Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


 

FORM 10-Q

 

 

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended March 31, 2019

or

 

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 001-37717


Senseonics Holdings, Inc.

(Exact name of registrant as specified in its charter)


 

 

 

Delaware
(State or other jurisdiction of
incorporation or organization)

3841
(Primary Standard Industrial
Classification Code Number)

47‑1210911
(I.R.S. Employer
Identification Number)

 

20451 Seneca Meadows Parkway

Germantown, MD 20876‑7005

(301) 515‑7260

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days   Yes ☒ No    

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes ☒ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  

 

 

 

 

 

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

SENS

NYSE American

 

There were 177,008,363 shares of common stock, par value $0.001, outstanding as of May 8, 2019.

 

 

 

 


 

Table of Contents

TABLE OF CONTENTS

 

PART I: Financial Information

 

 

 

ITEM 1 : Financial Statements

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018  

2

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for three months ended March 31, 2019 and 2018  

3

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three  months ended March 31, 2019 and 2018  

4

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018  

5

Notes to Unaudited Condensed Consolidated Financial Statements  

6

 

 

ITEM 2 : Management Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

ITEM 3 : Quantitative and Qualitative Disclosures about Market Risk

29

 

 

ITEM 4 : Controls and Procedures

30

 

 

PART II : Other Information

 

 

 

ITEM 1 : Legal Proceedings

31

 

 

ITEM 1A : Risk Factors

31

 

 

ITEM 2 : Unregistered Sales of Equity and Securities and Use of Proceeds

31

 

 

ITEM 3 : Defaults Upon Senior Securities

31

 

 

ITEM 4 : Mine Safety Disclosures

31

 

 

ITEM 5 : Other Information

31

 

 

ITEM 6 : Exhibits

32

 

 

SIGNATURES  

33

 

 

 

 

 

 

1


 

Table of Contents

 

Senseonics Holdings, Inc.

 

Condensed Consolidated Balance Sheet s

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

    

 

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

103,675

 

$

136,793

 

Accounts receivable (primarily from a related party)

 

 

2,367

 

 

7,097

 

Inventory, net

 

 

14,370

 

 

10,231

 

Prepaid expenses and other current assets

 

 

4,698

 

 

3,985

 

Total current assets

 

 

125,110

 

 

158,106

 

 

 

 

 

 

 

 

 

Deposits and other assets

 

 

114

 

 

117

 

Property and equipment, net

 

 

2,046

 

 

1,750

 

Right of use asset, building

 

 

2,131

 

 

 —

 

Total assets

 

$

129,401

 

$

159,973

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

3,274

 

$

4,407

 

Accrued expenses and other current liabilities

 

 

13,754

 

 

13,851

 

Right of use liability, building, current portion

 

 

431

 

 

 —

 

Deferred revenue

 

 

 —

 

 

628

 

Term Loans, current portion

 

 

10,000

 

 

10,000

 

Total current liabilities

 

 

27,459

 

 

28,886

 

 

 

 

 

 

 

 

 

Term Loans, net of discount and current portion

 

 

2,347

 

 

4,783

 

2023 Notes, net of discount

 

 

36,949

 

 

36,103

 

Derivative liability

 

 

15,019

 

 

17,091

 

Term Loans, accrued interest

 

 

1,892

 

 

1,764

 

Right of use liability, building, net of current portion

 

 

1,791

 

 

 —

 

Other liabilities

 

 

 —

 

 

85

 

Total liabilities

 

 

85,457

 

 

88,712

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value per share; 450,000,000 shares authorized; 176,958,487 and 176,918,381 shares issued and outstanding as of March 31, 2019 and December 31, 2018

 

 

177

 

 

177

 

Additional paid-in capital

 

 

430,926

 

 

428,878

 

Accumulated deficit

 

 

(387,159)

 

 

(357,794)

 

Total stockholders' equity

 

 

43,944

 

 

71,261

 

Total liabilities and stockholders’ equity

 

$

129,401

 

$

159,973

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2


 

Table of Contents

Senseonics Holdings, Inc.

