess of the carrying amount of the reporting unit
goodwill over the implied fair value of that goodwill.
Management evaluates the Company as a single reporting unit for business and operating purposes as all of the
Company’s revenue streams are generated by the same underlying products via sales in the United States of America. In addition,
the majority of the Company’s costs are, by their nature, shared costs that are not specifically identifiable to a geography or
product line, but relate to all products. As a result, there is a high degree of interdependency among the Company’s net sales and
cash flows for the entity and identifiable cash flows for a reporting unit separate from the entity are not meaningful.
Judgments about the recoverability of purchased finite ‑lived intangible assets are made whenever events or changes in
circumstance indicate that impairment may exist. Each fiscal year the Company evaluates the estimated remaining useful lives of
purchased intangible assets and whether events or changes in circumstance warrant a revision to the remaining periods of
amortization. Recoverability of finite ‑lived intangible assets is measured by comparison of the carrying amount of the asset to the
future undiscounted cash flows the asset is expected to generate. The intangible asset is amortized to the statement of operations
based on estimated cash flows generated from the intangible over its estimated life.
(i)
Impairment
of
Long
‑‑Lived
Assets
The Company’s management routinely considers whether indicators of impairment of long ‑lived assets are present. If such
indicators are present, management determines whether the sum of the estimated undiscounted cash flows attributable to the
assets in question is less than their carrying value. If less, the Company will recognize an impairment loss based on the excess of
the carrying amount of the assets over their respective fair values. Fair value is determined by discounted future cash flows,
appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company will recognize an
impairment charge to the extent the present value of anticipated net cash flows attributable to the asset are less than the asset’s
carrying value. The fair value of the asset will then become the asset’s new carrying value. There have been no impairments of
long ‑lived assets recorded during the years ended December 31, 2015, 2014 and 2013. The Company may record impairment
losses in future periods if factors influencing its estimates change.
(j)
Revenue
Recognition
The Company sells its product directly to customers in markets where it has regulatory approval. The Company offers a
six-month return policy and recognizes revenue net of sales discounts and returns in accordance with the Financial Accounting
Standards Board, or FASB, Accounting Standards Codification 605, Revenue Recognition, or ASC 605. ASC 605 requires that six
basic criteria must be met before revenue can be recognized when a right of return exists:
·
·
·
·
·
·
the seller’s price to the buyer is substantially fixed or determinable at the date of sale;
the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on
resale of the product;
the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of
the product;
the buyer acquiring the product for resale has economic substance apart from that provided by the seller;
the seller does not have significant obligations for future performance to directly bring about resale of the product
by the buyer; and
the amount of future returns can be reasonably estimated.
Appropriate reserves are established for anticipated sales returns based on historical experience, recent gross sales and
any notification of pending returns. The Company recognizes revenue when title to the product and risk of loss transfer to
customers, provided there are no remaining performance obligations required of the Company or any written matters requiring
customer acceptance. The Company allows for the return of product from customers within six months after the
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original sale and records estimated sales returns as a reduction of sales in the same period revenue is recognized. Sales return
provisions are calculated based upon historical experience with actual returns. Actual sales returns in any future period are
inherently uncertain and thus may differ from the estimates. If actual sales returns differ significantly from the estimates, an
adjustment to revenue in the current or subsequent period would be recorded. The Company has established an allowance for
sales returns of $660 and $10,018 as of December 31, 2015 and 2014, respectively, recorded net against accounts receivable in
the balance sheet.
A portion of the Company’s revenue is generated from the sale of consigned inventory of breast implants maintained at
doctor, hospital, and clinic locations. The customer is contractually obligated to maintain a specific level of inventory and to
notify the Company upon use. For these products, revenue is recognized at the time the Company is notified by the customer that
the product has been implanted. Notification is usually through the replenishing of the inventory and the Company periodically
reviews consignment inventories to confirm accuracy of customer reporting. FDA regulations require tracking the sales of all
implanted breast implant products.
Shipping and handling charges are largely provided to customers free of charge. The associated costs are viewed as part
of the Company’s marketing programs and are recorded as a component of sales and marketing expense in the statement of
operations. For the years ended 2015, 2014 and 2013 these costs amounted to $1,115 , $1,305 and $1,021 , respectively.
In other cases, shipping and handling charges may be invoiced to customers based on the amount of products sold. In
such cases, shipping and handling fees collected are recorded as revenue and the related expense as a component of cost of goods
sold.
(k)
Accounts
Receivable
and
Allowance
for
Doubtful
Accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability to collect from some of its customers. The allowances for
doubtful accounts are based on the analysis of historical bad debts, customer credit ‑worthiness, past transaction history with the
customer, and current economic trends. If the financial condition of the Company’s customers were to deteriorate, adversely
affecting their ability to make payments, additional allowances may be required. The Company has established an allowance for
doubtful accounts of $456 and $312 as of December 31, 2015 and 2014, respectively.
(l)
Inventories
and
Cost
of
Goods
Sold
Inventories represent finished goods that are recorded at the lower of cost or market on a first ‑in, first ‑out basis, or
FIFO. The Company periodically assesses the recoverability of all inventories to determine whether adjustments for impairment
or obsolescence are required. The Company evaluates the remaining shelf life and other general obsolescence and impairment
criteria in assessing the recoverability of the Company’s inventory.
The Company recognizes the cost of inventory transferred to the customer in cost of goods sold when revenue
is recognized.
At December 31, 2015 and 2014, approximately $2,274 and $1,989 , respectively, of the Company’s inventory was held
on consignment at doctors’ offices, clinics, and hospitals. The value and quantity at any one location is not significant.
(m)
Income
Taxes
The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company accounts for uncertain tax position in accordance with ASC 740 ‑10, Accounting for Uncertainty in Income Taxes .
The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax
years that are still subject to assessment or challenge by relevant taxing authorities. Assessing
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an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest
amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date,
unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the
sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and
measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of tax benefit
might change as new information becomes available.
(n)
Research
and
Development
Expenditures
Research and development costs are charged to operating expenses as incurred. Research and development, or R&D, primarily
consist of clinical expenses, regulatory expenses, product development, consulting services, outside research activities, quality
control, and other costs associated with the development of the Company’s products and compliance with Good Clinical
Practices, or GCP, requirements. R&D expenses also include related personnel and consultant compensation and stock-based
compensation expense.
(o)
Advertising
Expenses related to advertising are charged to sales and marketing expense as incurred. Advertising costs were $1,029 , $1,548
and $801 for fiscal years 2015, 2014 and 2013, respectively.
(p)
Stock
‑‑Based
Compensation
The Company applies the fair value provisions of ASC 718, Compensation — Stock Compensation , or ASC 718. ASC 718
requires the recognition of compensation expense, using a fair ‑value based method, for costs related to all employee share ‑based
payments, including stock options, restricted stock units, and the employee stock purchase plan. ASC 718 requires companies to
estimate the fair value of share ‑based payment awards on the date of grant using an option ‑pricing model. All option grants
valued are being expensed on a straight ‑line basis over their vesting period.
The Black ‑Scholes model requires the input of subjective assumptions, including the risk ‑free interest rate, expected
dividend yield, expected volatility and expected term, among other inputs. These estimates involve inherent uncertainties and the
application of management’s judgment. If factors change and different assumptions are used, our stock ‑based compensation
expense could be materially different in the future. These assumptions are estimated as follows:
·
·
·
·
Risk ‑free interest rate —The risk ‑free interest rate is based on the yields of U.S. Treasury securities with maturities
similar to the expected term of the options for each option group.
Dividend yield —We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in
the foreseeable future. Consequently, we used an expected dividend yield of zero.
Expected volatility —As we do not have a significant trading history for our common stock, the expected stock price
volatility for our common stock was estimated by taking the average of (i) the median historic price volatility and
(ii) the median of the implied volatility averages, with a three ‑month lookback from the valuation date, for any trading
options of industry peers based on daily price observations over a period equivalent to the expected term of the time to
a liquidity event. We intend to continue to consistently apply this process using the same or similar public companies
until a sufficient amount of historical information regarding the volatility of our own common stock share price
becomes available.
Expected term —The expected term represents the period that our stock ‑based awards are expected to be outstanding.
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The following table presents the weighted ‑average assumptions used to estimate the fair value of options granted during
the periods presented:
Stock Options
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend yield
5.27
2015
to 6.08
45 % to
52 %
1.48 % to 1.92 %
—
Year Ended December 31,
5.77
2014
to 6.08
52 % to
57 %
1.71 % to 2.00 %
—
2013
6.08
56%
1.00 % to 1.76 %
—
In addition to the assumptions used in the Black ‑Scholes option pricing model, the amount of stock ‑based
compensation expense we recognize in our financial statements includes an estimate of stock option forfeitures. We estimate our
forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate
based on actual forfeiture experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate
can have a significant impact on our stock ‑based compensation expense as the cumulative effect of adjusting the rate is
recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated
forfeiture rate, an adjustment is made that will result in a decrease to the stock ‑based compensation expense recognized in the
financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that
will result in an increase to the stock ‑based compensation expense recognized in our financial statements.
The following table presents the weighted-average assumptions used to estimate the fair value of the stock purchase
rights granted under the employee stock purchase plan:
ESPP
Expected term (in years)
Expected volatility
Risk-free interest rate
Dividend yield
(q)
Product
Warranties
Year Ended December 31,
0.50
2015
to
42 % to
0.08 % to
—
2.10
44 %
0.71 %
0.63
2014
to
43 % to
0.08 % to
—
2.14
44 %
0.49 %
The Company offers a limited warranty and a lifetime product replacement program for the Company’s silicone gel
breast implants. Under the limited warranty program, the Company will reimburse patients for certain out-of-pocket costs related
to revision surgeries performed within ten years from the date of implantation in a covered event. Under the lifetime product
replacement program, the Company provides no-charge replacement breast implants under a covered event. The programs are
available to all patients implanted with the Company’s silicone breast implants after April 1, 2012 and are subject to the terms,
conditions, claim procedures, limitations and exclusions. Timely completion of a device tracking and warranty enrollment form
by the patient’s Plastic Surgeon is required to activate the programs and for the patient to be able to receive benefits under either
program.
The following table provides a rollforward of the accrued warranties:
Beginning balance
Payments made during the period
Changes in accrual related to warranties issued during the period
Changes in accrual related to pre-existing warranties
Ending balance
85
December 31,
2015
2014
$
$
961
(14)
420
(35)
1,332
$
$
515
(1)
509
(62)
961
Table of Contents
(r)
Deferred
Equity
Issuance
Costs
Deferred equity issuance costs, primarily consisting of legal, accounting and other direct fees and costs relating to the IPO and
follow-on offering, were capitalized, as incurred, in other current assets prior to the completion of the IPO and follow-on
offering. Upon completion of the IPO, $3,178 of issuance costs were capitalized, all of which were reclassified to additional-
paid-in capital to offset the IPO proceeds for the year ending December 31, 2014. Upon completion of the follow-on offering,
$643 of issuance costs were capitalized, all of which were reclassified to additional-paid-in capital to offset the follow-on offering
proceeds for the year ended December 31, 2015.
(s)
Segment
Information
Management has determined that it has one business activity and operates in one segment as it only reports financial information
on an aggregate basis to its Chief Executive Officer, who is the Company’s chief operating decision maker. All tangible assets are
held in the United States.
(t)
Net
Loss
Per
Share
Basic loss per share attributable to common stockholders is computed by dividing net loss by the weighted average
number of common shares outstanding during each period. Diluted loss per common share is computed by dividing net loss
available to common stockholders by the weighted average number of common shares and dilutive potential common share
equivalents then outstanding, to the extent they are dilutive. Potential common shares consist of shares issuable upon the exercise
of stock options and warrants (using the treasury stock method), and the weighted average conversion of the convertible preferred
stock into shares of common stock (using the if-converted method). Dilutive loss per share is the same as basic loss per share for
all periods presented because the effects of potentially dilutive items were anti-dilutive.
Net loss
Weighted average common shares outstanding, basic and diluted
Net loss per share attributable to common stockholders
$
$
(41,230) $
(5,811) $
15,770,972
2,545,371
(2.61) $
(2.28) $
2015
December 31,
2014
2013
(19,125)
232,512
(82.25)
The Company excluded the following potentially dilutive securities, outstanding as of December 31, 2015, 2014 and
2013 from the computation of diluted net loss per share attributable to common stockholders for the years ended December 31,
2015, 2014 and 2013 because they had an anti-dilutive impact due to the net loss attributable to common stockholders incurred
for the periods.
Stock options to purchase common stock
Warrants for the purchase of common stock
Convertible preferred stock (as converted to common stock)
(u)
Recent
Accounting
Pronouncements
2015
1,967,906
47,710
—
2,015,616
December 31,
2014
1,613,544
47,710
—
1,661,254
2013
1,422,315
30,670
8,942,925
10,395,910
In May 2014, the FASB, issued accounting standard update, or ASU, 2014-09, Revenue from Contracts with Customers,
or Topic 606 . The standard was issued to provide a single framework that replaces existing industry and transaction specific U.S.
GAAP with a five step analysis of transactions to determine when and how revenue is recognized. The accounting standard
update will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August 2015, the
FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, to defer the
effective date of ASU 2014-09 by one year. Therefore, ASU 2014-09 will become effective for the Company beginning in fiscal
year 2018. Early adoption would be permitted for the Company beginning in fiscal year 2017. The standard permits the use of
either the retrospective or cumulative transition method. The Company is currently evaluating the accounting, transition and
disclosure requirements of the standard and cannot currently estimate the financial statement impact of adoption.
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In April 2015, the FASB issued accounting standard update 2015-03 , Interest — Imputation of Interest . The standard
was issued to simplify the presentation of debt issuance costs and require that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt
discounts. This accounting standard update will be effective for the Company beginning in fiscal year 2016. The Company
anticipates there will be no material impact on its financial statement upon adoption of this guidance.
In April 2015, the FASB issued accounting standard update 2015-05 , Intangibles — Goodwill and Other — Internal-
Use Software . The standard was issued to provide guidance to customers about whether a cloud computing arrangement includes
a software license. If a cloud computing arrangement includes a software license, then the customer should account for the
software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing
arrangement does not include a software license, the customer should account for the arrangement as a service contract. This
accounting standard update will be effective for the Company beginning in fiscal year 2016. The Company anticipates there will
be no material impact on its financial statement upon adoption of this guidance.
In July 2015, the FASB issued accounting standard update 2015-11 , Inventory — Simplifying the Measurement of
Inventory . The standard simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower
of cost and net realizable value, thereby simplifying the current guidance under which an entity must measure inventory at the
lower of cost or market. The accounting standards update will not apply to inventories that are measured by using either the last-
in, first-out method or the retail inventory method. This accounting standard update will be effective for the Company beginning
in fiscal year 2017. The Company anticipates there will be no material impact on its financial statement upon adoption of this
guidance.
In November 2015, the FASB issued accounting standard update 2015-17, Income Taxes – Balance Sheet Classification of
Deferred Taxes. The standard simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities
be classified as noncurrent in a classified statement of financial position. Current GAAP requires an entity to separate deferred
income tax liabilities and assets into current and noncurrent amounts. This accounting standard update will be effective for the
Company beginning in fiscal year 2017. The Company anticipates there will be no material impact to its financial statement upon
adoption of this guidance.
In February 2016, the FASB issued accounting standard update 2016-02, Leases (Topic 842) which supersedes FASB Accounting
Standard Codification Leases (Topic 840). The standard is intended to increase the transparency and comparability among
organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing
arrangements. This accounting standard update will be effective for the Company beginning in fiscal year 2019. The Company is
currently evaluating the impact that adoption of the standard will have on the financial statements and related disclosures.
(v
)
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
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(3) Balance Sheet Components
Property and equipment, net consist of the following:
Leasehold improvements
Laboratory equipment and toolings
Computer equipment
Software
Office equipment
Furniture and fixtures
Less accumulated depreciation
December 31,
2015
2014
$
$
86 $
366
277
655
137
724
2,245
(841)
1,404 $
Depreciation expense for the years ended December 31, 2015 , 201 4 and 201 3 was $256 , $1 82 and $148
respectively.
Accrued and other current liabilities consist of the following:
Accrued clinical trial and research and development expenses
Audit, consulting and legal fees
Payroll and related expenses
Accrued commission
Warrant liability
Other
( 4 ) Long-term Debt
December 31,
2015
2014
$
$
215
1,208
2,494
1,960
60
1,022
6,959
$
$
69
—
138
166
167
636
1,176
(621)
555
109
72
2,497
1,969
420
705
5,772
On January 17, 2013, the Company entered into a Loan and Security Agreement, or the Original Term Loan Agreement,
with Oxford providing for a $15,000 term loan facility consisting of original term loans of (i) a $7,500 tranche A term loan, (ii) a
$2,500 tranche B term loan and (iii) a $5,000 tranche C term loan, maturing on February 1, 2017. The term loan facility is
collateralized by a first-priority security interest in substantially all of the Company’s assets. Borrowings under the term loan
facility bear interest at a rate equal to 8.4% per annum and the Original Term Loan Agreement provides for interest-only
payments through June 30, 2015. The term loans include an additional lump sum payment of $975 due on February 1, 2017.
On June 30, 2014, the Company entered into the Amended and Restated Loan and Security Agreement, or the Amended
Term Loan Agreement, with Oxford, under which the interest-only period for the original term loans was extended to August 1,
2015 and raised an additional $10,000 in a fourth tranche (tranche D) maturing on January 1, 2019. The term loans are
collateralized by a first-priority security interest in substantially all of the Company’s assets. The term loans bear interest at a rate
equal to 8.4% per annum. The interest-only period for the tranche A, B and C term loans ends on August 1, 2015 and the interest-
only period for the tranche D term loan ends on the same date, but was extended another year to August 1, 2016 as the Company
raised at least $50,000 in gross proceeds as part of the IPO (see Note 1). The tranche D term loan includes an additional lump sum
payment of $650 due on January 1, 2019.
The Amended Term Loan Agreement contains various negative and affirmative covenants, including certain restrictive
covenants that limit the Company’s ability to transfer or dispose of certain assets, engage in new lines of business, change the
composition of Company management, merge with or acquire other companies, incur additional debt, create new liens and
encumbrances, pay dividends or subordinated debt and enter into material transactions with affiliates, among others. The
Amended Term Loan Agreement also contains financial reporting requirements.
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In connection with the Original Term Loan Agreement and the Amended Term Loan Agreement, the Company issued to
Oxford (i) seven -year warrants in Jan uary 2013 to purchase shares of the Company’s common stock with a value equal to 3.0%
of the tranche A, B and C term loans amounts and (ii) seven -year warrants in June 2014 to purchase shares of the Company’s
common stock with a value equal to 2.5% of the tranche D term loan amount. The warrants have an exercise price per share of
$14.671 .
On October 27, 2015, Oxford issued a notice to Sientra indicating that, in connection with the recent events involving
Silimed and the Company, certain events of default have occurred and continue to exist under the Amended Term Loan
Agreement. On October 28, 2015, Sientra repaid all principal, interest, other amounts and obligations owed to Oxford under the
term loans for a total of $24 ,539 , following which the Company has no outstanding debt obligations.
(5) Goodwill
The Company evaluates goodwill for impairment at least annually on October 1 and whenever circumstances suggest
st
that goodwill may be impaired.
