SecProbe.io

CORRESP
1
filename1.htm

corresp

November 3, 2010

United States Securities and Exchange Commission

Division of Corporation Finance

Mail Stop 3030

100 F. Street, N.E.

Washington, D.C. 20549-6010

Attention: Mr. Kevin Kuhar

Re: Insulet Corporation

Form 10-K for the Fiscal Year ended December 31, 2009

Filed March 9, 2010

Amendment No. 1 to Form 10-K filed August 9, 2010

File No. 001-33462

Dear Ladies and Gentlemen:

This letter is being furnished on behalf of Insulet Corporation (the “Company”) in response to
comments in the letter dated October 22, 2010 (the “Letter”) from the Staff (the “Staff”) of the
Securities and Exchange Commission (the “Commission”) to Brian Roberts, Chief Financial Officer of
the Company, with respect to the Company’s Form 10-K for the Fiscal Year ended December 31, 2009
that was filed March 9, 2010 and the Company’s Amendment No. 1 to Form 10-K filed August 9, 2010.

To facilitate your review of our response, we have repeated in full your comment in italics below.

Amendment No. 1 to Form 10-K for the Fiscal Year Ended December 31, 2009

Note 16. Restatement of Previously Issued Financial Statements, page F-23

1. Please refer to prior comment 1. We note in your response to our comment where you provided a
summarized discounted cash flow analysis for the various debt prepayment scenarios. Please respond
to the following:

    •

    Provide us your accounting basis for excluding the commitment fee from the discounted
cash flow model for the original debt agreement. Please summarize for us the impact
including the commitment fee would have on the discounted cash flow analysis provided.

    •

    Provide us with your detailed calculation for the effective interest rate of 20.5% as it
appears to have a significant impact on the model and changed significantly from the
original calculation of 13%.

    •

    We see that you included $1.2 million of transaction fees as part of the discount on the
original debt. We note on page F-14 of the Form 10-K/A that the total transaction fees

    were $3.0 million. Describe for us your accounting basis for excluding the additional $1.8
million in transaction fees.

    •

    In your response you refer to $6.1 million as the “fair value of the warrants.” However
on page F-15 of the Form 10-K/A you refer to the $6.1 million as the “relative fair value.”
Please reconcile these two statements. Provide us with an updated assessment based on the
fair value of the warrants if not $6.1 million.

In the preparation of our revised discounted cash flow model under the original Facility Agreement,
we excluded the commitment fee payable thereunder. Under the original Facility Agreement, the
lenders lent us $27.5 million and committed to lend us an additional $32.5 million in $6.5 million
tranches subject to our meeting certain performance targets. Interest accrued on outstanding
amounts at 9.75% annually, and we paid a commitment fee on committed, but unborrowed amounts at
2.75% annually. Accordingly, the cash interest rate on the outstanding debt of $27.5 million was
9.75%. Since the 2.75% commitment fee was payable to the lenders in exchange for the future
availability of additional borrowings under the agreement, it should be excluded from
the effective interest rate calculation on the original amount
borrowed. Consistent with ASC 470-50-40-10 the evaluation of a
modification considers the remaining cash flows of the original debt
at the date of the modification. We considered that ASC
470-50-40-12(d) states that “if the
debt instruments contain contingent payment terms or unusual interest rate terms, judgment shall be
used to determine the appropriate cash flows,” however given
that the commitment fee would not be used in
determining the effective interest rate on the original debt, it also would not seem appropriate to
include the commitment fee in discounting the remaining cash flows of
the original debt.

The effective interest rate of 20.5% was calculated using the following assumptions:

    Pay off at Maturity

    Original Debt

    Gross Debt

    $
    27,500,000

    Discount on debt*

    $
    (7,264,813
    )

    Quarterly Interest Payments

    $
    670,313

    Interest Payments through

    September 2012

    Number of Interest payments

    12

    Prepayment Penalty

    —

    Principal Payment Amount

    $
    27,500,000

    Principal Payment Date

    September 2012

    *

    Includes relative fair value of warrants of $6.1 million as well as transaction fees of $1.2
million paid to Deerfield Management Company.

Assuming the commitment fee was included in the effective interest rate calculation, quarterly
interest payments would have been $893,750. The effective interest rate calculated using the same
assumptions above would have been 24.4%. Using the effective interest rate calculated by including
the commitment fee, the change in the present value of the cash flows on the amended debt would be
less than a 10% difference from the remaining cash flows on the original debt in
certain scenarios. Accordingly, including the commitment fee in our discounted cash flow analysis
would not have changed our determination that the amendment was a modification

2

rather than an extinguishment of debt. Including the commitment fee in the analysis has no impact on the analysis
as it only takes one scenario with less than a 10% change to result in a modification rather than
an extinguishment.

The calculation of the 20.5% effective interest rate on the original debt is as follows:

Effective Interest Rate

    Compound Period:

    Quarterly

    Nominal Annual Rate:

    20.513
    %

CASH FLOW DATA

    Event

    Date

    Amount

    Number

    Period

    End Date

    1 Loan

    3/31/2009

    20,235,187.00

    1

    2 Payment

    6/30/2009

    670,313.00

    14

    Quarterly

    9/30/2012

    3 Payment

    9/30/2012

    27,500,000.00

    1

AMORTIZATION SCHEDULE — Normal Amortization

    Date

    Payment

    Interest

    Principal

    Balance

    Loan

    3/31/2009

    20,235,187.00

    1

    6/30/2009

    670,313.00

    1,037,706.35

    (367,393.35
    )

    20,602,580.35

    2

    9/30/2009

    670,313.00

    1,056,547.12

    (386,234.12
    )