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Revenue, primarily from a related party

 

$

3,423

    

$

2,946

 

Cost of sales

 

 

6,733

 

 

3,308

 

Gross profit

 

 

(3,310)

 

 

(362)

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Sales and marketing expenses

 

 

12,834

 

 

3,441

 

Research and development expenses

 

 

7,108

 

 

8,113

 

General and administrative expenses

 

 

6,516

 

 

4,011

 

Operating loss

 

 

(29,768)

 

 

(15,927)

 

Other income (expense), net:

 

 

 

 

 

 

 

Interest income

 

 

627

 

 

184

 

Interest expense

 

 

(2,034)

 

 

(1,771)

 

Change in fair value of derivative liability

 

 

2,072

 

 

(4,847)

 

Other (expense) income

 

 

(262)

 

 

88

 

  Total other income (expense), net

 

 

403

 

 

(6,346)

 

 

 

 

 

 

 

 

 

Net loss

 

 

(29,365)

 

 

(22,273)

 

Total comprehensive loss

 

$

(29,365)

 

$

(22,273)

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.17)

 

$

(0.16)

 

Basic and diluted weighted-average shares outstanding

 

 

176,954,116

 

 

137,069,008

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

3


 

Table of Contents

Senseonics Holdings, Inc.

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Total

 

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Stockholders'

 

 

  

Shares

  

Amount

  

Capital

  

Deficit

  

Equity (Deficit)

 

Balance, December 31, 2017

 

136,883

 

$

137

 

$

270,953

 

$

(263,823)

 

$

7,267

 

Exercise of stock options and warrants

 

312

 

 

 —

 

 

380

 

 

 —

 

 

380

 

Stock-based compensation expense and vesting of RSUs

 

45

 

 

 —

 

 

1,454

 

 

 —

 

 

1,454

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(22,273)

 

 

(22,273)

 

Balance, March 31, 2018

 

137,240

 

$

137

 

$

272,787

 

$

(286,096)

 

$

(13,172)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

176,918

 

$

177

 

$

428,878

 

$

(357,794)

 

$

71,261

 

Exercise of stock options

 

15

 

 

 —

 

 

23

 

 

 —

 

 

23

 

Stock-based compensation expense and vesting of RSUs

 

25

 

 

 —

 

 

2,025

 

 

 —

 

 

2,025

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(29,365)

 

 

(29,365)

 

Balance, March 31, 2019

 

176,958

 

$

177

 

$

430,926

 

$

(387,159)

 

$

43,944

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

4


 

Table of Contents

Senseonics Holdings, Inc.

 

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

 

$

(29,365)

 

$

(22,273)

 

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

200

 

 

52

 

Non-cash interest expense (debt discount and deferred costs)

 

 

909

 

 

624

 

Change in fair value of derivative liability

 

 

(2,072)

 

 

4,847

 

Stock-based compensation expense

 

 

2,025

 

 

1,454

 

Provision for lower of cost or net realizable value

 

 

56

 

 

97

 

Net realized gain on marketable securities

 

 

 —

 

 

(49)

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

4,730

 

 

233

 

Prepaid expenses and other current assets

 

 

(713)

 

 

(1,267)

 

Inventory

 

 

(4,195)

 

 

(2,354)

 

Deposits and other assets

 

 

 3

 

 

(24)

 

Accounts payable

 

 

(1,133)

 

 

(2,790)

 

Accrued expenses and other current liabilities

 

 

(97)

 

 

746

 

Deferred revenue

 

 

(628)

 

 

 —

 

Accrued interest

 

 

128

 

 

203

 

Deferred rent

 

 

 —

 

 

 2

 

Net cash used in operating activities

 

 

(30,152)

 

 

(20,499)

 

Cash flows from investing activities

 

 

 

 

 

 

 

Capital expenditures

 

 

(392)

 

 

(13)