On September 24, 2015, the Company experienced a significant decline in its common stock price, which was sustained
through September 30, 2015. The significant decline in the Company’s common stock price for a sustained period, along with the
impact from regulatory inquiries related to medical devices manufactured by Silimed, the Company’s contract manufacturer, were
identified as potential indicators of impairment of goodwill and other intangibles. As a result, the Company was required to assess
whether or not an impairment of its goodwill had occurred as of Septembe r 30, 2015. The Company assessed the impact of the
recent downward volatility in the Company's common stock price and concluded that the sustained decline constituted a
triggering event requiring an interim goodwill impairment test. The Company conducted the first step of the goodwill impairment
test described above for its single reporting unit as of September 30, 2015. The fair value of the reporting unit exceeded its
carrying value as of September 30, 2015 by 24.7% , and therefore goodwill was determined to not be impaired as of September
30, 2015.
As a result of the actions taken by the Brazilian regulatory agency ANVISA on October 2, 2015, and the Company
voluntarily placing a hold on the sale of all Sientra devices manufactured by Silimed on October 9, 2015, the Company
experienced a significant decline in its common stock price, which was sustained through December 31, 2015. The significant
decline in the Company’s common stock price for a sustained period, along with the impact from recent regulatory inquiries
related to medical devices manufactured by Silimed, the Company’s contract manufacturer, were identified as potential indicators
of impairment of goodw ill and the Company concluded that the se events constituted a triggering event requiring a goodwill
impairment test. The Company conducted a step one analysis which consists of a comparison of the fair value of the Company as
a single reporting unit using a market approach against its carrying amount, including goodwill. As a result of the step one
analysis, it was determined that the carrying value exceeded its fair value; therefore the Company proceeded to step two of the
goodwill impairment analysis. For step two, the Company compared the implied fair value of goodwill with the carrying amount
of goodwill and based on the analysis, there was no implied goodwill; therefore the Company recorded a goodwill impairment
charge of $14,278 for the quarter ended December 31, 2015 .
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(6 ) Income Taxes
Actual income tax expense differs from that obtained by applying the statutory federal income tax rate of 34% to income
before income taxes as follows:
Tax at federal statutory rate
State, net of federal benefit
Permanent items
Research and development credits
Benefit state rate change
Other
Change in valuation allowance
$
$
2015
(14,018) $
(1,624)
898
—
180
1
14,563
— $
Year Ended
December 31,
2014
(1,976) $
(260)
580
(216)
(941)
495
2,318
— $
2013
(6,502)
(576)
339
(232)
—
15
6,956
—
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets
are as follows:
Net operating loss carryforwards
Research and development credits
Depreciation
Accruals and reserves
Intangibles
Less valuation allowance
Total deferred tax assets
December 31,
2015
2014
$
53,244
2,233
26
1,900
9,565
66,968
(66,968)
— $
39,372
2,230
36
5,035
5,732
52,405
(52,405)
—
$
$
The Company has established a full valuation allowance against its net deferred tax assets due to the uncertainty
surrounding realization of such assets.
As of December 31, 2015 , the Company had net operating loss carryforwards of approximately $137,832 and $120,056
available to reduce future taxable income, if any, for federal and state income tax purposes, respectively. The federal net
operating loss carryforward begins expiring in 2027, and the state net operating loss carryforward s begin expiring in 2017. It is
possible that the Company will not generate taxable income in time to use these NOLs before their expiration. In addition, under
Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change ”, t
he corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change
income may be limited. In general, an “ownership change” occurs if there is a cumulative change in a loss corporation’s
ownership by 5% shareholders that exceeds 50 percentage points over a rolling three-year period. The Company has not
performed a detailed analysis to determine whether an ownership change under Section 382 of the Code has previously occurred.
As a result, if the Company earn s net taxable income, its ability to use their pre-change net operating loss carryforwards to
offset U.S. federal taxable income may become subject to limitations, which could potentially result in increased future tax
liability to the Company . Until such analysis is completed, the Company cannot be sure that the full amount of the existing fede
ral NOLs will be available to them, even if taxable income is generated before their expiration.
As of December 31, 2015 , the Company had research and development credit carryforwards of approximately $1,804
and $1,762 available to reduce future taxable income, if any, for federal and California state income tax purposes, r espectively.
The federal credit carryforwards begin expiring in 2027 and the state credits carryforward indefinitely.
At December 31, 2015 , the Company had unrecognized tax benefits of approximately $732 associated with the research
and development credits. The Company does not anticipate that total unrecognized net tax benefits will significantly change over
the next twelve months.
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A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Ending balance at December 31, 2013
Additions based on tax positions taken in the current year
Ending balance at December 31, 2014
Additions based on tax positions taken in the current year
Ending balance at December 31, 2015
$
$
671
61
732
—
732
It is the Company’s policy to include penalties and interest expense related to income taxes as a component of other
expense and interest expense, respectively, as necessary. There was no interest expense or penalties related to unrecognized tax
benefits recorded through December 31, 2015 .
The Company files U.S. federal and state income tax returns in jurisdictions with varying statute of limitations. The
years that may be subject to examination will vary by jurisdicti on. The Company’s tax years 201 1 to 201 5 will remain open for
examination by the federal and state tax authorities.
( 7 ) Stockholders’ Equity
(a)
Authorized
Stock
The Company’s Amended and Restated Certificate of Incorporation, effective upon the completion of the IPO,
authorizes the Company to issue 210,000,000 shares of common and preferred stock, consisting of 200,000,000 shares of
common stock with $0.01 par value and 10,000,000 shares of preferred stock with $0.01 par value. As of December 31, 2015 , the
Company has no preferred stock issued or outstanding .
(b)
Stock
Options
In April 2007, the Company adopted the 2007 Equity Incentive Plan, or 2007 Plan. The 2007 Plan provides for the
granting of stock options to employees, directors and consultants of the Company. Options granted under the 2007 Plan may
either be incentive stock options or nonstatutory stock options. Incentive stock options, or ISO s, may be granted only to
Company employees.
Nonstatutory stock options, or NSO s, may be granted to all eligible recipients. A total of 1,690,448 shares of the
Company’s common stock were reserved for issuance for the 2007 Plan.
As of December 31, 2015, pursuant to the 2007 Plan, there were 1,605,537 shares of common stock reserved and no
shares of common stock available for future grants.
The Company’s board of directors adopted the 2014 Equity Incentive Plan, or 2014 Plan, in July 2014, and the
stockholders approved the 2014 Plan in October 2014. The 2014 Plan became effective upon completion of the IPO, at which
time the Company ceased making awards under the 2007 Plan. Under the 2014 Plan, the Company may issue ISO, NSOs, stock
appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards, or collectively, stock
awards, all of which may be granted to employees, including officers, non-employee directors and consultants of the Company
and their affiliates. ISOs may be granted only to employees. A total of 1,027,500 shares of common stock were initially reserved
for issuance under the 2014 Plan, subject to certain annual increases.
Options under the 2007 Plan and the 2014 Plan may be granted for periods of up to ten years as determined by the
Company’s board of directors, provided, however, that (i) the exercise price of an ISO shall not be less than 100% of the
estimated fair value of the shares on the date of grant, and (ii) the exercise price of an ISO granted to a more than 10%
shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. An NSO has no such
exercise price limitations. The options generally vest with 25% of the grant vesting on the first anniversary and the balance
vesting monthly on a straight-lined basis over the requisite service period of three additional years for the award. Additionally,
options have been granted to certain key executives which vest upon achievement of performance conditions based on
performance targets as defined by the board of directors, which have included net sales targets and defined corporate objectives
over the performance period with possible payouts ranging from 0% to 100% of the target award . Compensation expense is
recognized on a straight-lined basis over the vesting term of one year based upon the probable
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performance target that will be met. The vesting provisions of individual options may vary but provide for vesting of at least 25%
per year.
As of December 31, 2015 , pursuant to the 2014 Plan, there were 1,325,759 shares of common stock reserved and 71,388
shares common stock available for future grants .
The following summarizes all option activity under the 2007 and 2014 Plan:
Balances at December 31, 2013
Granted
Exercised
Forfeited
Balances at December 31, 2014
Granted
Exercised
Forfeited
Balances at December 31, 2015
Vested and expected to vest at December 31, 2015
Vested and exercisable at December 31, 2015
Weighted
average
Option Shares
exercise price
Weighted average
remaining
contractual
term (year)
1,422,315
266,069
(12,900)
(20,578)
1,654,906
1,253,216
(36,189)
(86,261)
2,785,672
2,785,672
1,486,809
$
$
$
$
$
2.67
12.72
2.99
5.55
4.25
10.22
3.54
13.38
6.66
6.66
3.82
5.76
5.48
6.60
6.60
4.19
The weighted average grant date fair value of stock options granted to employees and directors during the years ended
December 31, 2015 and 2014 , and 2013 was $4.60 , $6.82 , and $1.90 per share, respectively. Stock-based compensation
expense for stock options for the years ended December 31, 2015 , 2014 and 2013 was $2,005 , $560 and $342 , respectively.
Tax benefits arising from the disposition of certain shares issued upon exercise of stock options within two years of the date of
grant or within one year of the date of exercise by the option holder, or Disqualifying Dispositions, provide the Company with a
tax deduction equal to the difference between the exercise price and the fair market value of the stock on the date of exercise.
When realized, those excess windfall tax benefits are credited to additional paid-in capital. As of December 31, 2015 there was
$4,733 of total unrecognized compensation cost related to stock options granted under the plans . The costs are expected to be
recognized over a weighted average period of 2.95 years. The expense is recorded within the operating expense components in
the statement of operations based on the employees receiving the awards.
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock
options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair
value of the Company’s common stock. The aggregate intrinsic value of stock options exercised was $597 , $176 , and $1
during the years ended December 31, 2015 , 2014 and 2013 , respectively .
The expected term of employee stock options, risk ‑free interest rate and volatility represents the weighted average, based on
grant date period, which the stock options are expected to remain outstanding. The Company utilized the simplified method to
estimate the expected term of the options pursuant to ASC Subtopic 718 ‑10 for all option grants to employees. The expected
volatility is based upon historical volatilities of an index of a peer group because it is not practicable to make a reasonable
estimate of the Company’s volatility. The risk ‑free interest rate is based on the U.S. Treasury yield curve in effect at the time of
the grant for periods corresponding with the expected term of the option. The dividend yield assumption is based on the
Company’s history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its
common stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
As stock ‑based compensation expense recognized in the Company’s statement of operations is based on awards
ultimately expected to vest, the amount has been reduced for estimated forfeitures. Forfeitures were estimated based on the
Company’s historical experience and future expectations.
For purposes of financial accounting for stock ‑based compensation, the Company has determined the fair values of its
options based in part on the work of a third ‑party valuation specialist. The determination of stock ‑based compensation is
inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use
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of judgment. If the Company had made different assumptions, its stock ‑based compensation expense, and its net loss could have
been significantly different.
(c)
Restricted
Stock
Units
The Company issued restricted stock units, or RSUs, under the 2014 Plan, during the year ending December 31, 2015. The
restricted stock units issued vest monthly, on a straight-line basis, over a 4 year requisite service period.
Activity related to RSUs, is set forth below:
Balance at December 31, 2014
Granted
Vested
Balance at December 31, 2015
Number of shares
—
17,993
—
17,993
$
$
Weighted average
grant date
fair value
—
3.88
—
3.88
The weighted average grant date fair value of RSUs granted to employees and directors during the year ended
December 31, 2015 was $3.88 per share . Stock-based compensation expense for RSUs for the year ended December 31, 2015
was $2 . As of December 31, 2015, there was $67 of total unrecognized compensation cost related to non-vested RSU awards.
The cost is expected to be recognized over a weighted average period of 3.87 years.
(d)
Employee
Stock
Purchase
Plan
The Company’s board of directors adopted the 2014 Employee Stock Purchase Plan, or ESPP, in July 2014, and the
stockholders approved the ESPP in October 2014. The ESPP allows eligible employees to purchase shares of the Company’s
common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan
limitations. The ESPP provides offering periods not to exceed 27 months , and each offering period will include purchase periods,
which will be the approximately six -month period commencing with one exercise date and ending with the next exercise date,
except that the first offering period commenced on the first trading day following the effective date of the Company's registration
statement. Employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock
on the first trading day of the offering period or on the exercise date. The number of shares available for sale under the 2014
Employee Stock Purchase Plan will be increased annually on the first day of each fiscal year, equal to the lesser of i) 1% of the
total outstanding shares of the Company’s common stock as of the last day of the immediately preceding fiscal year; ii) 3,000,000
shares of common stock, or iii) such lesser amount as determined by the board of directors.
As of December 31, 2015, the number of shares of common stock reserved for issuance under the ESPP was 404,629 .
During the year ended December 31, 2015 , employees purchased 44,250 shares under the 2014 ESPP at a weighted average
exercise price of $12.75 per share. As of December 31, 2015, the number of shares of common stock available for future
issuance under the ESPP was 360,379 . Stock -based compensation related to the ESPP for the years ended December 31, 2015
and 2014 was $375 and $34 , respectively.
( 8 ) Commitments and Contingencies
(a)
Operating
Lease
Commitment
In August 2013, the Company entered into a four month warehouse lease in Santa Barbara, California, commencing on
September 1, 2013. This operating lease is used for additional general office, warehouse, and research and development. This
lease has been renewed until January 2019.
In March 2014, the Company entered into a 68 month lease agreement in Santa Barbara, California. The operating lease
is for general office use only and commenced on July 1, 2014.
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The terms of the facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense
on a straight-line basis over the lease term. Rent expense for the years ended December 31, 2015 , 2014 and 2013 was $519 ,
$424 and $359 respectively.
As of December 31, 2015 , future minimum lease payments under all non ‑cancelable operating leases are as follows:
Year Ended December 31:
2016
2017
2018
2019
2020 and thereafter
$
$
503
510
518
436
72
2,039
(b)
Separation
and
Consulting
Agreements
On November 12, 2015, the Company entered into the following Separation and Consulting Agreements:
Mr. Hani Zeini stepped down from his role as President and Chief Executive Officer and he and the Company entered
into a Separation Agreement . Pursuant to the Separation Agreement, Mr. Zeini received: (i) a lump sum payment of $871 ,
which is equivalent to the sum of twelve (12) months of his base salary as in effect on the separation date plus the annual bonus
earned by Mr. Zeini in connection with the completion of the fiscal year prior to the separation date, and (ii) up to twelve (12)
months of company-paid health insurance premiums to continue his coverage. As a result of this Separation Agreement, the
Company incurred $871 in termination benefits which was recorded during the year ended December 31, 2015. Further, o n
February 16, 2 016, Mr. Zeini resigned from the Company’s board of directors .
The Company entered into a Consulting Agreement with Mr. Zeini. The term of the Consulting Agreement is effective
as of November 12, 2015 through December 31, 2016. Pursuant to the Consulting Agreement, Mr. Zeini shall provide consulting
services to the Company in the area of his experience and expertise for up to thirty (30) hours per month and Mr. Zeini will be
compensated in the amount of $43 per month. As a result of the terms and conditions of this Consulting Agreement, the Company
accrued for all consulting services to be rendered of $586 which was recorded during the year ended December 31, 2015.
Mr. Joel Smith stepped down from his role as General Counsel, Secretary and Chief Compliance Officer of the
Company. On December 7, 2015, he and the Company entered into a Separation Agreement and pursuant to the Separation
Agreement, Mr. Smith received: (i) aggregate payments equivalent to nine (9) months of his base salary as in effect on the
separation date plus the pro-rated annual bonus earned by Mr. Smith in connection with the completion of the fiscal year prior to
the separation date of $113 , and (ii) up to nine (9) months of company-paid health insurance premiums to continue his
coverage. As a result of this Separation Agreement, the Company incurred $338 in termination benefits which was recorded
during the year ended December 31, 2015.
(c)
Contingencies
The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company
accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be
reasonably estimated. There were no contingent liabilities requiring accrual as of December 31, 2015 .
In 2012, the Company filed a claim with the Hartford Insurance Company, or Hartford for reimbursement of legal costs
incurred in connection with litigation with a competitor that was resolved in 2013. The Company held a D&O insurance policy
with Hartford, and the Company and Hartford settled the matter in May 2014. The Company received settlement payments from
Hartford and recovery of costs associated with the litigation of $0 , $2,358 , and $351 for the years ended December 31, 2015,
2014 and 2013, respectively.
On September 25, 2015, a lawsuit styled as a class action of the Company’s stockholders was filed in the United States
District Court for the Central District of California. The lawsuit names the Company and certain of its officers as defendants and
alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, or the
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Exchange Act, in connection with allegedly false and misleading statements concerning the Company’s business, operations, and
prospects. The plaintiff seeks damages and an award of reasonable costs and expenses, including attorneys’ fees. On November
24, 2015, three stockholders (or groups of stockholders) filed motions to appoint lead plainti ff(s) and to approve their selection
on lead counsel. On December 10, 2015, the court entered an order appointing lead plaintiffs and approving their se lection of
lead counsel. On February 19, 2016, lead plaintiffs filed their consolidated amended complaint.
On October 28 , November 5, and November 19, 2015, three lawsuits styled as class actions of the Company’s
stockholders were filed in the Superior Court of California for the County of San Mateo. The lawsuits name the Company ,
certain of its officers and directors, and the underwriters associated with the Company’s follow-on public offering that closed on
September 23, 2015 as defendants. The lawsuits allege violations of Sections 11, 12(a)(2), and 15 of the Securities Act in
connection with allegedly false and misleading statements in the Company’s offering documents associated with the follow-on
offering concerning its business, operations, and prospects. The plaintiffs seek damages and an award of reasonable costs and
expenses, including attorneys’ fees. On December 4, 2015, defendants removed all three lawsuits to the United States District
Court for the Northern District of California. On December 15 and December 16, 2015, plaintiffs filed motions to remand the
lawsuits back to San Mateo Superior Court , or the Motions to Remand. On January 19, 2016, defendants filed their opposition to
the Motions to Remand, and plaintiffs filed their reply in support of the Motions to Remand on January 26, 2016.
It is possible that additional suits will be filed, or allegations made by stockholders, with respect to these same or other
matters and also naming the Company and/or its officers and directors as defendants. The Company believes it has meritorious
defenses and intends to defend these lawsuits vigorously. Due to the early stage of these proceedings, the Company is not able
to predict or reasonably estimate the ultimate outcome or possible losses relating to these claims.
(9 ) Subsequent Events
(a)
Resumption
of
Sales
On March 1, 2016, after the completion of extensive independent, third-party testing and analyses of our Breast Products in the
U.S., we lifted the temporary hold on the sale of our devices manufactured by Silimed. We also sent a letter to our Plastic
Surgeons informing them of the Company’s market re-entry plans. The conclusive results of our testing indicate no anticipated
significant safety concerns with the use of our products, including our breast implants, consistent with their approval status since
2012.
(b)
A
c
qu
i
sition
of
bioCorneum
On March 9, 2016, pursuant to the Asset Purchase Agreement, or the Purchase Agreement, by and among the Company,
Enaltus, LLC, and HealthEdge Investment Fund, L.P, we acquired certain assets of bioCorneum, an advanced silicone gel scar
management therapy product for the purchase price of $7,000 in cash. The assets acquired consist of inventory, intellectual p
roperty, specified contracts and the associated assumed liabilities.
We expect to account for the transaction as a business combination and are in the process of determining the allocation of the
purchase price to acquired assets and assumed liabilities. A determination of the acquisition-date fair values of the assets acquired
and the liabilities assumed is pending the completion of an independent appraisal and other evaluations and therefore further
disclosures have not been made .
(1 0 ) Summary of Quarterly Financial Information (Unaudited)
The following tables set forth our unaudited quarterly statements of operations data in dollars and as a percentage of
revenue and our key metrics for each of the eight quarters ended December 31, 2015 . We have prepared the quarterly data on a
consistent basis with the audited financial statements included in this report. In the opinion of management, the financial
information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation
of this data. This information should be read in conjunction with the audited financial statements and
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related notes included elsewhere in this report. The results of historical periods are not necessarily indicative of the results of
operations for a full year or any future period.