    20,988,814.47

    3

    12/31/2009

    670,313.00

    1,076,354.08

    (406,041.08
    )

    21,394,855.55

    2009 Totals

    2,010,939.00

    3,170,607.55

    (1,159,668.55
    )

    4

    3/31/2010

    670,313.00

    1,097,176.79

    (426,863.79
    )

    21,821,719.34

    5

    6/30/2010

    670,313.00

    1,119,067.33

    (448,754.33
    )

    22,270,473.67

    6

    9/30/2010

    670,313.00

    1,142,080.47

    (471,767.47
    )

    22,742,241.14

    7

    12/31/2010

    670,313.00

    1,166,273.78

    (495,960.78
    )

    23,238,201.92

    2010 Totals

    2,681,252.00

    4,524,598.37

    (1,843,346.37
    )

    8

    3/31/2011

    670,313.00

    1,191,707.78

    (521,394.78
    )

    23,759,596.70

    9

    6/30/2011

    670,313.00

    1,218,446.08

    (548,133.08
    )

    24,307,729.78

    10

    9/30/2011

    670,313.00

    1,246,555.59

    (576,242.59
    )

    24,883,972.37

    11

    12/31/2011

    670,313.00

    1,276,106.62

    (605,793.62
    )

    25,489,765.99

    2011 Totals

    2,681,252.00

    4,932,816.07

    (2,251,564.07
    )

    12

    3/31/2012

    670,313.00

    1,307,173.10

    (636,860.10
    )

    26,126,626.09

    13

    6/30/2012

    670,313.00

    1,339,832.73

    (669,519.73
    )

    26,796,145.82

    14

    9/30/2012

    670,313.00

    1,374,167.22

    (703,854.22
    )

    27,500,000.04

    15

    9/30/2012

    27,500,000.00

    27,500,000.00

    0.04

    2012 Totals

    29,510,939.00

    4,021,173.05

    25,489,765.95

    Grand Totals

    36,884,382.00

    16,649,195.04

    20,235,186.96

Note that the largest impact on the computation of the interest rate is inclusion of the carrying
value of the warrant.

3

The total transaction costs of the original debt agreement were $3.0 million. Under the terms of
the Facility Agreement, we agreed to pay a transaction fee of $1.2 million to Deerfield Management
Company, L.P., an affiliate of the lead lender. In addition, we incurred financing costs of
approximately $1.8 million which were paid to third parties for services in connection with our
obtaining the financing. Amounts paid to the purchaser of the debt or equity instrument when the
transaction is consummated are a reduction in the proceeds received by the issuer and are
considered a component of the premium or discount on the issuance and not as an issuance cost.

As such, we believe the transaction fee paid to Deerfield should be recorded as a debt discount,
used in the effective interest rate calculation and amortized to interest expense over the term of
the debt.

Direct and incremental costs related to the issuance of debt should be capitalized and reported as
deferred financing costs. As these third party costs are not offset against the proceeds, we
believe these issue costs should be recorded as other assets, excluded from the effective interest
rate calculation and amortized to interest expense over the term of the debt using the effective
interest method.

The $27.5 million of debt was issued in tandem with the issuance of warrants to purchase 3.75
million shares of our common stock. ASC 470-20-25-2 notes that proceeds from the sale of a debt
instrument with stock purchase warrants (detachable call options) shall be allocated to the two
elements (debt and warrants) based on the relative fair values of the debt instrument without the
warrants and of the warrants themselves at time of issuance. Under ASC 470-20-30-1, the allocation
of proceeds under paragraph 470-20-25-2 shall be based on the relative fair values of the two
instruments at time of issuance. We used the Black-Scholes value of the warrants on the issuance
date to value the warrants at $7.8 million (or $2.075 per share). The proceeds from the debt of
$27.5 million were allocated between the debt and the warrants as follows:

    Percentage of

    Relative

    Relative Fair Value

    Fair Value

    Total liability component

    $
    27,500,000

    78
    %

    $
    21,435,187

    Total equity component
(Black-Scholes value)

    7,780,775

    22
    %

    6,064,813

    $
    35,280,775

    $
    27,500,000

We are amortizing the debt discount of $7.3 million to interest expense over the term of the debt.
The debt recorded at the time of the issuance of debt is calculated as follows:

    Gross Debt

    $
    27,500,000

    Less:

    Relative Fair Value of Warrants

    6,064,813

    Transaction Fee Paid to Lender

    1,200,000

    Net Debt

    $
    20,235,187

Accordingly, the relative fair value of the warrants was $6.1 million on the date of issuance
based on this allocation method. The asterisk under the table on page 4 of our prior response

4

should have included the word “relative” prior to fair
value. The amount recorded in the Statement of Changes in
Stockholders’ Equity (Deficit) in the year ended
December 31, 2009 of $5.7 million reflects the relative
fair value of $6.1 million less the portion of the
$1.8 million of financing costs allocated to equity.

* * *

On behalf of the Company, I hereby acknowledge that:

    •

    the Company is responsible for the adequacy and accuracy of the disclosure in the
filings:

    •

    Staff comments or changes to disclosure in response to Staff comments do not foreclose
the Commission from taking any action with respect to the filings: and

    •

    the Company may not assert Staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the Unite States.

Should you have any further comments or questions with regard to the foregoing, please do not
hesitate to contact the undersigned by phone at (781) 457-4848 or by e-mail at broberts@insulet.com

    Sincerely,

    /s/ Brian Roberts

    Brian Roberts

    Chief Financial Officer

    cc:

     Raymond C. Zemlin, Esq.

(Goodwin Procter LLP)

5