 

Payments on right of use liability, building

 

 

(98)

 

 

 —

 

Sales and maturities of marketable securities

 

 

 —

 

 

16,200

 

Net cash (used in) provided by investing activities

 

 

(490)

 

 

16,187

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from exercise of stock options and stock warrants

 

 

23

 

 

380

 

Proceeds from 2023 Notes, net of costs

 

 

 —

 

 

51,204

 

Principal payments on Term Loans

 

 

(2,499)

 

 

(2,500)

 

Principal payments under capital lease obligations

 

 

 —

 

 

(20)

 

Net cash (used in) provided by financing activities

 

 

(2,476)

 

 

49,064

 

Net (decrease) increase in cash and cash equivalents

 

 

(33,118)

 

 

44,752

 

Cash and cash equivalents, at beginning of period

 

 

136,793

 

 

16,150

 

Cash and cash equivalents, at end of period

 

$

103,675

 

$

60,902

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

1,705

 

$

481

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

Convertible debt offering costs incurred, not paid

 

$

 —

 

$

405

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


 

Table of Contents

Senseonics Holdings, Inc.

 

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization

 

Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the design, development and commercialization of glucose monitoring systems to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Senseonics, Incorporated is a wholly-owned subsidiary of Senseonics Holdings and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.

2. Liquidity

 

The Company’s operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, lack of operating history and uncertainty of future profitability. Since inception, the Company has incurred substantial operating losses, principally from expenses associated with the Company’s research and development programs. The Company has not generated significant revenues from the sale of products and its ability to generate revenue and achieve profitability largely depends on the Company’s ability, alone or with others, to complete the development of its products or product candidates, and to obtain necessary regulatory approvals for the manufacture, marketing and sales of those products. These activities will require significant uses of working capital through the remainder of 2019 and beyond.

 

In January 2018, the Company issued $50.0 million in aggregate principal amount of convertible senior subordinated notes, and in February 2018, the Company issued an additional $3.0 million in aggregate principal amount of convertible senior subordinated notes (collectively, the “2023 Notes”) upon the partial exercise of the underwriters’ over-allotment option. On June 28, 2018, pursuant to an underwriting agreement with BTIG, LLC, the Company closed an underwritten offering of 38,076,561 shares of common stock, including BTIG, LLC’s exercise in full of its option to purchase additional shares, at a price of $3.93 per share (the “June 2018 Offering”).

 

The Company received aggregate net proceeds from the June 2018 Offering of $149.0 million. Management has concluded that, based on the Company’s current operating plans, its existing cash and cash equivalents will not be sufficient to meet the Company’s anticipated operating needs through the first quarter of 2020. Accordingly, management has concluded that the doubt about the Company’s ability to continue as a going concern through March 31, 2020 exists.

 

Historically, the Company has financed its operating activities through the sale of equity and equity linked securities and the issuance of debt. The Company plans to continue financing its operations with external capital for the foreseeable future. However, the Company may not be able to raise additional funds on acceptable terms, or at all. If the Company is unable to secure sufficient capital to fund its research and development and other operating activities, the Company may be required to delay or suspend operations, enter into collaboration agreements with partners that could require the Company to share commercial rights to its products to a greater extent or at earlier stages in the product development process than is currently intended, merge or consolidate with other entities, or liquidate.

 

3. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In the Company’s opinion, the accompanying unaudited interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly its financial position, results of operations, and cash flows. The consolidated balance sheet at December 31, 2018, has been derived from audited financial statements as of that date. The interim condensed consolidated results of operations are not necessarily

6


 

Table of Contents

indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules, and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim condensed consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, depreciable lives of property and equipment, and estimated accruals for preclinical study costs, which are accrued based on estimates of work performed under contract . Actual results could differ from those estimates; however management does not believe that such differences would be material.

 

Segment Information

 

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one segment, glucose monitoring products.