Quarter Ended
2015
Net sales
Gross profit
Net loss
Net loss per share:
Basic and diluted
2014
Net sales
Gross profit
Net loss
Net loss per share:
Basic and diluted
March 31
June 30
$
12,434 $
9,197
(3,384)
September 30 December 31
1,537
990
(28,250)
9,929 $
6,996
(6,604)
14,206 $
10,269
(2,992)
$
(0.23) $
(0.20) $
(0.43) $
(1.57)
Quarter Ended
March 31
June 30
$
10,228 $
7,654
(953)
September 30 December 31
12,116
8,903
(3,197)
10,670 $
7,838
(1,452)
11,719 $
8,838
(209)
$
(4.59) $
(1.00) $
(6.94) $
(0.34)
96
Table of Contents
S ientra , I nc .
Schedule II — Valuation and Qualifying Accounts
December 31, 201 5 , 201 4 and 201 3
(In thousands)
Year Ended December 31, 2013
Allowance for sales returns
Year Ended December 31, 2014
Allowance for sales returns
Year Ended December 31, 2015
Allowance for sales returns
(1)
Amounts represent actual sales returns.
Balance at
beginning of
period
Additions
charged to
costs and
expenses
Deductions
(1)
Balance at
end of
period
$
$
$
4,334
8,270
10,018
$
$
$
93,768
110,033
85,429
$
$
$
(89,832)
(108,285)
(94,787)
$
$
$
8,270
10,018
660
97
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURE S
Date: March 10, 2016
SIENTRA, INC.
By:
/s/ Jeffrey Nugent
Jeffrey Nugent
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Jeffrey Nugent and Matthew Pigeon, and each of them, as his true and lawful attorneys ‑in ‑fact and agents, with full
power of substitution for him, and in his name in any and all capacities, to sign any and all amendments to this Annual Report on
Form 10 ‑K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and
Exchange Commission, granting unto said attorneys ‑in ‑fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said attorneys ‑in ‑fact and agents, and either of them, his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name
/s/ Jeffrey Nugent
Jeffrey Nugent
/s/ Matthew Pigeon
Matthew Pigeon
/s/ Nicholas Simon
Nicholas Simon
/s/ Timothy Haines
Timothy Haines
/s/ R. Scott Greer
R. Scott Greer
/s/ Kevin O’Boyle
Kevin O’Boyle
Title
Date
Chief Executive Officer and Director (Principal Executive
Officer)
March 1 0 , 201 6
Chief Financial Officer and Treasurer (Principal Financial and
Accounting Officer)
March 1 0 , 201 6
March 1 0 , 201 6
March 1 0 , 201 6
March 1 0 , 201 6
March 1 0 , 201 6
Director
Director
Director
Director
98
Exhibit
Number
Exhibit Description
3.1 Amended and Restated
Certificate of Incorporation of
the Registrant
3.2 Amended and Restated Bylaws
of the Registrant.
4.1 Form of Common Stock
Certificate of the Registrant.
4.2 Conversion and Amendment
Agreement by and among the
Registrant and certain of its
stockholders, dated October 10,
2014.
4.3 Amended and Restated Investor
Rights Agreement, dated
March 28, 2012, by and among
Sientra, Inc., and the investors
and stockholders party thereto.
4.4 Warrant to Purchase Stock
issued to Oxford Finance LLC,
dated January 17, 2013.
4.5 Warrant to Purchase Stock
issued to Oxford Finance LLC,
dated January 17, 2013.
4.6 Warrant to Purchase Stock
issued to Oxford Finance LLC,
dated August 1, 2013.
4.7 Warrant to Purchase Stock
issued to Oxford Finance LLC,
dated August 1, 2013.
4.8 Warrant to Purchase Stock
issued to Oxford Finance LLC,
dated December 13, 2013.
4.9 Warrant to Purchase Stock
issued to Oxford Finance LLC,
dated December 13, 2013.
10.1# Form of Indemnity Agreement
by and between Sientra, Inc. and
its directors and officers.
10.2# 2007 Equity Incentive Plan, as
amended, and forms of award
agreements thereunder.
10.3# 2014 Equity Incentive Plan and
forms of award agreements
thereunder.
10.4# 2014 Non ‑Employee Director
Compensation Policy.
EXHIBIT INDEX
Incorporated by Reference
Form
S ‑1/A
SEC File
No.
333 ‑198837
Exhibit
3.2
Filing
October 20, 2014
Filed
Herewith
S ‑1/A
333 ‑198837
S ‑1/A
333 ‑198837
3.4
4.1
October 20, 2014
October 20, 2014
S ‑1/A
333 ‑198837
4.11
October 20, 2014
S ‑1
333 ‑198837
4.2
September, 19 2014
S ‑1
333 ‑198837
S ‑1
333 ‑198837
S ‑1
333 ‑198837
S ‑1
333 ‑198837
S ‑1
333 ‑198837
S ‑1
333 ‑198837
4.3
4.4
4.5
4.6
4.7
4.8
September, 19 2014
September, 19 2014
September, 19 2014
September, 19 2014
September, 19 2014
September, 19 2014
S ‑1
333 ‑198837
10.1
September, 19 2014
S ‑1
333 ‑198837
10.2
September, 19 2014
S ‑1/A
333 ‑198837
10.3
October 20, 2014
S ‑1
333 ‑198837
10.4
September, 19 2014
Table of Contents
Exhibit
Number
Exhibit Description
10.5# 2014 Employee Stock Purchase
Plan.
10.6 Multi ‑Purpose Commercial
Building Lease, dated March 28,
2014, by and between
Sientra, Inc. and Fairview
Business Center, L.P.
10.7 + Amended and Restated
Exclusivity Agreement, dated
April 4, 2007, by and between
Sientra, Inc. (formerly, Juliet
Medical, Inc.) and Silimed
Industria de Implantes Ltda.
(formerly, Silimed ‑Silicone e
Instrumental Medico ‑Cirugio e
Hospitalar Ltda.).
10.8 Amendment No. 1 to Amended
and Restated Exclusivity
Agreement, dated May 12, 2010,
by and between Sientra, Inc.
(formerly, Juliet Medical, Inc.)
and Silimed Industria de
Implantes Ltda. (formerly,
Silimed ‑Silicone e Instrumental
Medico ‑Cirugio e
Hospitalar Ltda.).
10.9 Amendment No. 2 to Amended
and Restated Exclusivity
Agreement, dated November 8,
2013, by and between
Sientra, Inc. (formerly, Juliet
Medical, Inc.) and Silimed
Industria de Implantes Ltda.
(formerly, Silimed ‑Silicone e
Instrumental Medico ‑Cirugio e
Hospitalar Ltda.).
Incorporated by Reference
Form
S ‑1/A
SEC File
No.
333 ‑198837
Exhibit
10.5
Filing
October 20, 2014
Filed
Herewith
S ‑1
333 ‑198837
10.6
September, 19 2014
S ‑1/A
333 ‑198837
10.8
October, 20 2014
S ‑1
333 ‑198837
10.9
September, 19 2014
S ‑1
333 ‑198837
10.10
September, 19 2014
10.10 # Offer Letter to R. Scott Greer,
dated July 9, 2014.
10.11 # Offer Letter to Kevin O’Boyle,
dated July 9, 2014.
10.12 # Offer Letter to Jeffrey Nugent,
dated July 9, 2014.
10.13 # 2014 Employee Stock Purchase
Plan.
S ‑1
S ‑1
S ‑1
333 ‑198837
333 ‑198837
333 ‑198837
S ‑1/A
333 ‑198837
10.11
10.12
10.13
10.5
September, 19 2014
September, 19 2014
September, 19 2014
October 20, 2014
Table of Contents
Exhibit
Number
Exhibit Description
10.14 # Amended and Restated
Form
10-K
SEC File
No.
001-36709
Exhibit
10.18
Filing
March 18, 2015
Filed
Herewith
Incorporated by Reference
Employment Agreement by and
between Sientra, Inc. and
Charles Huiner, dated
February 1, 2015.
10.15 # Amended and Restated
10-Q
001-36709
10.1
May 14, 2015
Employment Agreement by and
between Sientra, Inc. and
Matthew Pigeon, dated February
1, 2015.
10.16# Separation Agreement by and
between Sientra, Inc. and Hani
Zeini, dated November 12, 2015
.
10.17# Consulting Agreement by and
between Sientra, Inc. and Hani
Zeini, dated November 12, 2015.
10.18# Employment Agreement by and
between Sientra, Inc. and Jeffrey
Nugent, dated November 12,
2015.
10.19# Separation Agreement by and
between Sientra, Inc. and Joel
Smith, dated December 7, 2015.
10.20# Sientra, Inc. Inducement Plan
and forms of award agreements
thereunder.
16.1 Letter from
PricewaterhouseCoopers LLP to
the Securities and Exchange
Commission, dated September 1,
2015.
21.1 List of significant subsidiaries of
the registrant.
23.1 Consent of KPMG LLP, an
independent registered public
accounting firm.
24.1 Power of Attorney (included in
signature page to this Annual
Report on Form 10 ‑K).
31.1 Certification of Principal
Executive Officer pursuant to
Rule 13a ‑14(a) or Rule 15d
‑14(a) of the Securities
Exchange Act of 1934, as
amended.
10-Q
001-36709
10.1
November 16, 2016
10-Q
001-36709
10.2
November 16, 2016
10-Q
001-36709
10.3
November 16, 2016
S ‑1/A
333 ‑206755
16.1
September 3, 2015
S ‑1
333 ‑198837
21.1
September 19, 2014
X
X
X
X
X
Table of Contents
Exhibit
Number
Exhibit Description
Form
Incorporated by Reference
SEC File
No.
Exhibit
Filing
31.2 Certification of Principal
Financial Officer pursuant to
Rule 13a ‑14(a) or Rule 15d
‑14(a) of the Securities
Exchange Act of 1934, as
amended.
32.1 Certification of Principal
32.2 Certification of Principal
Executive Officer pursuant to
Rule 13a ‑14(b) of the Securities
Exchange Act of 1934, as
amended, and 18 U.S.C.
Section 1350, as adopted
pursuant to Section 906 of the
Sarbanes ‑Oxley Act of 2002.
Financial Officer pursuant to
Rule 13a ‑14(b) of the Securities
Exchange Act of 1934, as
amended, and 18 U.S.C.
Section 1350, as adopted
pursuant Section 906 of the
Sarbanes ‑Oxley Act of 2002.
101.INS* XBRL Instance Document.
101.SCH* XBRL Taxonomy Extension
Schema Document.
Filed
Herewith
X
X
X
101.CAL* XBRL Taxonomy Extension
Calculation Linkbase Document.
101.DEF* XBRL Taxonomy Extension
Definition Linkbase Document.
101.LAB* XBRL Taxonomy Extension
Label Linkbase Document.
101.PRE* XBRL Taxonomy Extension
Presentation Linkbase
Document.
+ Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed
separately with the SEC.
# Indicates management contract or compensatory plan, contract, or agreement.
* XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a
registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed
for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these
sections.
December 7 , 2015
Joel Smith
Address: last address on file with Company
RE: Separation Agreement
Dear Joel :
This letter sets forth the terms and conditions of our agreement (the “Agreement”) regarding the
separation of your employment with Sientra, Inc. (the “Company”) . This Agreement will become
effective on the “Effective Date” as defined in Section 11 herein. You and the Company hereby
agree as follows:
1.
Separation . You have submitted and the Company has accepted your resignation
from the Company, including any and all positions and offices held by you, effective November 12 ,
2015 (the “Separation Date”).
2.
Separation Benefits. In exchange for your covenants and releases herein, and
provided that this Agreement becomes effective as specified in Section 1 1 below, the Company will
provide you with the following separation benefits (collectively, the “Separation Benefits”) , items
(a) (i) and (b) of which are equivalent in amount to those described in Section 6.3 of the Employment
Agreement between you and the Company effective February 1, 2015 (the “Employment
Agreement”) .
(a)
S alary . (i) You shall receive aggregate payments equivalent to nine ( 9 ) months
of your base salary as in effect on the Separation Date, paid in equal installm ents on the Company’s
regularly- scheduled payroll dates beginning with the first such payroll date following the Effective
Date. (ii) In addition, you shall receive a p ro-rated annual bonus of $ 112,548 with respect to the
fiscal year prior to the Separation Date. Payment of such bonus shall be made in a lump sum as soon
as practicable following the completion of such fiscal year , but no later than January 15, 2016.
(b)
Health Care Coverage. Provided further that you timely elect continued coverage
under COBRA, the Company shall pay your COBRA premiums to continue your coverage (including
coverage for eligible dependents, if applicable) (“ COBRA Premiums ”) through the period (the “
COBRA Premium Period ”) starting on the Separation Date and ending on the earliest to occur of: (i)
nine ( 9 ) months following the Separation Date; (ii) the date you become eligible for group health
insurance coverage through a new employer; or (iii) the date you cease to be eligible for COBRA
continuation coverage for any reason, including plan termination. In the event you become covered
under another employer’s group health plan or otherwise cease to be eligible for COBRA during the
COBRA Premium Period,
immediately notify the Company of such event.
Notwithstanding the foregoing, if the Company determines, in its sole discretion, that
you must
Joel Smith
December 7 , 2015
Page 2
it cannot pay the COBRA Premiums without a substantial risk of violating applicable law (including,
without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof
provide to you a taxable monthly payment in an amount equal to the monthly COBRA premium that
you would be required to pay to continue your group health coverage in effect on the date of your
employment termination (which amount shall be based on the premium for the first month of
COBRA coverage), which payments shall be made on the last day of each month regardless of
whether you elect COBRA continuation coverage and shall end on the earlier of (x) the date upon
which you obtain other employment or (y) the last day of the 9 th calendar month following the
Separation date.
(c)
Tax Withholding. All compensation described in this Section 2 will be subject to the
Company’s collection of all applicable federal, state and local income and employment withholding
taxes.
(d)
Final Expense Report. With in seven ( 7 ) days of the Separation Date , the
Company will provide you a complete list of all expenses submitted by you in the 3 and 4 quarters
of 2015 , indicating whether they have been paid by the Company. You will have thirty (30) days
from the Separation Date to submit a final expense report for business expenses incurred through the
Separation Date. Reimbursement for such expenses will be made to you within five (5) days after
receipt of the expense report.
rd
th
(e)
Post-Service Option Exercise Period. With respect to your outstanding options to
purchase common stock of the Company, notwithstanding anything to the contrary in the governing
plan or award agreement, you will be permitted to exercise such options until the later of (i) the final
day of the post-termination exercise period provided in the relevant option agreement (including any
longer period applicable in the case of death or disability, if your service terminated by reason of
death or disability); or (ii) March 31, 2017; provided, however, that no option shall be exercisable
later than the expiration of the term of such option.
(f)
Legal Fees. The Company agrees to pay (a) the legal fees set forth on the invoice
from Fish & Richardson P.C. (“Fish”) dated November 9, 2015 and any reasonable legal fees set
forth on a subsequent Fish invoice presented to the Company within five (5) days following the date
of this Agreement; and (b) up to $10,000 in reasonable legal fees incurred by you from Fish in
connection with the negotiation of this Agreement, which amounts shall , in each case, be paid
directly to Fish promptly upon presentation of a stat ement of fees actually incurred .
3.
Other Compensation and Benefits. Except as expressly provided herein or pursuant
to the terms of any plan providing for retirement benefits, including, without limitation, any 401(k)
plan, sponsored by the Company for your benefit, you acknowledge and agree that you are not
entitled to and will not receive any additional compensation, wages, reimbursement, severance, or
benefits from the Company.
4.
Termination of The Company’s Obligations . Notwithstanding any provisions in
this Agreement to the contrary and except as consented to above, the Company’s obligations
hereunder shall cease and be rendered a nullity immediately should you fail to comply with any of
the provisions of this Agreement.
Joel Smith
December 7 , 2015
Page 3
5.
Company Property . You represent and confirm that no later than December 7 ,
2015 ,
you will return to the Company the Company - owned laptop , i P ad, and building-access
card, and any Company documents (and all copies thereof) and other property of the Company in
your possession or control , including, but not limited to, computer security access, files, business
plans, notes, financial information, financial information, data, computer-recorded information,
tangible property, including entry cards, keys and any other materials of any nature pertaining to your
work with the Company, and any documents or data of any description (or any reproduction of any
documents or data) containing or pertaining to any proprietary or confidential material of the
Company; provided that: (a) you shall be permitted to retain copies of documents relating to the
terms and conditions of your employment with the Company (for example, copies of Stock Option
Agreements); and (b) Fish shall be permitted to retain an imaged copy of the hard-drive s of your
Company lap-top and i P ad sole l y for use in connection with any “Proceeding” as that term is
defined in the Indemnification Agreement dated October 21, 2011, subject to your continued
obligations under the Company's Confidentiality, Inventions and Non-Interference Agreement as set
forth in Paragraph 6.of the Agreement .
6.
Confidential Information and Proprietary Information Obligations. You
acknowledge signing the Company’s Confidentiality, Inventions and Non-Interference Agreement
(the “CINA”) c ontaining a confidentiality agreement in connection with your employment with the
Company. You represent that you have complied with and will continue to comply with the terms of
the CINA.
7.
Non-Disparagement; Inquiries . You shall not make any disparaging comments or
statements about the Company, its services, its products, its work, the members of its Board of
Directors (the “Board”), or executive management. The Company will follow its standard neutral
reference policy in response to any inquiries regarding you from prospective employers . The
Company agrees to direct the members of the Board and executive officers of the Company not to
make any disparaging comments about you, your professional capabilities or your service to the
Company. Nothing in this Agreement shall preclude you or the Company (or its employees, officers,
directors, or agents) from responding accurately and fully to any question, inquiry or request for
information when required by legal process.
8.
Cooperation and Assistance . You agree that you will not voluntarily provide
assistance, information, encouragement, or advice, directly or indirectly (including through agents or
attorneys), to any person or entity in connection with any claim by or against the Company, nor shall
you induce or encourage any person or entity to do so. The foregoing sentence shall not prohibit you
from testifying truthfully under subpoena. You warrant that you have not previously provided
assistance, information, encouragement, or advice, directly or indirectly, to any person or entity in
connection with any claim by or against the Company. You agree to provide (voluntarily and
without legal compulsion) prompt cooperation and accurate and complete information to the
Company in the event of litigation or government proceeding or investigation involving the Company
or its officers or directors and to respect and preserve all privileges held by or available to the
Company. The Company agrees to compensate you for your time spent consulting with and traveling
to any litigation-related proceeding at a reasonable rate to be agreed between you and the Company
plus reimbursement of reasonable travel costs.
Joel Smith
December 7 , 2015
Page 4
9.
Injunctive Relief. The parties agree that any remedy at law will be inadequate for
any breach by you or the Company of the covenants under Sections 6 , 7 , and 8 of this
Agreement, and that each party shall be entitled to an injunction both preliminary and final, and any
other appropriate equitable relief to enforce her or its rights set forth in these Sections. Such
remedies shall be cumulative and non-exclusive, being in addition to any and all other remedies
either party may have.
10.
Release of Claims.
(a)
General Release. In exchange for the consideration provided to you under this
Agreement to which you would not otherwise be entitled, including but not limited to the Separation
Benefits, you hereby generally and completely release the Company and its current and former
directors, officers, employees, shareholders, partners, agents, attorneys, predecessors, successors,
parent and subsidiary entities, insurers, affiliates, investors and assigns (collectively, the “Released
Parties”) of and from any and all claims, liabilities and obligations, both known and known, that arise
out of or are in any way related to events, acts, conduct, or omissions occurring prior to or on the date
you sign this Agreement (collectively, the “Released Claims”) .
