Commitments and Contingencies

6 Months Ended

Jun. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Facility Lease

In August 2011, the Company entered into a non-cancelable operating lease for combined office and manufacturing facilities in Mountain View, California. The lease was scheduled to expire in April 2019 and was amended in May 2018 to extend it through June 2024. The terms of the facility lease provide for rental payments on a graduated scale; however, rent expense is recognized on a straight-line basis over the lease term. The Company has an option to extend the lease for a period of five years, commencing on July 1, 2024 and expiring on June 30, 2029. In conjunction with the original lease agreement, the Company obtained a letter of credit for $0.9 million in lieu of a security deposit. In May 2019, the letter of credit was amended and reduced to $0.7 million. In June 2021, the letter of credit was amended and further reduced to $0.2 million.

Rental payments range from $2.9 million to $3.3 million per year over the extended term of the lease. In April 2020, the Company amended the lease agreement to defer 50.0% of the rental payment for May and June 2020 of $0.3 million. The deferred rental payments accrued interest at an annual rate of 8.0% starting from October 1, 2020 and were paid in three equal monthly installments commencing on April 1, 2021.

Rent expense for the three and six months ended June 30, 2021 was $0.7 million and $1.4 million, respectively. As of December 31, 2021, $1.4 million was recorded as deferred rent expense.

The Company’s future minimum lease payments under the non-cancellable operating lease as of December 31, 2021 were as follows (in thousands):


	December 31, 2021
2022	$	3,172
2023	3,267
2024	1,666
Total	$	8,105

The maturities of operating lease liabilities as of June 30, 2022 are as follows (in thousands):


	June 30, 2022
2022 (remaining six months)	$	1,601
2023	3,267
2024	1,666
Total undiscounted lease payments	6,534
Less: imputed interest	375
Total operating lease liability	6,159
Less: current portion	2,936
Operating lease liability, net of current portion	$	3,223

Operating lease cost was $0.7 million and $1.3 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2022, the remaining term for the operating lease in Mountain View, California was 2.0 years, and the discount rate used to measure the lease liability for such operating lease upon recognition was 6.3%.

During the six months ended June 30, 2022, cash paid for amounts included in operating lease liabilities of $1.6 million was included in cash flows from operating activities on the condensed statements of cash flows.

Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company’s exposure under these agreements is unknown because it involves claims that may be made against it in the future but have not yet been made. The Company may, from time to time, be subject to claims or be required to defend actions related to its indemnification obligations.

The Company indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits, while the director or officer is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as the director or officer may be subject to any proceeding arising out of acts or omissions of such individual in such capacity. The maximum amount of potential future indemnification is unlimited. The Company believes that the fair value of these indemnification obligations is minimal. Accordingly, the Company has not recognized any liabilities relating to these obligations as of June 30, 2022 and December 31, 2021.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. 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. The Company determined that no accrual related to contingencies was required as of June 30, 2022 and December 31, 2021.

Legal Proceedings

The Company is, and from time to time may become, involved in legal proceedings. The Company may also pursue litigation to assert its legal rights and such litigation may be costly and divert the efforts and attention of its management and technical personnel which could adversely affect its business. Due to the uncertainty of litigation and depending on the amount and the timing, an unfavorable resolution of some or all of such matters may materially affect our business, results of operations, financial position, or cash flows. The Company regularly evaluates current information to determine whether any accruals should be adjusted and whether new accruals are required. Such accruals, if any, reflect the estimable and probable costs that the Company may incur from the outcomes of its legal proceedings. Actual claims could settle or be adjudicated against the Company in the future for materially different amounts than the Company has accrued due to the inherently unpredictable nature of litigation. Legal costs are expensed as incurred. The Company believes it has recorded adequate provisions for any such

lawsuits and claims as of June 30, 2022. The provisions are immaterial and are recorded within selling, general and administrative expenses. The nature of the loss contingencies relating to claims that have been asserted against us are described below.

On April 20, 2021, the Company received correspondence from the United States Department of Treasury regarding an inquiry into a matter that may fall under the jurisdiction of the Committee on Foreign Investment in the United States, or CFIUS. While the Company believes that its RNS System is not a critical technology for which CFIUS would have jurisdiction and does not pose a national security risk, the Company is cooperating fully with CFIUS on the matter.

Additionally, on October 18, 2021, three stockholders of the Company, James Jacoby, George Vachtsevanos, and Javier Echauz, or together with Company, the Parties, filed a complaint in the United States District Court for the Northern District of California, or the Court, entitled James Jacoby et al. v. NeuroPace, Inc., et al., Case No. 3:21-cv-8136, against the Company and its board of directors. The complaint alleges various claims related to the Company’s reverse stock splits and seeks, among other relief, damages and attorney’s fees. The complaint was amended on December 28, 2021 to name additional defendants. On August 8, 2022, the Parties entered into a confidential settlement agreement, which contains, among other things, a mutual release of claims and no admission of liability by defendants. On August 9, 2022, the Parties filed a stipulation of dismissal with prejudice, which was entered by the Court on August 9, 2022. Although the Company has agreed to settle these claims, it continues to believe there is no merit to the stockholders’ allegations. As of June 30, 2022, the Company has recorded an immaterial estimated liability related to this complaint.