(b)
Scope of Release. The Released Claims include, but are not limited to: (i) all claims
arising out of or in any way related to your employment with the Company, the Employment
Agreement, or the termination of your employment: (ii) all claims related to your compensation or
benefits from the Company, including salary, bonuses, commissions, vacation pay, expense
reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests
in the Company: (iii) all claims for breach of contract, wrongful termination, and breach of the
implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud,
defamation, emotional distress, wrongful termination, and discharge in violation of public policy; and
(v) all federal, state, and local statutory claims, including claims for discrimination, harassment,
retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as
amended), the federal Americans with Disabilities Act of 1990, the Age Discrimination in
Employment Act (“ADEA”), the federal Family and Medical Leave Act (as amended) (“FMLA”),
the California Family Rights Act (“CFRA”), the California Labor Code (as amended), the California
Unruh Act, and the California Fair Emp loyment and Housing Act (as amended).
(c)
Excluded Claims. Notwithstanding the foregoing, the following are not included in
the Released Claims (the “Excluded Claims”): (i) any rights or claims for indemnification you may
have pursuant to any written indemnification agreement with the Company to which you are a party,
the charter, bylaws, or operating agreements of the Company, or under applicable law; (ii) any rights
or claims which are not waivable as a matter of law; and (iii) any claims for breach of this
Agreement. In addition, nothing in this Agreement prevents you from filing, cooperating with, or
participating in any proceeding before the Equal Employment Opportunity Commission, the
Department of Labor, the California Department of Fair Employment and Housing, or any other
government agency, except that you acknowledge and agree that you hereby waive your right to any
monetary benefits in connection with any such claim, charge or proceeding. You represent and
warrant that, other than the Excluded Claims, you are not aware of any claims you have or might
have against any of the Released Parties that are not included in the Released Claims.
Joel Smith
December 7 , 2015
Page 5
(d)
Acknowledgements. You acknowledge that (i) the consideration given to you in
exchange for the waiver and release in this Agreement is in addition to anything of value to which
you were already entitled; (ii) that you have been paid for all time worked, have received all the
leave, leaves of absence and leave benefits and protections for which you are eligible, and have not
suffered any on ‑the-job injury for which you have not already filed a claim; (iii) you have been
given sufficient time to consider this Agreement and to consult an attorney or advisor of your
choosing; and (iv) you are knowingly and voluntarily executing this Agreement waiving and
releasing any claims you may have as of the date you execute it.
(e)
The Company, on behalf of itself, and each of its parents, subsidiaries and affiliates,
and each of them, hereby covenants not to sue you and fully releases and discharges you, your
descendants, dependents, heirs, executors, administrators, assigns, and successors with respect to and
from any and all claims, demands, rights, liens, agreements or contracts (written or oral), covenants,
actions, suits, causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages,
judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, to the extent
known by the Company or any member of the Board as of the Separation Date (each, a “Claim”)
(including, without limitation, any Claim arising out of or in any way connected with your service as
an officer, director, or employee of Company, or any other transactions, occurrences, acts or
omissions or any loss, damage or injury whatever), resulting from any act or omission by or on the
part of you, committed or omitted prior to the date of Company’s execution of this Agreement.
11.
ADEA Waiver . You knowingly and voluntarily waive and release any rights you
may have under the ADEA (defined above). You also acknowledge that the consideration given for
your releases in this Agreement is in addition to anything of value to which you were already
entitled. You are advised by this writing that: (a) your waiver and release do not apply to any claims
that may arise after you sign this Agreement; (b) you should consult with an attorney prior to
executing this release (and you have done so); (c) you have twenty-one (21) days within which to
consider this release (although you may choose to voluntarily execute this release earlier); (d) you
have seven (7) days following the execution of this release to revoke this Agreement; and (e) this
Agreement will not be effective until the eighth day after you sign this Agreement, provided that you
have not earlier revoked this Agreement (the “Effective Date” ). You will not be entitled to receive
any of the benefits specified by this Agreement unless and until it becomes effective.
12.
Section 1542 Waiver . In giving the applicable releases set forth herein, which
include claims which may be unknown at present, each party acknowledges that you or it have or has
read and understand(s) Section 1542 of the Civil Code of the State of California which reads as
follows:
A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which if
known by him or her must have materially affected his or her settlement with the
debtor.
Joel Smith
December 7 , 2015
Page 6
Each party expressly waives and relinquishes all rights and benefits under this section and any law or
legal principle of similar effect in any jurisdiction with respect to claims released hereby.
13.
No Admissions. The parties hereto hereby acknowledge that this is a compromise
settlement of various matters, and that the promised payments in consideration of this Agreement
shall not be construed to be an admission of any liability or obligation by either party to the other
party or to any other person or entity whomsoever.
14.
Entire Agreement . This Agreement constitutes the complete, final and exclusive
embodiment of the entire Agreement between you and the Company with regard to the subject matter
hereof. It is entered into without reliance on any promise or representation, written or oral, other than
those expressly contained herein. It may not be modified except in writing signed by you and the
Chairman of the Board of the Company. Each party has carefully read this Agreement, has been
afforded the opportunity to be advised of its meaning and consequences by his or its respective
attorneys, and signed the same of his or its free will.
15.
Successors and Assigns. This Agreement shall bind the heirs, personal
representatives, successors, assigns, executors, and administrators of each party, and inure to the
benefit of each party, its agents, directors, officers, employees, servants, heirs, successors and
assigns.
16.
Applicable Law. This Agreement shall be deemed to have been entered into and
shall be construed and enforced in accordance with the laws of the State of California as applied to
contracts made and to be performed entirely within California.
17.
Severability . If a court or arbitrator of competent jurisdiction determines that any
term or provision of this Agreement is invalid or unenforceable, in whole or in part, the remaining
terms and provisions hereof shall be unimpaired. Such court or arbitrator will have the authority to
modify or replace the invalid or unenforceable term or provision with a valid and enforceable term or
provision that most accurately represents the parties’ intention with respect to the invalid or
unenforceable term or provision.
18.
Indemnification. The Company will indemnify and save harmless you from any loss
incurred directly or indirectly by reason of the falsity or inaccuracy of any representation made
herein. The Company and you acknowledge and agree that the terms of the Company’s standard
form of indemnification agreement for members of the Board and executive officers of the Company
have applied to you in your role as an executive officer of the Company . The Company hereby
affirms its continuing agreements and obligations as set forth in the Indemnification Agreement
between you and the Company dated October 21, 2011 .
19.
Authorization. You and the Company warrant and represent that there are no liens
or claims of lien or assignments in law or equity or otherwise of or against any of the claims or
causes of action released herein and, further, that each of them are fully entitled and duly authorized
to give their complete and final general release and discharge.
Joel Smith
December 7 , 2015
Page 7
20.
Counterparts. This Agreement may be executed in two counterparts, each of which
shall be deemed an original, all of which together shall constitute one and the same instrument.
21.
Section Headings. The section and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or interpretation of this
Agreement.
22.
Photocopies. A photocopy of this executed Agreement shall be as valid, binding, and
effective as the original Agreement.
23.
Section 409A. It is intended that all of the benefits and payments payable under this
Agreement satisfy, to the greatest extent possible, an exemption from Section 409A of the Internal
Revenue Code of 1986, as amended (“Section 409A”), and this Agreement will be construed to the
greatest extent possible as consistent with those exemptions, and to the extent not so exempt, this
Agreement (and any definitions hereunder) will be construed to the greatest extent possible in a
manner that complies with Section 409A. For purposes of Section 409A, your right to receive any
installment payments under this Agreement (whether severance payments, reimbursements or
otherwise) shall be treated as a right to receive a series of separate payments and, accordingly, each
installment payment hereunder shall at all times be considered a separate and distinct payment.
Notwithstanding any provision to the contrary in this Agreement, if you are deemed by the Company
at the time of your separation from service to be a “specified employee” for purposes of Section
409A, and if any of the payments upon separation from service set forth herein and/or under any
other agreement with the Company are deemed to be “deferred compensation”, then to the extent
delayed commencement of any portion of such payments is required in order to avoid a prohibited
distribution under Section 409A and the related adverse taxation under Section 409A, such payments
shall not be provided to you prior to the earliest of (i) the expiration of the six-month period
measured from the date of your separation from service, (ii) the date of your death or (iii) such earlier
date as permitted under Section 409A without the imposition of adverse taxation. If the release
revocation period spans two calendar years, payments will commence in the second of those two
calendar years to the extent required to comply with Section 409A.
Please confirm your assent to the foregoing terms and conditions of our Agreement by signing and
returning a copy of this letter to me.
Sincerely,
Sientra, Inc.
By:
/s/ Matthew Pigeon
Matthew Pigeon
(Printed Name)
Title: Chief Financial Officer
Having read and reviewed the foregoing, I hereby agree to and accept the terms and conditions
of this Agreement as stated above.
/s/ Joel Smith
Joel Smith
December 7, 2015
Date
[Signature Page to Separation Agreement – Joel Smith]
Sientra, Inc.
Inducement Plan
Adopted by the Bo ard of Directors : March 7 , 2016
1.
General.
(a)
Eligible Stock Award Recipients. The only persons eligible to receive grants of
Stock Awards under this Plan are individuals who satisfy the standards for inducement grants under
NASDAQ Marketplace Rule 5635(c)(4) and the related guidance under NASDAQ IM 5635-1 . A
person who previously served as an Employee or Director will not be eligible to receive Stock
Awards under the Plan, other than following a bona fide period of non-employment. Person s
eligible to receive grants of Stock Awards under this Plan are referred to in this Plan as “ Eligible
Employees
”. These Stock Awards must be approved by either a majority of the Company's “
Independent
Directors
” (as such term is defined in NASDAQ Listing Rule 5605(a)(2) ) or the
Company’s compensation committee, provided such committee is comp rised solely of Independent
Directors (the “ Independent
Compensation
Committee
”) in order to comply with the exemption
from the stockholder approval requirement for “inducement grants” provided under Rule 5635(c)(4)
of the NASDAQ Listing Rules. NASDAQ Marketplace Rule 5635(c)(4) and the related guidance
under NASDAQ IM 5635-1 are referred to in this Plan as the “ Inducement
Award
Rules
”.
(b)
Available Awards. The Plan provides for the grant of Options and Restricted
Stock Unit Awards . All Options will be Nonstatutory Stock Options. A wards intended to qualify as
stockholder-approved performance based compensation for purposes of Section 162(m) of the Code
may not be granted under this Plan.
(c)
Purpose. Th is Plan, through the granting of Stock Awards, is intended to provide
(i) an inducement material for certain individuals to enter into employment with the Company within
the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules , (ii) incentives for such persons to
exert maximum efforts for the success of the Company and any Affiliate and (iii) a means by which
Eligible Employees may be given an opportunity to benefit from increases in value of the Common
Stock through the granting of Stock Awards.
2.
Administration.
(a)
Administration by Board. The Board will administer the Plan, provided, however,
that Stock Awards may only be granted by either (i) a majority of the Company's Independent
Directors or (ii) the Independent Compensation Committee . Subject to those constraints and the
other constraints of the Inducement Award Rules, the Board may delegate some of its powers of
administration of the Plan to a Committee, as provided in Section 2 (c).
(b)
Powers of Board. The Board will have the power, subject to, and within the
limitations of, the express provisions of the Plan and the Inducement Award Rules :
1 .
(i)
To determine : (A ) who will be granted Stock Awards ; (B ) when and how
e ach Stock Award will be granted ; (C ) what type of Stock Award will be granted ; (D ) the
provisions of each Stock Award (which need not be identical), including when a person will be
permitted to exercise or otherwise receive cash or Com mon Stock under the Stock Award ; (E ) the
number of shares of Common Stock subject to , or the cash value of, a Stock Award ; and (F) the
Fair Market Value applicable to a Stock Award ; provided, however, that Stock Awards may only
be granted by either (i) a majority of the Company's Independent Directors or (ii) the Independent
Compensation Committee .
(ii)
To construe and interpret the Plan and Stock Awards granted under it, and to
establish, amend and revoke rules and regulations for administration of the Plan and Stock Awards .
The Board, in the exercise of these powers, may correct any defect, omission or inconsistency in the
Plan or in any Stock Award Agreement, in a manner and to the extent it will deem necessary or
expedient to make the Plan or Stock Award fully effective.
(iii)
To settle all controversies regarding the Plan and Stock Awards granted under
it.
(iv)
To accelerate, in whole or in part, the time at which a Stock Award may be
exercised or vest (or at which cash or shares of Common Stock may be issued).
(v)
To suspend or terminate the Plan at any time. Except as otherwise provided
in the Plan or a Stock Award Agreement, suspension or termination of the Plan will not materially
impair a Participant’s rights under his or her then-outstanding Stock Award without his or her written
consent except as provided in subsection (viii) below.
(vi)
To amend the Plan in any respect the Board deems necessary or advisable,
including, without limitation, adopting amendments relating to nonqualified deferred compensation
under Section 409A of the Code and/or making the Plan or Stock Award s granted under the Plan
exempt from or compliant with the requirements for nonqualified deferred compensation under
Section 409A of the Code , subject to the limitations, if any, of applicable law. I f required by
applicable law or listing requirements , and except as provided in Section 9(a) relating to
Capitalization Adjustments, the Company will seek stockholder approval of any amendment of the
Plan that (A) materially increases the number of shares of Common Stock available for issuance
under the Plan, (B) materially expands the class of individuals eligible to receive Stock Awards under
the Plan, (C) materially increases the benefits accruing to Participants under the Plan, (D ) materially
reduces the price at which shares of Common Stock may be issued or purchased under the Plan,
(E) materially extends the term of the Plan, or (F) materially expands the types of Stock Awards
available for issuance under the Plan. Except as otherwise provided in the Plan (including
subsection (viii) below) or a Stock Award Agreement, no amendment of the Plan will materially
impair a Participant’s rights under an outstanding Stock Award without the Participant’s written
consent.
(vii)
To submit any amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy the requirements of Rule 16b-3 of
Exchange Act or any successor rule .
2 .
(viii)
To approve forms of Stock Award Agreement s for use under the Plan and to
amend the terms of any one or more outstanding Stock Award s, including, but not limited to,
amendments to provide terms more favorable to the Participant than previously provided in the Stock
Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion .
A Participant’s rights under any Stock Award will not be impaired by any such amendment unless
the Company requests the consent of the affected Participant, and the Participant consents in writing.
However, a Participant’s rights will not be deemed to have been impaired by any such amendment if
the Board, in its sole discretion, determines that the amendment, taken as a whole, does not materially
impair the Participant’s rights . In addition, subject to the limitations of applicable law, if any, the
Board may amend the terms of any one or more Stock Awards without the a ffected Participant’s
consent ( A ) to clarify the manner of exemption from, or to bring the Stock Award int o compliance
with, Section 409A of the Code , or ( B ) to comply with other applicable laws or listing
requirements .
(ix)
Generally, to exercise such powers and to perform such acts as the Board
deems necessary or expedient to promote the best interests of the Company and that are not in
conflict with the provisions of the Plan and/ or Stock Award Agreement s .
(x)
To adopt such procedures and sub-plans as are necessary or appropriate (A) to
permit participation in the Plan by individuals who are foreign nationals or employed outside the
United States or (B) allow Stock Awards to qualify for special tax treatment in a foreign jurisdiction;
provided that Board approval will not be necessary for immaterial modifications to the Plan or any
Stock Award Agreement that are required for compliance with the laws of the relevant forei gn
jurisdiction .
(xi)
To effect, with the consent of any adversely affected Participant, (A ) the
reduction of the exercise price of any outstanding Option ; (B ) the cancellation of any outstanding
Stock Award and the grant in substitution therefore of a new (1 ) Option (2 ) Restricted Stock Unit
Award, ( 3 ) cash award and/or ( 4 ) award of other valuable consideration determined by the Board,
in its sole discretion, with any such substituted award (x ) covering the same or a different number of
shares of Common Stock as the cancelled Stock Award and (y ) granted under the Plan or another
equity or c ompensatory plan of the Company ; or (C ) any other action that is treated as a repricing
under generally accepted accounting principles.
(c)
Delegation to Committee.
(i)
General. The Board may delegate some or all of the administration of the
Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the
Committee will have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board that have been delegated to the Committee, including the power to delegate
to a subcommittee of the Committee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board will thereafter be to the Committee or
subcommittee). Any delegation of administrative powers will be reflected in resolutions, not
inconsistent with the provisions of the Plan, adopted from time to time by the Board or Committee
(as applicable). The Committee may, at any time, abolish the subcommittee and/or revest in the
Committee any powers delegated to the subcommittee. The Board may retain the authority to
3 .
concurrently administer the Plan with the Committee and may, at any time, revest in the Board some
or all of the powers previously delegated.
(ii)
Rule 16b-3 Compliance. The Committee may consist solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3 of the Exchange Act .
(d)
Effect of Board’s Decision. All determinations, interpretations and constructions
made by the Board in good faith will not be subject to review by any person and will be final, binding
and conclusive on all persons.
3.
Shares Subject to the Plan.
(a)
Share Reserve .
(i)
Subject to Section 9(a) relating to Capitalization Adjustments, the aggregate
number of shares of Common Stock that may be issued pursuant to Stock Awards will not exceed
180,000 shares (the “ Share
Reserve
”) .
(ii)
For clarity, the Share Reserve is a limitation on the number of shares of
Common Stock that may be issued under to the Plan. A s a single share may be subject to grant more
than once ( e.g. , if a share subject to a Stock Award is forfeited, it may be made subject to grant
again as provided in Section 3(b) below), the Share Reserve is not a limit on the number of Stock
Awards that can be granted .
(iii)
Shares may be issued under the terms of this Plan in connection with a
merger or acquisition as permitted by NASDAQ Listing Rule 5635(c), NYSE Listed Company
Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable rule, and such
issuance will not reduce the number of shares available for issuance under the Plan.
(b)
Reversion of Shares to the Share Reserve . If a Stock Award or any portion of a
Stock Award (i) expires or otherwise terminates without all of the shares covered by the Stock Award
having been issued or (ii) is settled in cash ( i.e. , the Participant receives cash rather than stock), such
expiration, termination or settlement will not reduce (or otherwise offset) the number of shares of
Common Stock that are available for issuance under the Plan. If any shares of Common Stock
issued under a Stock Award are forfeited back to or repurchased by the Company because of the
failure to meet a contingency or condition required to vest such shares in the Participant, then the
shares that are forfeited or repurchased will revert to and again become available for issuance under
the Plan. Any shares reacquired by the Company in satisfaction of tax withholding obligations on a
Stock Award or as consideration for the exercise or purchase price of a Stock Award will again
become available for issuance under the Plan.
(c)
Source of Shares. The stock issuable under the Plan will be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the Company on the open
market or otherwise.
4 .
4.
Eligibility.
(a)
Eligibility for Specific Stock Awards . Stock Awards may only be granted to
persons who are Eligible Employees described in Section 1(a) of the Plan, where the Stock Award is
an inducement material to the individual’s entering into employment with the Company or an
Affiliate within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules, provided however ,
that Stock Awards may not be granted to Eligible Employees who are providing Continuous Service
only to any “parent” of the Company, as such term is defined in Rule 405 of the Securities Act ,
unless (i) the stock underlying such Stock Awards is treated as “service recipient stock” under
Section 409A of the Code (for example, because the Stock Awards are granted pursuant to a
corporate transaction such as a spin off transaction), or (ii) the Company, in consultation with its
legal counsel, has determined that such Stock Awards are otherwise exempt from or comply with
the distribution requirements of Section 409A of the Code .
(b)
Approval Requirements. All Stock Awards must be granted either by a majority of
the Company’s independent directors or the Independent Compensation Committee .
5.
Provisions Relating to Options.
Each Option will be in such form and will contain such terms and conditions as the Board
deems appropriate. All Options will be Nonstatutory Stock Options. The provisions of separate
Options need not be identical; provided, however , that each Option Agreement will conform to
(through incorporation of provisions hereof by reference in the applicable Option Agreement or
otherwise) the substance of each of the following provisions:
(a)
Term. No Option will be exercisable after the expiration of 10 years from the date of
its grant or such shorter period specified in the Option Agreement.
(b)
Exercise Price. The exercise or strike price of each Option will be not less than
100% of the Fair Market Value of the Common Stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower
than 100% of the Fair Market Value of the Common Stock subject to the Option if such Option is
granted pursuant to an assumption of or substitution for another option or stock appreciation right
pursuant to a Corporate Transaction and in a manner consistent with the provisions of Section 409A
of the Code.
(c)
Purchase Pr ice for Options. The purchase price of Common Stock acquired
pursuant to the exercise of an Option may be paid, to the extent permitted by applicable law and as
determined by the Board in its sole discretion, by any combination of the methods of payment set
forth below. The Board will have the authority to grant Options that do not permit all of the
following methods of payment (or otherwise restrict the ability to use certain methods) and to grant
Options that require the consent of th e Company to use a particular method of payment. The
permitted methods of payment are as follows:
(i)
(ii)
by cash, check, bank draft or money order payable to the Company;
pursuant to a program developed under Regulation T as promulgated by the
Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either
5 .
the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds;
(iii)
of Common Stock;
by delivery to the Company (either by actual delivery or attestation) of shares
(iv)
by a “net exercise” arrangement pursuant to which the Company will reduce
the number of shares of Common Stock issuable upon exercise by the largest whole number of shares
with a Fair Market Value that does not exceed the aggregate exercise price; provided, however , that
the Company will accept a cash or other payment from the Participant to the extent of any remaining
balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares
to be issued. Shares of Common Stock will no longer be subject to an Option and will not be
exercisable thereafter to the extent that (A) shares issuable upon exercise are used to pay the exercise
price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such
exercise, and (C) shares are withheld to satisfy tax withholding obligations; or
(v)
in any other form of legal consideration that may be acceptable to the Board
and specified in the applicable Option Agreement.
(d)
Transferability of Options. The Board may, in its sole discretion, impose such
limitations on the transferability of Options as the Board will determine. In the absence of such a
determination by the Board to the contrary, the following restrictions on the transferability of Options
will apply:
(i)
Restrictions on Transfer. An Option will not be transferable except by will
or by the laws of descent and distribution (or pursuant to subsections (ii) and (iii) below), and will be
exercisable during the lifetime of the Participant only by the Participant. The Board may permit
transfer of the Option in a manner that is not prohibited by applicable tax and securities laws. Except
as explicitly provided in the Plan , an Option may not be transferred for consideration.
(ii)
Domestic Relations Orders. Subject to the approval of the Board or a duly
authorized Officer, an Option may be transferred pursuant to the terms of a domestic relations order,
official marital settlement agreement or other divorce or separation instrument .
(iii)
Beneficiary Designation. Subject to the approval of the Board or a duly
authorized Officer, a Participant may, by delivering written notice to the Company, in a form
approved by the Company (or the designated broker), designate a third party who, on the death of the
Participant, will thereafter be entitled to exercise the Option and receive the Common Stock or other
consideration resulting from such exercise. In the absence of such a designation, the executor or
administrator of the Participant’s estate will be entitled to exercise the Option and receive the
Common Stock or other consideration resulting from such exercise. However, the Company may
prohibit designation of a beneficiary at any time, including due to any conclusion by the Company
that such designation would be inconsistent with the provisions of applicable laws.
(e)
Vesting Generally. The total number of shares of Common Stock subject to an
Option may vest and therefore become exercisable in periodic installments that may or may not be
equal. The Option may be subject to such other terms and conditions on the time or times when it
6 .
may or may not be exercised (which may be based on the satisfaction of performance goals or other
criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary.
The provisions of this Section 5(e) are subject to any Option provisions governing the minimum
number of shares of Common Stock as to which an Option may be exercised.
(f)
Termination of Continuous Service. Except as otherwise provided in the
applicable Option Agreement or other agreement between the Participant and the Company, if a
Participant’s Continuous Service terminates (other than for Cause and other than upon the
Participant’s death or Disability), the Participant may exercise his or her Option (to the extent that
the Participant was entitled to exercise such Option as of the date of termination of Continuous
Service) within the period of time ending on the earlier of (i) the date which occurs ninety (90) days
following the termination of the Participant’s Continuous Service , and (ii) the expiration of the term
of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the
Participant does not exercise his or her Option within the applicable time frame, the Option will
terminate.
(g)
Extension of Termination Date. Except as otherwise provided in the applicable
Stock Award Agreement , if the exercise of an Option following the termination of the Participant’s
Continuous Service (other than for Cause and other than upon the Participant’s death or Disability)
would be prohibited at any time solely because the issuance of shares of Common Stock would
violate the registration requirements under the Securities Act, then the Option will terminate on the
earlier of (i) the expiration of a total period of time (that need not be consecutive) equal to the
applicable post - termination exercise period after the termination of the Participant’s Continuous
Service during which the exercise of the Option would not be in violation of such registration
requirements, and (ii) the expiration of the term of the Option as set forth in the applicable Option
Agreement. In addition, unless otherwise provided in a Participant’s Option Agreement, if the sale
of any Common Stock received up on exercise of an Option following the termination of the
Participant’s Continuous Service (other than for Cause) would violate the Company’s insider trading
policy, then the Option will terminate on the earlier of (i) the expiration of a period of days or months
(that need not be consecutive) equal to the applicable post-termination exercise period after the
termination of the Participant’s Continuous Service during which the sale of the Common Stock
received upon exercise of the Option would not be in violation of the Company’s insider trading
policy, or (ii) the expiration of the term of the Option as set forth in the applicable Option
Agreement.
(h)
Disability of Participant. Except as otherwise provided in the applicable Option
Agreement or other agreement between the Participant and the Company, if a Participant’s
Continuous Service terminates as a result of the Participant’s Disability, the Participant may exercise
his or her Option (to the extent that the Participant was entitled to exercise such Option as of the date
of termination of Continuous Service), but only within such period of time ending on the earlier of (i)
the date 12 months following such te rmination of Continuous Service and (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service,
the Participant does not exercise his or her Option within the applicable time frame, the Option will
terminate.
(i)
Death of Participant. Except as otherwise provided in the applicable Option
Agreement or other agreement between the Participant and the Company, if (i) a Participant’s
7 .
Continuous Service terminates as a result of the Participant’s death, or (ii) the Participant dies within
the period (if any) specified in the Option Agreement for exercisability after the termination of the
Participant’s Continuous Service for a reason other than death, then the Option may be exercised (to
the extent the Participant was entitled to exercise such Option as of the date of death) by the
Participant’s estate, by a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the Option upon the Participant’s death, but only
within the period ending on the earlier of (i) the date 18 months following the date of death , and (ii)
the expiration of the term of such Option as set forth in the Option Agreement. If, after the
Participant’s death, the Option is not exercised within the applicable time frame, the Option will
terminate.
(j)
Termination for Cause. Except as explicitly provided otherwise in a Participant’s
Stock Award Agreement or other individual written agreement between the Company or any Affiliate
and the Participant, if a Participant’s Continuous Service is terminated for Cause, the Option will
terminate upon the date on which the event giving rise to the termination for Cause first occurred,
and the Participant will be prohibited from exercising his or her Option from and after the date on
which the event giving rise to the termination for Cause first occurred (or, if required by law, the date
of termination of Continuous Service). If a Participant’s Continuous Service is suspended pending
an investigation of the existence of Cause, all of the Participant’s rights under the Option will also be
suspended during the investigation period.
(k)
Non-Exempt Employees . If an Option is granted to an Employee who is a non-
exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option will
not be first exercisable for any shares of Common Stock until at least 6 months following the date of
grant of the Option (although the Option may vest prior to such date). Consistent with the provisions
of the Worker Economic Opportunity Act, (i) if such non-exempt Employee dies or suffers a
Disability, (ii) upon a Corporate Transaction in which such Option is not assumed, continued, or
substituted, (iii) upon a Change in Control, or (iv) upon the non-exempt Employee ’s retirement (as
such term may be defined in the non-exempt Employee’s Option Agreement in another agreement
between the non-exempt Employee and the Company, or, if no such definition, in accordance with
the Company's then current employment policies and guidelines), the vested portion of any Options
may be exercised earlier than 6 months following the date of grant. The foregoing provision is
intended to operate so that any income derived by a non-exempt employee in connection with the
exercise or vesting of an Option will be exempt from his or her regular rate of pay. To the extent
permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that
any income derived by a non-exempt E mployee in connection with the exercise, vesting or issuance
of any shares under any other Option will be exempt from such E mployee’s regular rate of pay, the
provisions of this paragraph will apply to all Options and are hereby incorporated by reference into
such Option Agreements.
6.
Provisions Relating to Restricted Stock Unit Awards.
Each Restricted Stock Unit Award Agreement will be in such form and will contain such
terms and conditions as the Board deems appropriate. The terms and conditions of Restricted Stock
Unit Award Agreements may change from time to time, and the terms and conditions of separate
Restricted Stock Unit Award Agreements need not be identical. Each Restricted Stock Unit Award
8 .
Agreement will conform to (through incorporation of the provisions hereof by reference in the
Agreement or otherwise) the substance of each of the following provisions:
(a)
Consideration. At the time of grant of a Restricted Stock Unit Award, the Board
will determine the consideration, if any, to be paid by the Participant upon delivery of each share of
Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by
the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be
paid in any form of legal consideration that may be acceptable to the Board , in its sole discretion ,
and permissible under applicable law.
(b)
Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may
impose such restrictions on or conditions to the vesting of the Restricted Stock Unit Award as it, in
its sole discretion, deems appropriate.
(c)
Payment . A Restricted Stock Unit Award may be settled by the delivery of shares
of Common Stock, their cash equivalent, any combination thereof or in any other form of
consideration, as determined by the Board and contained in the Restricted Stock Unit Award
Agreement.
(d)
Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award,
the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery
of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to
a time after the vesting of such Restricted Stock Unit Award.
(e)
Dividend Equivalents. Dividend equivalents may be credited in respect of shares of
Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and
contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such
dividend equivalents may be converted into additional shares of Common Stock covered by the
Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares
covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be
subject to all of the same terms and conditions of the underlying Restricted Stock Unit Award
Agreement to which they relate.
(f)
Termination of Participant’s Continuous Service. Except as otherwise provided
in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit
Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.
7.
Covenants of the Company.
(a)
Availability of Shares. The Company will keep available at all times the number of
shares of Common Stock reasonably required to satisfy then-outstanding Stock Awards.
(b)
Securities Law Compliance. The Company will seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority as may be required
to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock
Awards; provided, however, that this undertaking will not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or
9 .
issuable pursuant to any such Stock Award. If, after reasonable efforts and at a reasonable cost, the
Company is unable to obtain from any such regulatory commission or agency the authority that
counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under
the Plan, the Company will be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Stock Awards unless and until such authority is obtained. A Participant will not
be eligible for the grant of a Stock Award or the subsequent issuance of cash or Common Stock
pursuant to the Stock Award if such grant or issuance would be in violation of any applicable
securities law.
(c)
No Obligation to Notify or Minimize Taxes. The Company will have no duty or
obligation to any Participant to advise such holder as to the time or manner of exercising such Stock
Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such
holder of a pending termination or expiration of a Stock Award or a possible period in which the
Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax
consequences of a Stock Award to the holder of such Stock Award .
8.
Miscellaneous.
(a)
Use of Proceeds from Sales of Common Stock. Proceeds from the sale of shares of
Common Stock pursuant to Stock Awards will constitute general funds of the Company.
(b)
Corporate Act ion Constituting Grant of Stock Awards. Corporate action
constituting a grant by the Company of a Stock Award to any Participant will be deemed completed
as of the date of such corporate action, unless otherwise determined by the Board, regardless of when
the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually
received or accepted by, the Participant. In the event that the corporate records ( e.g. , Board
consents, resolutions or minutes) documenting the corporate action constituting the grant contain
terms ( e.g. , exercise price, vesting schedule or number of shares) that are inconsistent with those in
the Stock Award Agreement as a result of a clerical error in the papering of the Stock Award
Agreement, the corporate records will control and the Participant will have no legally binding right to
the incorrect term in the Stock Award Agreement.
(c)
Stockholder Rights. No Participant will be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Common Stock subject to a Stock Award
unless and until (i) such Participant has satisfied all requirements for exercise of, or the issuance of
shares of Common Stock under, the Stock Award pursuant to its terms, and (ii) the issuance of the
Common Stock subject to such Stock Award has been entered into the books and records of the
Company.
(d)
No Employment or Other Service Rights. Nothing in the Plan, any Stock Award
Agreement or any other instrument executed thereunder or in connection with any Stock Award
granted pursuant thereto will confer upon any Participant any right to continue to serve the Company
or an Affiliate in the capacity in effect at the time the Stock Award was granted or will affect the
right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without
notice and with or without cause , including, but not limited to, Cause , (ii) the service of a
Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate,
or (iii) the service of a Director pursuant to the bylaws of the Company or an
10 .
Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the
Affiliate is incorporated, as the case may be.
(e)
Change in Time Commitment . In the event a Participant’s regular level of time
commitment in the performance of his or her services for the Company and any Affiliates is reduced
(for example, and without limitation, if the Participant is an Employee of the Company and the
Employee has a change in status from a full-time Employee to a part-time Employee or takes an
extended leave of absence ) after the date of grant of any Stock Award to the Participant, the Board
has the ri ght in its sole discretion to ( i ) make a corresponding reduction in the number of shares or
cash amount subject to any portion of such Stock Award that is scheduled to vest or become payable
after the date of such c hange in time commitment, and ( ii ) in lieu of or in combination with such a
reduction, extend the vesting or payment schedule applicable to such Stock Award . In the event of
any such reduction, the Participant will have no right with respect to any portion of the Stock Award
that is so reduced or extended.
(f)
Investment Assurances. The Company may require a Participant, as a condition of
exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances
satisfactory to the Company as to the Participant’s knowledge and experience in financial and
business matters and/or to employ a purchaser representative reasonably satisfactory to the Company
who is knowledgeable and experienced in financial and business matters and that he or she is capable
of evaluating, alone or together with the purchaser representative, the merits and risk s of exercising
the Stock Award, and (ii) to give written assurances satisfactory to the Company stating that the
Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account
and not with any present intention of selling or otherwise distributing the Common Stock. The
foregoing requirements, and any assurances given pursuant to such requirements, will be inoperative
if (i ) the issuance of the shares upon the exercise of a Stock Award or acquisition of Common Stock
under the Stock Award has been registered under a then currently effective registration statement
under the Securities Act, or (ii ) as to any particular requirement, a determination is made by counsel
for the Company that such requirement need not be met in the circumstances under the then
applicable securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in
order to comply with applicable securities laws, including, but not limited to, legends restricting the
transfer of the Common Stock.
(g)
Withholding Obligations. Unless prohibited by the terms of a Stock Award
Agreement, the Company may, in its sole discretion, satisfy any U.S. federal, state, local , foreign or
other tax withholding obligation relating to a Stock Award by any of the following means or by a
combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding
shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the
Participant in connection with the Stock Award ; provided, however , that no shares of Common
Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by
law (or such other amount as may be necessary to avoid classification of the Stock Award as a
liability for financial accounting purposes); (iii) withholding cash from a Stock Award settled in
cash; (iv) withholding payment from any amounts otherwise payable to the Participant , including
proceeds from the sale of shares of Common Stock issued pursuant to a Stock Award ; or (v) by such
other method as may be set forth in the Stock Award Agreement.
11 .
(h)
Electronic Delivery . Any reference herein to a “written” agreement or document
will include any agreement or document delivered electronically , filed publicly at www.sec.gov (or
any successor website thereto), or posted on the Company’s intranet (or other shared electronic
medium controlled by the Company to which the Participant has access).
(i)
Deferrals. To the extent permitted by applicable law, the Board, in its sole
discretion, may determine that the delivery of Common Stock or the payment of cash, upon the
exercise, vesting or settlement of all or a portion of any Stock Award may be deferred and may
establish programs and procedures for deferral elections to be made by Participants. Deferrals by
Participants will be made in accordance with Section 409A of the Code (to the extent applicable to a
Participant) . Consistent with Section 409A of the Code , the Board may provide for distributions
while a Participant is still an employee or otherwise providing services to the Company. The Board
is authorized to make deferrals of Stock Awards and determine when, and in what annual
percentages, Participants may receive payments, including lump sum payments, following the
Participant’s termination of Continuous Service, and implement such other terms and conditions
consistent with the provisions of the Plan and in accordance with applicable law.
(j)
Compliance with Section 409A. Unless otherwise expressly provided for in a Stock
Award Agreement and the Plan will be interpreted to the greatest extent possible in a manner that
makes the Plan and the Stock Award s granted hereunder exempt from Section 409A of the Code ,
and, to the extent not so exempt, in compliance with Section 409A of the Code . If the Board
determines that any Stock Award granted hereunder is not exempt from and is therefore subject to
Section 409A of the Code , the Stock Award Agreement evidencing such Stock Award will
incorporate the terms and conditions necessary to avoid the consequences specified in Section
409A(a)(1) of the Code , and to the extent a Stock Award Agreement is silent on terms necessary for
compliance, such terms are hereby incorporated by reference into the Stock Award Agreement.
Notwithstanding anything to the contrary in this Plan ( and unless the Stock Award Agreement
specifically provides otherwise), if the shares of Common Stock are publicly traded, and if a
Participant holding a Stock Award that constitutes “deferred compensation” under Section 409A of
the Code is a “specified employee” for purposes of Section 409A of the Code , no distribution or
payment of any amount that is due because of a “separation from service” (as defined in Section
409A of the Code ) will be issued or paid before the date that is six (6) months following the date of
such Participant’s “separation from service” or, if earlier, the date of the Participant’s death, unless
such distribution or payment can be made in a manner that complies with Section 409A of the Code ,
and any amounts so deferred will be paid in a lump sum on the day after such six (6) month period
elapses, with the balance paid thereafter on the original schedule.
(k)
Clawback/Recovery. All Stock Awards granted under the Plan will be subject to
recoupment in accordance with any clawback policy that the Company is required to adopt pursuant
to the listing standards of any national securities exchange or association on which the Company’s
securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act or other applicable law. In addition, the Board may impose such other clawback,
recovery or recoupment provisions in a Stock Award Agreement as the Board determines necessary
or appropriate, including, but not limited to, a reacquisition right in respect of previously acquired
shares of Common Stock or other cash or property upon the occurrence of an event constituting
Cause. No recovery of compensation under such a clawback policy will be
12 .
an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar
term) under any agreement with the Company or an Affiliate .
9.
Adjustments upon Changes in Common Stock; Other Corporate Events.
(a)
Capitalization Adjustments . In the event of a Capitalization Adjustment, the
Board will appropriately and proportionately adjust: (i) the class(es) and maximum number of
securities subject to th e Plan pursuant to Section 3(a) and (ii) the class(es) and number of securities
and price per share of stock subject to outstanding Stock Awards. The Board will make such
adjustments, and its determination will be final, binding and conclusive.
(b)
Dissolution or Liquidation . Except as otherwise provided in the Stock Award
Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards
will terminate immediately prior to the completion of such dissolution or liquidation, and the shares
of Common Stock subject to the Company’s repurchase rights or subject to a forfeiture condition
may be repurchased or reacquired by the Company notwithstanding the fact that the holder of such
Stock Award is providing Continuous Service; provided, however, that the Board may, in its sole
discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer
subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or
terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c)
Corporate Transaction. The following provisions will apply to Stock Awards in
the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the
Stock Award or any other written agreement between the Company or any Affiliate and the
Participant or unless otherwise expressly provided by the Board at the time of grant of a Stock
Award. In the event of a Corporate Transaction, then, notwithstanding any other provision of the
Plan, the Board will take one or more of the following actions with respect to Stock Awards,
contingent upon the closing or completion of the Corporate Transaction:
(i)
arrange for the surviving corporation or acquiring corporation (or the
surviving or acquiring corporation’s parent company) to assume or continue the Stock Award or to
substitute a similar stock award for the Stock Award (including, but not limited to, a Stock Award to
acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate
Transaction);
(ii)
arrange for the assignment of any reacquisition or repurchase rights held by
the Company in respect of Common Stock issued pursuant to the Stock Award to the surviving
corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company);
(iii)
accelerate the vesting, in whole or in part, of the Stock Award (and, if
applicable, the time at which the Stock Award may be exercised) to a date prior to the effective time
of such Corporate Transaction as the Board determine s (or, if the Board does not determine such a
date, to the date that is five ( 5 ) days prior to the effective date of the Corporate Transaction), with
such Stock Award terminating if not exercised (if applicable) at or prior to the effective time of the
Corporate Transaction;
13 .
(iv)
arrange for the lapse, in whole or in part, of any reacquisition or repurchase
rights held by the Company with respect to the Stock Award;
(v)
cancel or arrange for the cancellation of the Stock Award, to the extent not
vested or not exercised prior to the effective time of the Corporate Transaction, in exchange for such
cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and
(vi)
make a payment, in such form as may be determined by the Board equal to
the excess, if any, of (A) the value of the property the Participant would have received upon the
exercise of the Stock Award immediately prior to the effective time of the Corporate Transaction,
over (B) any exercise price payable by such holder in connection with such exercise.
The Board need not take the same action or actions with respect to all Stock Awards or
portions thereof or with respect to all Participants. The Board may take different actions with respect
to the vested and unvested portions of a Stock Award.
(d)
Change in Control. A Stock Award may be subject to additional acceleration of
vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award
Agreement for such Stock Award or as may be provided in any other written agreement between the
Company or any Affiliate and the Participant, but in the absence of such provision, no such
acceleration will occur.
10.
Termination or Suspension of the Plan.
The Board may suspend or termi nate the Plan at any time. No Stock A wards may be granted under
the Plan while the Plan is suspended or after it is terminated.
11.
Effective Date of Plan ; Timing of First Grant or Exercise .
The Plan will come into existence on the Effective Date . N o Stock Award may be granted
prior to the Effective Date.
12.
Choice of Law.
The law s of the State of Delaware will govern all questions concerning the construction,
validity and interpretation of this Plan, without regard to that state’s conflict of laws rules.
Definitions. As used in the Plan, the following definitions will apply to the capitalized
13.
terms indicated below:
(a)
“ Affiliate
” means, at the time of determination, any “parent” or “subsidiary” of the
Company, as such terms are defined in Rule 405 of the Securities Act . The Board will have the
authority to determine the time or times at wh ich “parent” or “ subsidiary” status is determined
within the foregoing definition.
(b)
“ Board
” means the Board of Directors of the Company.
14 .
(c)
“ Capitalization
Adjustment
” means any change that is made in, or other events that
occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the
Effective Date without the receipt of consideration by the Company through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash,
large nonrecurring cash dividend, stock split, reverse stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or other similar equity restructuring
transaction, as that term is used in Financial Accounting Standards Board Accounting Standards
Codification Topic 718 (or any successor thereto) . Notwithstanding the foregoing, the conversion
of any convertible securities of the Company will not be treated as a Capitalization Adjustment.
(d)
“ Cause
”
will have the meaning ascribed to such term in any written agreement
between the Participant and the Company or any Affiliate defining such term and, in the absence of
such agreement, such term means, with respect to a Participant, the occurrence of any of the
following events : (i ) Participant’s willful failure substantially to perform his or her duties and
responsibilities to the Company or any Affiliate or deliberate violation of a policy of the Company or
any Affiliate ; (ii ) Participant’s commission of any act of fraud, embezzlement, dishonesty or any
other willful misconduct that has caused or is reasonably expected to result in material injury to the
Company or an y Affiliate ; (iii ) unauthorized use or disclosure by Participant of any proprietary
information or trade secrets of the Company or any other party to whom the Participant owes an
obligation of nondisclosure as a result of his or her relationship with the Company or an y Affiliate ;
or (iv ) Participant’s willful breach of any of his or her obligations under any written agreement or
covenant with the Company or an y Affiliate . The determination as to whether a Participant is
being terminated for Cause will be made in good faith by the Company and will be final and binding
on the Participant. Any determination by the Company that the Continuous Service of a Participant
was terminated with or without Cause for the purposes of outstanding Stock Award s held by such
Participant will have no effect upon any determination of the rights or obligations of the Company ,
any Affiliate or such Participant for any other purpose.
(e)
“ Change
in
Control
” means the occurrence, in a single transaction or in a series of
related transactions, of any one or more of the following events:
(i)
any Exchange Act Person becomes the Owner, directly or indirectly, of
securities of the Company representing more than 50% of the combined voting power of the
Company’s then outstanding securities other than by virtue of a merger, consolidation or similar
transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur (A )
on account of the acquisition of securities of the Company directly from the Company, (B ) on
account of the acquisition of securities of the Company by an investor, any affiliate thereof or any
other Exchange Act Person that acquires the Company’s securities in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the Company through the
issuance of equity securities , or ( C ) solely because the level of Ownership held by any Exchange
Act Person (the “ Subject
Person
”) exceeds the designated percentage threshold of the outstanding
voting securities as a result of a repurchase or other acquisition of voting securities by the Company
reducing the number of shares outstanding, provided that if a Change in Control would occur (but for
the operation of this sentence) as a result of the acquisition of voting securities by the Company, and
after such share acquisition, the Subject Person becomes the Owner of any additional voting
securities that, assuming the repurchase or other acquisition had not occurred,
15 .
increases the percentage of the then outstanding voting securities Owned by the Subject Person over
the designated percentage threshold, then a Change in Control will be deemed to occur;
(ii)
there is consummated a merger, consolidation or similar transaction involving
(directly or indirectly) the Company and, immediately after the consummation of such merger,
consolidation or similar transaction, the stockholders of the Company immediately prior thereto do
not Own, directly or indirectly, either (A) outstanding voting securities representing more than 50%
of the combined outstanding voting power of the surviving Entity in such merger, consolidation or
similar transaction or (B) more than 50% of the combined outstanding voting power of the parent of
the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially
the same proportions as their Ownership of the outstanding voting securities of the Company
immedia tely prior to such transaction;
(iii)
there is consummated a sale, lease, exclusive license or other disposition of
all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a
sale, lease, license or other disposition of all or substantially all of the consolidated assets of the
Company and its Subsidiaries to an Entity, more than 50% of the combined voting power of the
voting securities of which are Owned by stockholders of the Company in substantially the same
proportions as their Ownership of the outstanding voting securities of the Company immediately
prior to such sale, lease, license or other disposition; or
(iv)
individuals who, on the Effective D ate, are members of the Board (the “
Incumbent
Board
”) cease for any reason to constitute at least a majority of the members of the
Board; provided, however, that if the appointment or election (or nomination for election) of any new
Board member was approved or recommended by a majority vote of the members of the Incumbent
Board then still in office, such new member will, for purposes of this Plan, be considered as a
member of the Incumbent Board.
Notwithstanding the foregoing definition or any other provision of this Plan, (A) t he term
Change in Control will not include a sale of assets, merger or other transaction effected exclusively
for the purpose of changing the domicile of the Company, and (B) the definition of Change in
Control (or any analogous term) in an individual written agreement between the Company or any
Affiliate and the Participant will supersede the foregoing definition with respect to Stock Awards
subject to such agreement; provided, however, that if no definition of Change in Control or any
analogous term is set forth in such an individual written agreement, the foregoing definition will
apply.
(f)
“ Code
” means the U.S. Internal Revenue Code of 1986, as amended, including any
applicable regulations and guidance thereunder.
(g)
“ Committee
” means a committee of one (1) or more Independent Directors to
whom authority has been delegated by the Board in accordance with Section 2(c) .
“ Common
Stock
” means the common stock of the Company.
“ Company
” means Sientra , Inc. , a Delaware corporation.
(h)
(i)
16 .
(j)
“ Consultant
” means any person, including an advisor, who is (i) engaged by the
Company or an Affiliate to render consulting or advisory services and is compensated for such
services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for
such services . However, service solely as a Director, or payment of a fee for such service, will not
cause a Director to be considered a “Consultant” for purposes of the Plan. Notwithstanding the
foregoing, a person is treated as a Consultant under this Plan only if a Form S-8 Registration
Statement under the Securities Act is available to register either the offer or the sale of the
Company’s securities to such person.
(k)
“ Continuous
Service
” means that the Participant’s service with the Company or an
Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A
change in the capacity in which the Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the Entity for which the Participant renders such
service, provided that there is no interruption or termination of the Participant’s service with the
Company or an Affiliate, will not terminate a Participant’s Continuous Service . For example, a
change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director
will not constitute an interruption of Continuous Service. I f the Entity for which a Participant is
rendering services ceases to qualify as an Affiliate, as determined by the Board in its sole discretion,
such Participant’s Continuous Service will be considered to have terminated on the date such Entity
ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive
officer of the Company, in that party’s sole discretion, may determine whether Continuous Service
will be considered interrupted in the case of (i ) any leave of absence approved by the Board or chief
executive officer, including sick leave, military leave or any other personal leave, or (ii ) transfers
between the Company, an Affiliate, or their successors. In addition, if required for exemption from
or compliance with Section 409A of the Code , the determination of whether there has been a
termination of Continuous Service will be made, and such term will be construed, in a manner that is
consistent with the definition of “separation from service” as defined under Treasury Regulation
Section 1.409A-1(h). A leave of absence will be treated as Continuous Serv ice for purposes of
vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence
policy, in the written terms of any leave of absence agreement or policy applicable to the Participant,
or as otherwise required by law.
(l)
“ Corporate
Transaction
” means the consummation, in a single transaction or in a
series of related transactions, of any one or more of the following events:
(i)
a sale or other disposition of all or substantially all, as determined by the
Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;
(ii)
a sale or other disposition of at least 90 % of the outstanding securities of the
Company;
(iii)
is not the surviving corporation; or
a merger, consolidation or similar transaction following which the Company
(iv)
a merger, consolidation or similar transaction following which the Company
is the surviving corporation but the shares of Common Stock outstanding immediately preceding the
merger, consolidation or similar transaction are converted or exchanged by virtue of
17 .
the merger, consolidation or similar transaction into other property, whether in the form of securities,
cash or otherwise.
(m)
“ Director
” means a member of the Board. Directors are not eligible to receive
Stock Awards under the Plan with respect to their service in such capacity.
(n)
“ Disability
” means, with respect to a Participant, the inability of such Participant to
engage in any substantial gainful activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or that has lasted or can be expected to last for a
continuous period of not less than 12 months as provided in Se ctions 22(e)(3) and 409A(a)(2)(C )(i)
of the Code, and will be determined by the Board on the basis of such medical evidence as the Board
deems warranted under the circumstances.
(o)
“ Effective
Date
” means the date the Plan is approved by the Board.
(p)
“ Employee
” means any person employed by the Company or an Affiliate.
However, service solely as a Director, or payment of a fee for such services, will not cause a Director
to be considered an “Employee” for purposes of the Plan.
(q)
(r)
“ Entity
” means a corporation, partnership, limited liability company or other entity.
“ Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.
(s)
“ Exchange
Act
Person
”
means any natural person, Entity or “group” (within the
meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” will not
include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the
Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter
temporarily holding securities pursuant to a registered public offering of such securities, (iv) an
Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their Ow nership of stock of the Company, or (v) any natural person, Entity or
“group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective
Date, is the Owner, directly or indirectly, of securities of the Company representing more than 50%
of the combined voting power of the Company’s then outstanding securities.
(t)
“ Fair
Market
Value
” means, as of any date, the value of the Common Stock
determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or traded on
any established market, the Fair Market Value of a share of Common Stock will be, unless otherwise
determined by the Board, the closing sales price for such stock as quoted on such exchange or market
(or the exchange or market with the greatest volume of trading in the Common Stock) on the date of
determination, as reported in a source the Board deems reliable.
18 .
(ii)
Unless otherwise provided by the Board, if there is no closing sales price for
the Common Stock on the date of determination, then the Fair Market Value will be the closing
selling price on the last preceding date for which such quotation exists.
(iii)
In the absence of such markets for the Common Stock, the Fair Market Value
will be determined by the Board in good faith and in a manner that complies with Sections 409A of
the Code.
(u)
“
Independent
Director
”
has the meaning set forth in Section 1(a) above.
(v)
“ Non-Employee
Director
” means a Director who either (i ) is not a current
employee or officer of the Company or an Affiliate, does not receive compensation, either directly or
indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would not be required under
Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“ Regulation
S-K
”)),
does not possess an interest in any other transaction for which disclosure would be required under
Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure
would be required pursuant to Item 404(b) of Regulation S-K; or (ii ) is otherwise considered a
“non-employee director” for purposes of Rule 16b-3 of the Exchange Act .
(w)
“ Nonstatutory
Stock
Option
” means any option granted pursuant to Section 4(b) of
the Plan that does not qualify as an “incentive stock option” within the meaning of Section 422 of the
Code.
(x)
“ Officer
” means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act .
(y)
“ Option
” means a Nonstatutory Stock Option to purchase shares of Common Stock
granted pursuant to the Plan.
(z)
“ Option
Agreement
” means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement will
be subject to the terms and conditions of the Plan.
(aa)
“ Optionholder
” means a person to whom an Option is granted pursuant to the Plan
or, if applicable, such other person who holds an outstanding Option.
(bb)
“ Own
,” “ Owned
,” “ Owner
,” “ Ownership
” means a person or Entity will be
deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of
securities if such person or Entity, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power, which includes the power to
vote or to direct the voting, with respect to such securities.
(cc)
“ Participant
” means a person to whom a Stock Award is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Stock Award.
(dd)
“ Plan
” means this Sientra , Inc. Inducement Plan , as it may be amended .
19 .
(ee)
“ Restricted
Stock
Unit
Award
”
means a right to receive shares of Common Stock
which is granted pursuant to the terms and conditions of Section 6(b).
(ff)
“ Restricted
Stock
Unit
Award
Agreement
”
means a written agreement between the
Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a
Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement will be subject to
the terms and conditions of the Plan.
(gg)
“Rule
16b-3
” means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(hh)
“ Securities
Act
” means the Securities Act of 1933, as amended.
(ii)
“Stock
Award”
means any right to receive Common Stock gran ted under the Plan,
including an Option or a Restricted Stock Unit Award.
(jj)
“ Stock
Award
Agreement
” means a written agreement between the Company and
a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award
Agreement will be subject to the terms and conditions of the Plan.
(kk)
“ Subsidiary
” means, with respect to the Company, (i ) any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether, at the time, stock of any other
class or classes of such corporation will have or might have voting power by reason of the happening
of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any
partnership, limited liability company or other entity in which the Company has a direct or indirect
interest (whether in the form of voting or participation in profits or capital contribution) of more than
50% .
Sientra, Inc.
Inducement Plan
Stock Option Grant Notice
Sientra, Inc. (the “ Company
”), pursuant to its Inducement Plan (the “ Plan
”), hereby grants to
Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth in this notice, in the
Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and
incorporated herein in their entirety. Capitalized terms not explicitly defined herein but defined in the
Plan or the Option Agreement will have the same definitions as in the Plan or the Option Agreement.
If there is any conflict between the terms in this notice and the Plan, the terms of the Plan will
control.
Optionholder:
Date of Grant:
Vesting Commencement Date:
Number of Shares Subject to Option:
Exercise Price (Per Share):
Total Exercise Price:
Expiration Date:
Type of Grant:
Nonstatutory Stock Option
Exercise Schedule : Same as Vesting Schedule
Vesting Schedule :
[ _____________ ]
Payment: By one or a combination of the following items (described in the Option
Agreement):
☒ By cash, check, bank draft or money order payable to the Company
☒ Pursuant to a Regulation T Program if the shares are publicly traded
☒ By delivery of already-owned shares if the shares are publicly traded
☒ Subject to the Company’s consent at the time of exercise, by a “net
exercise” arrangement
Additional Terms/Acknowledgements: Optionholder acknowledges receipt of, and understands and
agrees to, this Stock Option Grant Notice, the Option Agreement and the Plan. Optionholder
acknowledges and agrees that this Stock Option Grant Notice and the Option Agreement may not be
modified, amended or revised except as provided in the Plan. Optionholder further acknowledges
that as of the Date of Grant, this Stock Option Grant Notice, the Option Agreement, and the Plan set
forth the entire understanding between Optionholder and the Company regarding this option award
and supersede all prior oral and written agreements, promises and/or
20 .
representations on that subject with the exception of (i) options previously granted and delivered to
Optionholder, (ii) any compensation recovery policy that is adopted by the Company or is otherwise
required by applicable law and (iii) any written employment or severance arrangement that would
provide for vesting acceleration of this option upon the terms and conditions set forth therein.
By accepting the Award, Optionholder acknowledges having received and read the Stock Option
Grant Notice, the Option Award Agreement and the Plan and agrees to all of the terms and conditions
set forth in these documents. Furthermore, by accepting this option, Optionholder consents to receive
such documents by electronic delivery and to participate in the Plan through an online or electronic
system established and maintained by the Company or another third party designated by the
Company.
Sientra, Inc.
Optionholder:
By:
Title:
Date:
Signature
Signature
Date:
Attachments : Option Agreement, Inducement Plan and Notice of Exercise
21 .
Attachment I
Option Agreement
Sientra, Inc.
Inducement Plan
Option Agreement
(Nonstatutory Stock Option)
Pursuant to your Stock Option Grant Notice (“ Grant
Notice
”) and this Option Agreement, Sientra,
Inc. (the “ Company
”) has granted you an option under its Inducement Plan (the “ Plan
”) to
purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at
the exercise price indicated in your Grant Notice. The option is granted to you effective as of the date
of grant set forth in the Grant Notice (the “ Date
of
Grant
”). The option is granted in compliance
with NASDAQ Listing Rule 5635(c)(4) as a material inducement to you entering into employment
with the Company.
If there is any conflict between the terms in this Option Agreement and the Plan, the terms of the Plan
will control. Capitalized terms not explicitly defined in this Option Agreement or in the Grant Notice
but defined in the Plan will have the same definitions as in the Plan.
The details of your option, in addition to those set forth in the Grant Notice and the Plan, are as
follows:
1.
Vesting. Subject to the provisions contained herein, your option will vest as provided
in your Grant Notice. Vesting will cease upon the termination of your Continuous Service.
2.
Number of Shares and Exercise Price. The number of shares of Common Stock
subject to your option and your exercise price per share in your Grant Notice will be adjusted for
Capitalization Adjustments.
3.
Exercise Restriction for Non-Exempt Employees. If you are an Employee eligible
for overtime compensation under the Fair Labor Standards Act of 1938, as amended ( that is , a “
Non-Exempt
Employee
”), and except as otherwise provided in the Plan, you may not exercise your
option until you have completed at least six (6) months of Continuous Service measured from the
Date of Grant, even if you have already been an employee for more than six (6) months. Consistent
with the provisions of the Worker Economic Opportunity Act, you may exercise your option as to
any vested portion prior to such six (6) month anniversary in the case of (i) your death or disability,
(ii) a Corporate Transaction in which your option is not assumed, continued or substituted, (iii) a
Change in Control or (iv) your termination of Continuous Service on your “retirement” (as defined in
the Company’s benefit plans).
4.
Method of Payment. You must pay the full amount of the exercise price for the
shares you wish to exercise. You may pay the exercise price in cash or by check, bank draft or
money order payable to the Company or in any other manner permitted by your Grant Notice, which
may include one or more of the following:
(a)
Provided that at the time of exercise the Common Stock is publicly
traded, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve
Board
that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the
Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the
Company from the sales proceeds. This manner of payment is also known as a “broker-assisted
exercise”, “same day sale”, or “sell to cover”.
at
(b)
the time of
Provided that
exercise the Common Stock is
publicly traded, by delivery to the Company (either by actual delivery or attestation) of already-
owned shares of Common Stock that are owned free and clear of any liens, claims, encumbrances or
security interests, and that are valued at Fair Market Value on the date of exercise. “Delivery” for
these purposes, in the sole discretion of the Company at the time you exercise your option, will
include delivery to the Company of your attestation of ownership of such shares of Common Stock in
a form approved by the Company. You may not exercise your option by delivery to the Company of
Common Stock if doing so would violate the provisions of any law, regulation or agreement
restricting the redemption of the Company’s stock.
of
(c)
the
to the
Subject
of
consent
exercise, by a “net exercise” arrangement pursuant to which the Company will reduce the number of
shares of Common Stock issued upon exercise of your option by the largest whole number of shares
with a Fair Market Value that does not exceed the aggregate exercise price. You must pay any
remaining balance of the aggregate exercise price not satisfied by the “net exercise” in cash or other
permitted form of payment. Shares of Common Stock will no longer be outstanding under your
option and will not be exercisable thereafter if those shares (i) are used to pay the exercise price
pursuant to the “net exercise,” (ii) are delivered to you as a result of such exercise, and (iii) are
withheld to satisfy your tax withholding obligations.
Company at
time
the
5.
Whole Shares. You may exercise your option only for whole shares of Common
Stock.
6.
Securities Law Compliance. In no event may you exercise your option unless the
shares of Common Stock issuable upon exercise are then registered under the Securities Act or, if not
registered, the Company has determined that your exercise and the issuance of the shares would be
exempt from the registration requirements of the Securities Act. The exercise of your option also
must comply with all other applicable laws and regulations governing your option, and you may not
exercise your option if the Company determines that such exercise would not be in material
compliance with such laws and regulations (including any restrictions on exercise required for
compliance with Treas. Reg. 1.401(k)-1(d)(3), if applicable).
7.
Term. You may not exercise your option before the Date of Grant or after the
expiration of the option’s term. The term of your option expires, subject to the provisions of Section
5(h) of the Plan, upon the earliest of the following:
(a)
giving rise to
your termination of Continuous Service for Cause occurs (or, if required by law, the date of
termination of Continuous Service for Cause);
immediately upon the date on which the event
(b)
Continuous
after
Service for any reason other than Cause, your Disability or your death (except as otherwise
provided in Section
termination of
sixty (60)
your
days
the
1 .
7(d) below); provided , however , that if during any part of such sixty (60) day period your option is
not exercisable solely because of the condition set forth in the section above relating to “Securities
Law Compliance,” your option will not expire until the earlier of the Expiration Date or until it has
been exercisable for an aggregate period of sixty (60) days after the termination of your Continuous
Service; provided further, if during any part of such sixty (60) day period, the sale of any Common
Stock received upon exercise of your option would violate the Company’s insider trading policy, then
your option will not expire until the earlier of the Expiration Date or until it has been exercisable for
an aggregate period of sixty (60) days after the termination of your Continuous Service during which
the sale of the Common Stock received upon exercise of your option would not be in violation of the
Company’s insider trading policy. Notwithstanding the foregoing, if (i) you are a Non-Exempt
Employee, (ii) your Continuous Service terminates within six (6) months after the Date of Grant, and
(iii) you have vested in a portion of your option at the time of your termination of Continuous
Service, your option will not expire until the earlier of (x) the later of (A) the date that is seven (7)
months after the Date of Grant, and (B) the date that is sixty (60) days after the termination of your
Continuous Service, and (y) the Expiration Date;
months
Service due to your Disability (except as otherwise provided in Section 7(d)) below;
termination of
six (6)
after
the
(c)
your
Continuous
(d)
six (6) months after your death if you die either during your
Continuous Service or within thirty (30) days after your Continuous Service terminates for any
reason other than Cause;
(e)
the Expiration Date indicated in your Grant Notice; or
(f)
the day before the tenth (10th)
anniversary of
the Date of
Grant.
8.
Exercise.
(a)
You may exercise the vested portion of
option during
its term by (i) delivering a Notice of Exercise (in a form designated by the Company) or completing
such other documents and/or procedures designated by the Company for exercise and (ii) paying the
exercise price and any applicable withholding taxes to the Company’s Secretary, stock plan
administrator, or such other person as the Company may designate, together with such additional
documents as the Company may then require.
your
(b)
By exercising your
as a condition to
any exercise of your option, the Company may require you to enter into an arrangement providing for
the payment by you to the Company of any tax withholding obligation of the Company arising by
reason of (i) the exercise of your option, (ii) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (iii) the disposition of shares of
Common Stock acquired upon such exercise.
option you agree that,
9.
Transferability . Except as otherwise provided in this Section 9, your option is not
transferable, except by will or by the laws of descent and distribution, and is exercisable during your
life only by you.
2 .
(a) Certain Trusts . Upon receiving written permission from the Board or its duly
authorized designee, you may transfer your option to a trust if you are considered to be the sole
beneficial owner (determined under Section 671 of the Code and applicable state law) while the
option is held in the trust. You and the trustee must enter into transfer and other agreements required
by the Company.
(b)
Domestic
Relations
Orders.
Upon
receiving
written
permission from the Board or its duly authorized designee, and provided that you and the designated
transferee enter into transfer and other agreements required by the Company, you may transfer your
option pursuant to the terms of a domestic relations order, official marital settlement agreement or
other divorce or separation instrument that contains the information required by the Company to
effectuate the transfer. You are encouraged to discuss the proposed terms of any division of this
option with the Company prior to finalizing the domestic relations order or marital settlement
agreement to help ensure the required information is contained within the domestic relations order or
marital settlement agreement.
(c)
Beneficiary
Designation.
Upon
receiving
written
permission from the Board or its duly authorized designee, you ma y, by delivering written notice to
the Company, in a form approved by the Company and any broker d esignated by the Company to
handle option exercises, designate a third party who, on your death, will thereafter be entitled to
exercise this option and receive the Common Stock or other consideration resulting from such
exercise. In the absence of such a designation, your executor or administrator of your estate will be
entitled to exercise this option and receive, on behalf of your estate, the Common Stock or other
consideration resulting from such exercise.
10.
Option not a Service Contract. Your option is not an employment or service
contract, and nothing in your option will be deemed to create in any way whatsoever any obligation
on your part to continue in the employ of the Company or an Affiliate, or of the Company or an
Affiliate to continue your employment. In addition, nothing in your option will obligate the
Company or an Affiliate, their respective stockholders, boards of directors, officers or employees to
continue any relationship that you might have as a Director or Consultant for the Company or an
Affiliate.
11. Withholding Obligations.
(a)
At
the time you exercise your
in part,
and at any time thereafter as requested by the Company, you hereby authorize withholding from
payroll and any other amounts payable to you, and otherwise agree to make adequate provision for
(including by means of a “same day sale” pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or
an Affiliate, if any, which arise in connection with the exercise of your option.
in whole or
option,
(b)
Upon
the
Company, and compliance with any applicable legal conditions or restrictions, the Company may
withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of
your option a number of whole shares of Common Stock having a Fair Market Value, determined by
the Company as of
approval
request
subject
your
and
by
to
3 .
the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or
such lower amount as may be necessary to avoid classification of your option as a liability for
financial accounting purposes). Notwithstanding the filing of such election, shares of Common Stock
shall be withheld solely from fully vested shares of Common Stock determined as of the date of
exercise of your option that are otherwise issuable to you upon such exercise. Any adverse
consequences to you arising in connection with such share withholding procedure shall be your sole
responsibility.
(c)
may
You
tax
withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not
be able to exercise your option when desired even though your option is vested, and the Company
will have no obligation to issue a certificate for such shares of Common Stock or release such shares
of Common Stock from any escrow provided for herein, if applicable, unless such obligations are
satisfied.
exercise
option
unless
your
not
the
12.
Tax Consequences . You hereby agree that the Company does not have a duty to
design or administer the Plan or its other compensation programs in a manner that minimizes your
tax liabilities. You will not make any claim against the Company, or any of its Officers, Directors,
Employees or Affiliates related to tax liabilities arising from your option or your other compensation.
In particular, you acknowledge that this option is exempt from Section 409A of the Code only if the
exercise price per share specified in the Grant Notice is at least equal to the “fair market value” per
share of the Common Stock on the Date of Grant and there is no other impermissible deferral of
compensation associated with the option.
13.
Notices. Any notices provided for in your option or the Plan will be given in writing
(including electronically) and will be deemed effectively given upon receipt or, in the case of notices
delivered by mail by the Company to you, five (5) days after deposit in the United States mail,
postage prepaid, addressed to you at the last address you provided to the Company. The Company
may, in its sole discretion, decide to deliver any documents related to participation in the Plan and
this option by electronic means or to request your consent to participate in the Plan by electronic
means. By accepting this option, you consent to receive such documents by electronic delivery and
to participate in the Plan through an on-line or electronic system established and maintained by the
Company or another third party designated by the Company.
14.
Governing Plan Document. Your option is subject to all the provisions of the Plan,
the provisions of which are hereby made a part of your option, and is further subject to all
interpretations, amendments, rules and regulations, which may from time to time be promulgated and
adopted pursuant to the Plan. If there is any conflict between the provisions of your option and those
of the Plan, the provisions of the Plan will control. In addition, your option (and any compensation
paid or shares issued under your option) is subject to recoupment in accordance with The Dodd–
Frank Wall Street Reform and Consumer Protection Act and any implementing regulations
thereunder, any clawback policy adopted by the Company and any compensation recovery policy
otherwise required by applicable law.
15.
Other Documents . You hereby acknowledge receipt of and the right to receive a
document providing the information required by Rule 428(b)(1) promulgated under the Securities
Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the
4 .
Company’s policy permitting certain individuals to sell shares only during certain “window” periods
and the Company’s insider trading policy, in effect from time to time.
16.
Effect on Other Employee Benefit Plans . The value of this option will not be
included as compensation, earnings, salaries, or other similar terms used when calculating your
benefits under any employee benefit plan sponsored by the Company or any Affiliate, except as such
plan otherwise expressly provides. The Company expressly reserves its rights to amend, modify, or
terminate any of the Company’s or any Affiliate’s employee benefit plans.
17.
Voting Rights . You will not have voting or any other rights as a stockholder of the
Company with respect to the shares to be issued pursuant to this option until such shares are issued to
you. Upon such issuance, you will obtain full voting and other rights as a stockholder of the
Company. Nothing contained in this option, and no action taken pursuant to its provisions, will
create or be construed to create a trust of any kind or a fiduciary relationship between you and the
Company or any other person.
18.
Severability . If all or any part of this Option Agreement or the Plan is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will
not invalidate any portion of this Option Agreement or the Plan not declared to be unlawful or
invalid. Any Section of this Option Agreement (or part of such a Section) so declared to be unlawful
or invalid shall, if possible, be construed in a manner which will give effect to the terms of such
Section or part of a Section to the fullest extent possible while remaining lawful and valid.
19. Miscellaneous .
(a)
your
option will be transferable to any one or more persons or entities, and all covenants and agreements
hereunder will inure to the benefit of, and be enforceable by the Company’s successors and assigns.
obligations
Company
The
under
rights
and
the
of
(b)
documents
or instruments necessary or desirable in the sole determination of the Company to carry out the
purposes or intent of your option.
You agree upon request
any further
to execute
(c)
reviewed your
option in its entirety, have had an opportunity to obtain the advice of counsel prior to executing and
accepting your option, and fully understand all provisions of your option.
You acknowledge
and agree
you have
that
(d)
applicable
laws, rules, and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
Option Agreement
to all
subject
This
will
be
(e)
All
Plan and this
Option Agreement will be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
Company under
obligations
the
the
of
5 .
* * *
This Option Agreement will be deemed to be signed by you upon the signing by you of the
Grant Notice to which it is attached.
6 .
Attachment II
Inducement Plan
Attachment III
Notice of Exercise
Notice Of Exercise
Sientra, Inc.
Attention: Stock Plan Administrator
420 South Fairview Avenue, Suite 200
Santa Barbara, CA 93117
Date:
This constitutes notice to Sientra, Inc. (the “ Company
”) under my stock option that I elect to purchase the
below number of shares of Common Stock of the Company (the “ Shares
”) for the price set forth below.
Type of option:
Stock option dated:
Number of Shares as
to which option is
exercised:
Certificates to be
issued in name of:
Total exercise price:
Nonstatutory
_______________
_______________
_______________
$______________
Cash payment delivered
herewith:
Value of ________ Shares delivered
herewith:
Value of ________ Shares pursuant to net
exercise:
$______________
$______________
$______________
Regulation T Program (cashless exercise):
$______________
By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms
of the Sientra, Inc. Inducement Plan and (ii) to provide for the payment by me to you (in the manner
designated by you) of your withholding obligation, if any, relating to the exercise of this option.
Very truly yours,
Signature
Print Name
Sientra, Inc.
Restricted Stock Unit Award Grant Notice
Inducement Plan
Sientra, Inc. (the “ Company
”) hereby awards to Participant the number of Restricted Stock Units
specified and on the terms set forth below (the “ Award”
). The Award is subject to all of the terms
and conditions as set forth in this Restricted Stock Unit Grant Notice (the “ Grant
Notice
”), in the
Restricted Stock Unit Award Agreement (the “ Award
Agreement
”) and in the Company’s
Inducement Plan (the “ Plan
” ), all of which are attached hereto and incorporated herein in their
entirety. Capitalized terms not explicitly defined herein but defined in the Plan or the Award
Agreement shall have the meanings set forth in the Plan or the Award Agreement, as applicable. In
the event of any conflict between the terms of this Grant Notice, the Award Agreement or the Plan,
the terms of the Plan shall control.
Participant:
[Name]
Date of Grant:
Vesting
Commencement
Date
[Date]
[Date]
Number
Restricted
Units:
of
Stock
[_______]
Settlement Date:
One share of Common Stock of the Company will be issued for each
Restricted Stock Unit (subject to any Capitalization Adjustment) that
vests at the time set forth in Section 6 of the Award Agreement.
Vesting Schedule:
________________________________________
Additional Terms/Acknowledgements: Participant acknowledges receipt of, and understands and
agrees to, this Restricted Stock Unit Grant Notice, the Restricted Stock Unit Agreement and the
Plan. Participant acknowledges and agrees that this Restricted Stock Unit Grant Notice and the
Restricted Stock Unit Agreement may not be modified, amended or revised except as provided in the
Plan. Participant further acknowledges that as of the Date of Grant, this Restricted Stock Unit Grant
Notice, the Restricted Stock Unit Agreement, and the Plan set forth the entire understanding between
Participant and the Company regarding this award and supersede all prior oral and written
agreements, promises and/or representations on that subject with the exception of (i) restricted stock
units previously granted and delivered to Participant, (ii) any compensation recovery policy that is
adopted by the Company or is otherwise required by applicable law and (iii) any written employment
or severance arrangement that would provide for vesting acceleration of this award upon the terms
and conditions set forth therein.
By accepting the Award, Participant acknowledges having received and read the Restricted Stock
Unit Grant Notice, the Restricted Stock Unit Award Agreement and the Plan (the “ Grant
Documents
”) and agrees to all of the terms and conditions set forth in these documents. Furthermore, by
accepting this Award, Participant consents to receive such documents by electronic delivery and to
participate in the Plan through an online or electronic system established and maintained by the
Company or another third party designated by the Company.
Your electronic signature may be indicated by following the instructions in Computershare’s website.
Your electronic signature indicates your agreement to be bound by the terms of this Agreement.
The Participant hereby accepts the Award subject to all of the terms and conditions of this Notice, the
Award Agreement and the Plan. Participant consents to receive such documents by electronic
delivery and to participate in the Plan through an on-line or electronic system established and
maintained by the Company or another third party designated by the Company.
SIENTRA, INC.
PARTICIPANT
By:
Its:
Signature
Date
Address
ATTACHMENTS: Inducement Plan; Restricted Stock Unit Agreement and Plan Prospectus
Sientra, Inc.
Inducement Plan
Restricted Stock Unit Award Agreement
Pursuant to the Restricted Stock Unit Grant Notice (the “ Grant
Notice
”) and this Restricted
Stock Unit Award Agreement (the “ Award
Agreement
”) and in consideration of your services,
Sientra, Inc. (the “ Company
”) has awarded you a Restricted Stock Unit Award (the “ Award
”)
under its Inducement Plan (the “ Plan
”) for the number of Restricted Stock Units indicated in the
Grant Notice (the “ Stock
Units
”) . The Award is granted in compliance with NASDAQ Listing Rule
5635(c)(4) as a material inducement to you entering into employ ment with the Company. Capitalized
terms not explicitly defined in this Award Agreement or in the Grant Notice but defined in the Plan
will have the same definitions as in the Plan.
The details of your Award, in addition to those set forth in the Grant Notice and the Plan are
as follows:
20.
Grant of the Award. This Award represents your right to be issued on a future date
one share of the Company’s Common Stock for each Stock Unit indicated in the Grant Notice that
vests. As of the Date of Grant specified in the Grant Notice, the Company will credit to a
bookkeeping account maintained by the Company for your benefit (the “ Account
”) the number of
Stock Units subject to the Award. This Award was granted in consideration of your services to the
Company.
21.
Vesting . Subject to the provisions contained herein, your Award will vest, if at all, in
accordance with the vesting schedule provided in the Grant Notice. Vesting will cease upon the
termination of your Continuous Service for any reason. Upon such termination of your Continuous
Service, any Stock Units credited to the Account that were not yet vested on the date of such
termination will be forfeited at no cost to the Company and you will have no further right, title or
interest in such Stock Units or the shares of Common Stock to be issued in respect of such portion of
the Award.
22.
Number of Stock Units and Shares of Common Stock.
(a)
The Stock Units subject
to your
Award will
be adjusted for
Capitalization Adjustments, as provided in the Plan.
(b)
Any additional
other
property that become subject to the Award pursuant to this Section 3 , if any, will be subject, in a
manner determined by the Board, to the same forfeiture restrictions, restrictions on transferability,
and time and manner of delivery as applicable to the other Stock Units and shares covered by your
Award.
and any shares,
Stock Units
cash or
(c)
No
of
Common Stock will be created pursuant to this Section 3 . Except as provided in Section 7 or
otherwise provided by the Company, any fraction of a share will be rounded down to the nearest
whole share.
fractional
fractional
shares
shares
rights
for
or
23.
Securities Law Compliance . You will not be issued any Common Stock in respect
of your Stock Units or other shares with respect to your Stock Units unless either (i) the shares are
registered under the Securities Act, or (ii) the Company has determined that such issuance would be
exempt from the registration requirements of the Securities Act. Your Award also must comply with
all other applicable laws and regulations governing the Award, and you will not receive such shares if
the Company determines that such receipt would not be in material compliance with such laws and
regulations.
24.
Transferability. Prior to the time that shares of Common Stock have been delivered
to you, you may not transfer, pledge, sell or otherwise dispose of any portion of the Stock Units or
the shares in respect of your Stock Units. For example, you may not use shares that may be issued in
respect of your Stock Units as security for a loan, nor may you transfer, pledge, sell or otherwise
dispose of such shares. This restriction on transfer will lapse upon delivery to you of shares in
respect of your vested Stock Units.
.
(a)
Death
Your Stock Units are not
will and by the laws of descent and distribution. Upon receiving written permission from the Board
or its duly authorized designee, you may, by delivering written notice to the Company, in a form
provided by or otherwise satisfactory to the Company and any broker designated by the Company to
effect transactions under the Plan, designate a third party who, in the event of your death, will
thereafter be entitled to receive any distribution of Common Stock or other consideration to which
you were entitled at the time of your death pursuant to this Award Agreement. In the absence of such
a designation, your executor or administrator of your estate will be entitled to receive, on behalf of
your estate, such Common Stock or other consideration.
transferable other than by
(b)
Domestic
Relations
Orders.
Upon
receiving
written
permission from the Board or its duly authorized designee, and provided that you and the designated
transferee enter into transfer and other agreements required by the Company, you may transfer your
right to receive the distribution of Common Stock or other consideration under your Stock Units,
pursuant to the terms of a domestic relations order, official marital settlement agreement or other
divorce or separation instrument as permitted by applicable law that contains the information
required by the Company to effectuate the transfer. You are encouraged to discuss with the
Company the proposed terms of any such transfer prior to finalizing the domestic relations order or
marital settlement agreement to help ensure the required information is contained within the domestic
relations order, marital settlement agreement or other divorce or separation instrument. The
Company is not obligated to allow you to transfer your Award in connection with your domestic
relations order, marital settlement agreement or other divorce or separation instrument.
25.
Date of Issuance.
(a)
To
from the
that
application of Section 409A of the Code, the issuance of shares in respect of the Stock Units is
intended to comply with Treasury Regulation Section 1.409A-1(b)(4) and will be construed and
administered in such a manner.
exempt
Award
extent
your
the
is
(b)
set
forth in Section 10 of this Award Agreement, in the event one or more Stock Units vests, the
Company will issue
the withholding obligations
to the satisfaction of
Subject
to you, on the vesting date, one share of Common Stock for each Stock Unit that vests and such
issuance date is referred to as the “ Original
Issuance
Date
. ” If the Original Issuance Date falls on a
date that is not a business day, delivery will instead occur on the next following business day.
if
(i)
(c)
not
However,
the Original
Issuance Date does
occur
(1) during an “open window period” applicable to you, as determined by the Company in accordance
with the Company’s then-effective policy on trading in Company securities, or (2) on a date when
you are otherwise permitted to sell shares of Common Stock on an established stock exchange or
stock market (including but not limited to under a previously established written trading plan that
meets the requirements of Rule 10b5-1 under the Exchange Act and was entered into in compliance
with the Company’s policies (a “ 10b5-1
Plan
”)), and (ii) the Company elects, prior to the Original
Issuance Date, not to satisfy the Withholding Taxes described in Section 10 by withholding shares
of Common Stock from the shares otherwise due, on the Original Issuance Date, to you under this
Award, then the shares that would otherwise be issued to you on the Original Issuance Date will not
be delivered on such Original Issuance Date and will instead be delivered on the first business day
when you are not prohibited from selling shares of the Company’s Common Stock in the open public
market, but in no event later than December 31 of the calendar year in which the Original Issuance
Date occurs (that is, the last day of your taxable year in which the Original Issuance Date occurs), or,
if and only if permitted in a manner that complies with Treasury Regulation Section 1.409A-1(b)(4),
no later than the date that is the later of (i) the 15th day of the third month following the end of the
calendar year in which such shares of Common Stock under this Award are no longer subject to a
“substantial risk of forfeiture” within the meaning of Treasury Regulation Section 1.409A-1(d) or (ii)
the 15th day of the third month following the end of the Company’s fiscal year in which such shares
of Common Stock under this Award are no longer subject to a “substantial risk of forfeiture” within
the meaning of Treasury Regulation Section 1.409A-1(d).
26.
Dividends. You will receive no benefit or adjustment to your Award or Stock Units
with respect to any cash dividend, stock dividend or other distribution that does not constitute a
Capitalization Adjustment as provided in the Plan; provided, however, that this sentence will not
apply with respect to any shares of Common Stock that are delivered to you in connection with your
Award after such shares have been delivered to you.
27.
Restrictive Legends. The Common Stock issued with respect to your Stock Units
will be endorsed with appropriate legends, if any, as determined by the Company.
28.
Award not a Service Contract .
(a)
Except as otherwise provided in a separate, written employment or other
agreement between the Company and/or its Affiliates and you, your Continuous Service is not for
any specified term and may be terminated by you or by the Company or an Affiliate at any time, for
any reason, with or without cause and with or without notice. Nothing in this Award Agreement
(including, but not limited to, the vesting of your Stock Units or the issuance of the shares in respect
of your Stock Units), the Plan or any covenant of good faith and fair dealing that may be found
implicit in this Award Agreement or the Plan will: (i) confer upon you any right to continue in the
employ or service of, or affiliation with, the Company or an Affiliate; (ii) constitute any promise or
commitment by the Company or an Affiliate regarding the fact or nature of future positions, future
work assignments, future compensation or any other term or condition of
employment or affiliation; (iii) confer any right or benefit under this Award Agreement or the Plan
unless such right or benefit has specifically accrued under the terms of this Award Agreement or
Plan; or (iv) deprive the Company of the right to terminate you at will and without regard to any
future vesting opportunity that you may have.
(b)
By accepting this Award,
you acknowledge and agree that
the right to continue vesting in the Award pursuant to the vesting schedule provided in the Grant
Notice is earned only by continuing as an employee, director or consultant at the will of the Company
or an Affiliate, as applicable (not through the act of being hired, being granted this Award or any
other award or benefit) and that the Company has the right to reorganize, sell, spin-out or otherwise
restructure one or more of its businesses or Affiliates at any time or from time to time, as it deems
appropriate (a “ Reorganization
”). You further acknowledge and agree that such Reorganization
could result in the termination of your Continuous Service or the termination of Affiliate status of
your employer and the loss of benefits available to you under this Award Agreement , including but
not limited to, the termination of the right to continue vesting in the Award. You further
acknowledge and agree that this Award Agreement , the Plan, the transactions contemplated
hereunder and the vesting schedule set forth herein or any covenant of good faith and fair dealing that
may be found implicit in any of them do not constitute an express or implied promise of continued
engagement as an employee or consultant for the term of this Award Agreement, for any period, or at
all, and shall not interfere in any way with your right or the Company’s right to terminate your
Continuous Service at any time, with or without cause and with or without notice.
29. Withholding Obligations.
(a)
On each vesting date,
and on or before the time you receive
a distribution of the shares in respect of your Stock Units, and at any other time as reasonably
requested by the Company in accordance with applicable tax laws, you hereby authorize any required
withholdings from the shares of Common Stock issuable to you and/or otherwise agree to make
adequate provision, including in cash, for any sums required to satisfy the federal, state, local and
foreign tax withholding obligations of the Company or any Affiliate that arise in connection with
your Award (the “ Withholding
Taxes
”). Specifically, the Company or an Affiliate may, in its sole
discretion, satisfy all or any portion of the Withholding Taxes relating to your Award by any of the
following means or by a combination of such means: (i) withholding from any compensation
otherwise payable to you by the Company or an Affiliate; (ii) causing you to tender a cash payment;
(iii) permitting or requiring you to enter into a “same day sale” commitment with a broker-dealer that
is a member of the Financial Industry Regulatory Authority (a “ FINRA
Dealer
”) whereby you
irrevocably elect to sell a portion of the shares to be delivered in connection with your Stock Units to
satisfy the Withholding Taxes and whereby the FINRA Dealer irrevocably commits to forward the
proceeds necessary to satisfy the Withholding Taxes directly to the Company and/or its Affiliates; or
(iv) withholding shares of Common Stock from the shares of Common Stock issued or otherwise
issuable to you in connection with your Stock Units with a Fair Market Value (measured as of the
date shares of Common Stock are issued to you) equal to the amount of such Withholding Taxes;
provided, however , that the number of such shares of Common Stock so withheld will not exceed the
amount necessary to satisfy the Company’s required tax withholding obligations using the minimum
statutory withholding rates for federal, state, local and, if applicable, foreign tax purposes, including
payroll taxes, that are applicable to supplemental taxable income; and provided further, that to the
extent necessary to qualify for an
exemption from application of Section 16(b) of the Exchange Act, such share withholding procedure
shall be subject to the express prior approval of the Board or a duly authorized committee thereof.
(b)
any
Affiliate are satisfied, the Company will have no obligation to deliver to you any Common Stock or
other consideration pursuant to this Award.
the Withholding Taxes
the Company and/or
Unless
of
(c)
In the
obligation to withhold arises
prior to the delivery to you of Common Stock or it is determined after the delivery of Common Stock
to you that the amount of the Company’s withholding obligation was greater than the amount
withheld by the Company, you agree to indemnify and hold the Company harmless from any failure
by the Company to withhold the proper amount.
Company’s
event
the
30.
Unsecured Obligation. Your Award is unfunded, and as a holder of vested Stock
Units, you will be considered an unsecured creditor of the Company with respect to the Company’s
obligation, if any, to issue shares or other property pursuant to this Award Agreement. You will not
have voting or any other rights as a shareholder of the Company with respect to the shares to be
issued pursuant to this Award Agreement until such shares are issued to you. Upon such issuance,
you will obtain full voting and other rights as a shareholder of the Company. Nothing contained in
this Award Agreement, and no action taken pursuant to its provisions, will create or be construed to
create a trust of any kind or a fiduciary relationship between you and the Company or any other
person.
31.
Other Documents . You hereby acknowledge receipt of and the right to receive a
document providing the information required by Rule 428(b)(1) promulgated under the Securities
Act, which includes the Plan prospectus. In addition, you acknowledge receipt of the Company’s
policy permitting certain individuals to sell shares only during certain “window” periods and the
Company’s insider trading policy, in effect from time to time.
32.
Notices . Any notices provided for in this Award Agreement or the Plan will be given
in writing (including electronically) and will be deemed effectively given upon receipt or, in the case
of notices delivered by the Company to you, five days after deposit in the United States mail, postage
prepaid, addressed to you at the last address you provided to the Company. The Company may, in its
sole discretion, decide to deliver any documents related to participation in the Plan and this Award by
electronic means or to request your consent to participate in the Plan by electronic means. By
accepting this Award, you consent to receive such documents by electronic delivery and to
participate in the Plan through an on-line or electronic system established and maintained by the
Company or another third party designated by the Company .
33.
Personal Data . You understand that your employer, if applicable, the Company,
and/or its Affiliates hold certain personal information about you, including but not limited to your
name, home address, telephone number, date of birth, social security or equivalent tax identification
number, salary, nationality, job title, and details of your Award (the “
Personal
Data
”
). Certain
Personal Data may also constitute “
Sensitive
Personal
Data
”
or similar classification under
applicable local law and be subject to additional restrictions on collection, processing and use of the
same under such laws. Such data include but are not limited to Personal
Data and any changes thereto, and other appropriate personal and financial data about you. You
hereby provide express consent to the Company or its Affiliates to collect, hold, and process any such
Personal Data and Sensitive Personal Data. You also hereby provide express consent to the Company
and/or its Affiliates to transfer any such Personal Data and Sensitive Personal Data outside the
country in which you are employed or retained, including transfers to the United States, if
applicable. The legal persons for whom such Personal Data are intended are the Company and any
broker company providing services to the Company in connection with the administration of the
Plan. You have been informed of your right to access and correct your Personal Data and/or
Sensitive Personal Data by applying to the Company.
34.
Additional Acknowledgements . You hereby consent and acknowledge that:
(a) Participation in the Plan is voluntary and therefore you must accept the terms and
conditions of the Plan and this Award Agreement and Grant Notice as a condition to participating in
the Plan and receipt of this Award. This Award and any other awards under the Plan are voluntary
and occasional and do not create any contractual or other right to receive future awards or other
benefits in lieu of future awards, even if similar awards have been granted repeatedly in the past. All
determinations with respect to any such future awards, including, but not limited to, the time or times
when such awards are made, the size of such awards and performance and other conditions applied to
the awards, will be at the sole discretion of the Company.
(b)
The future value of
be
predicted with certainty. You do not have, and will not assert, any claim or entitlement to
compensation, indemnity or damages arising from the termination of this Award or diminution in
value of this Award and you irrevocably release the Company, its Affiliates and, if applicable, your
employer, if different from the Company, from any such claim that may arise.
Award is unknown and cannot
your
(c)
The rights and obligations of the Company under your Award will be
transferable to any one or more persons or entities, and all covenants and agreements hereunder will
inure to the benefit of, and be enforceable by the Company’s successors and assigns.
(d)
Upon request, you agree to execute any further documents or instruments
necessary or desirable in the sole determination of the Company to carry out the purposes or intent of
your Award.
(e)
You have reviewed your Award in its entirety, have had an opportunity to
obtain the advice of counsel prior to executing and accepting your Award, and fully understand all
provisions of your Award.
(f)
This Award Agreement will be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national securities exchanges as
may be required.
(g)
All
obligations of the Company under the Plan and this Award
Agreement will be binding on any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or
substantially all of the business and/or assets of the Company.
35.
Governing Plan Document . Your Award is subject to all the provisions of the Plan,
the provisions of which are hereby made a part of your Award, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In addition, your Award will be subject to recoupment in accordance
with any clawback policy that the Company has adopted or any clawback policy that the Company is
required to adopt pursuant to the listing standards of any national securities exchange or association
on which the Company’s securities are listed or as is otherwise required by the Dodd–Frank Wall
Street Reform and Consumer Protection Act or other applicable law. No recovery of compensation
under such a clawback policy will be an event giving rise to a right to resign for “good reason” or
“constructive termination” (or similar term) under any plan of or agreement with the Company.
Except as expressly provided in this Award Agreement or the Grant Notice, in the event of any
conflict between the provisions of your Award and those of the Plan, the provisions of the Plan will
control.
36.
Severability. If all or any part of this Award Agreement or the Plan is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness or invalidity will
not invalidate any portion of this Award Agreement or the Plan not declared to be unlawful or
invalid. Any Section of this Award Agreement (or part of such a Section) so declared to be unlawful
or invalid will, if possible, be construed in a manner which will give effect to the terms of such
Section or part of a Section to the fullest extent possible while remaining lawful and valid.
37.
Effect on Other Employee Benefit Plans. The value of the Award subject to this
Award Agreement will not be included as compensation, earnings, salaries, or other similar terms
used when calculating the Employee’s benefits under any employee benefit plan sponsored by the
Company or any Affiliate, except as such plan otherwise expressly provides. The Company expressly
reserves its rights to amend, modify, or terminate any of the Company’s or any Affiliate’s employee
benefit plans.
38.
Amendment. Any amendment to this Award Agreement must be in writing, signed
by a duly authorized representative of the Company. The Board reserves the right to amend this
Award Agreement in any way it may deem necessary or advisable to carry out the purpose of the
grant as a result of any change in applicable laws or regulations or any future law, regulation,
interpretation, ruling, or judicial decision.
39.
Compliance with Section 409A of the Code . This Award is intended to be exempt
from the application of Section 409A of the Code, including but not limited to by reason of
complying with the “short-term deferral” rule set forth in Treasury Regulation Section 1.409A-1(b)
(4) and any ambiguities herein shall be interpreted accordingly. However, if this Award fails to
satisfy the requirements of the short-term deferral rule and is otherwise not exempt from, and
therefore deemed to be deferred compensation subject to, Section 409A of the Code, this Award shall
comply with Section 409A of the Code to the extent necessary to avoid adverse personal tax
consequences and any ambiguities herein shall be interpreted accordingly. To the extent this Award
is subject to Section 409A of the Code and if you are a “Specified Employee” (within the meaning
set forth Section 409A(a)(2)(B)(i) of the Code) as of the date of your separation from service (within
the meaning of Treasury Regulation Section 1.409A-1(h)), then the issuance of any shares that would
otherwise be made upon the date of the separation from service or within the first six months
thereafter will not be made on the originally scheduled dates and will instead be
issued in a lump sum on the date that is six months and one day after the date of the separation from
service, with the balance of the shares issued thereafter in accordance with the original vesting and
issuance schedule set forth above, but if and only if such delay in the issuance of the shares is
necessary to avoid the imposition of taxation on you in respect of the shares under Section 409A of
the Code. Each installment of shares that vests is a “separate payment” for purposes of Treasury
Regulation Section 1.409A-2(b)(2).
40.
No Obligation to Minimize Taxes. The Company has no duty or obligation to
minimize the tax consequences to you of this Award and will not be liable to you for any adverse tax
consequences to you arising in connection with this Award. You are hereby advised to consult with
your own personal tax, financial and/or legal advisors regarding the tax consequences of this Award
and by signing the Grant Notice, you have agreed that you have done so or knowingly and
voluntarily declined to do so.
This Restricted Stock Unit Award Agreement will be deemed to be accepted by you upon
your acceptance of the Restricted Stock Unit Grant Notice to which it is attached.
* * *
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Sientra, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-199684, 333-202879
and 333-209129) on Form S-8 of Sientra, Inc. of our report dated March 10, 2016, with respect to the
balance sheets of Sientra, Inc. as of December 31, 2015 and 2014, and the related statements of operations,
convertible preferred stock and stockholders’ equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2015, and the related financial statement schedule, which report
appears in the December 31, 2015 annual report on Form 10-K of Sientra, Inc.
Woodland Hills, California
March 10, 2016
/s/ KPMG LLP
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES ‑‑OXLEY ACT OF 2002
I, Jeffrey Nugent , certify that:
1.
I have reviewed this annual report on Form 10 ‑K of Sientra, Inc.;
Exhibit 31.1
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
2.
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;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly
3.
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.
controls and procedures (as defined in Exchange Act Rules 13a ‑15(e) and 15d ‑15(e)) for the registrant and have:
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure
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.
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
c.
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
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
5.
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 10 , 201 6
/s/ Jeffrey Nugent
President and Chief Executive Officer
Jeffrey Nugent
Chief Executive Officer
Exhibit 31.2
Exhibit 31.2
CERTIFICATION OF CHIEF FINANIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES ‑‑OXLEY ACT OF 2002
I, Matthew Pigeon, certify that:
1.
I have reviewed this annual report on Form 10 ‑K of Sientra, Inc.;
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)) 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.
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
c.
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 10 , 201 6
/s/ Matthew Pigeon
Chief Financial Officer
Matthew Pigeon
Chief Financial Officer
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES ‑‑OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Sientra, Inc. (the “Company”) on Form 10 ‑K for the period ended
December 31, 201 5 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey Nugent ,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes ‑Oxley Act of 2002, to my knowledge that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 10, 2016
/s/ Jeffrey Nugent
President and Chief Executive Officer
Jeffrey Nugent
Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES ‑‑OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Sientra, Inc. (the “Company”) on Form 10 ‑K for the period ended
December 31, 201 5 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Matthew Pigeon,
Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes ‑Oxley Act of 2002, to my knowledge that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 1 0 , 201 6
/s/ Matthew Pigeon
Matthew Pigeon
Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.