 

Comprehensive Loss

 

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss. For the three months ended March 31, 2019 and 2018, the Company’s net loss equaled its comprehensive loss and, accordingly, no additional disclosure is presented.

 

Cash and Cash Equivalents and Concentration of Credit Risk

 

The Company considers highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. These investments are carried at cost, which approximates fair value.

 

The Company’s cash and cash equivalents potentially subject the Company to credit and liquidity risk. The Company maintains cash deposits at major financial institutions with high credit quality and, at times, the balances of those deposits may exceed the Federal Deposit Insurance Corporation limits of $250,000. The Company has not experienced and does not anticipate any losses on deposits with commercial banks and financial institutions that exceed the federally insured amounts.

 

Concentration of Revenues and Customers

 

At any given time, the Company’s trade receivables are concentrated among a small number of principal customers. If any of the Company’s customers fail to pay their obligations under the terms of these financial instruments, the Company’s maximum exposure to potential losses would be equal to amounts reported on its consolidated balance sheets.

 

During the three months ended March 31, 2019 and 2018, the Company derived a majority of its total revenue from two customers. During the three months ended March 31, 2019 and 2018, the Company derived 70 percent and 100 percent of its total revenue from one of those two customers, respectively.

 

7


 

Table of Contents

Revenues by geographic region

 

The following table sets forth revenues derived from the Company’s two primary geographical markets, the United States and outside of the United States, based on the geographic location to which the Company delivers the product, for the three months ended March 31, 2019. All of the Company’s revenues were earned from sales outside of the United States for the three months ended March 31, 2018.

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

 

 

%

 

(Dollars in thousands)

    

Amount

 

of Total

 

Revenues:

 

 

 

 

 

 

Outside of the United States

 

$

2,607

 

76.2

%

United States

 

 

816

 

23.8

 

Total

 

$

3,423

 

100.0

%

 

Inventory

 

Inventory is valued at the lower of cost or net realizable value. Cost is determined using the standard cost method that approximates first in, first out. The Company periodically reviews inventory to determine if a write-down is necessary for inventory that has become obsolete, inventory that has a cost basis less than net realizable value, and inventory in excess of future demand taking into consideration the product shelf life.

   

Accounts Receivable

 

The Company grants credit to various customers in the normal course of business. Accounts receivable consist of amounts due from distributors. The Company records an allowance for doubtful accounts at the time potential collection risk is identified. Uncollectible accounts are written off against the allowance after appropriate collection efforts have been exhausted and when it is deemed that a balance is uncollectible.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed by use of the straight-line method over the estimated useful lives of the assets, which is between three to five years for laboratory equipment, between five to seven years for office furniture and equipment, and the shorter of lease term or useful life for leasehold improvements. Upon disposition of the assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Repairs and maintenance costs are included as expense in the accompanying statement of operations.

 

Management reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Management did not identify any indicators of impairment through March 31, 2019.

 

Derivative Financial Instruments

 

In connection with the Company’s issuance of the 2023 Notes in January 2018, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in the Company’s consolidated balance sheets in accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging . The financial instrument is remeasured at the end of each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense) as change in fair value of 2023 derivative.

 

8


 

Table of Contents

Warranty Reserve

 

The Company may replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs associated with a product are recorded at the time of shipment. The Company estimates future replacement costs by analyzing historical replacement experience for the timing and amount of returned product, and the Company evaluates the reserve quarterly and makes adjustments when appropriate.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers . This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

 

The Company generates product revenue from sales of the Eversense system and related components and supplies at a fixed price to third-party distributors in the European Union and to a network of strategic fulfillment partners in the United States (collectively, “Customers”) who then resell the products to health care providers and patients. The Company is paid for its sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.

 

Revenues from product sales are recognized when the Customers obtain control of the Company’s product, which occurs at a point in time, based upon the delivery terms as defined in the distributor agreement. The Company is typically paid within 60 days of invoicing subsequent to the Customers obtaining control of the Company’s product.

 

In March 2019, the Company introduced the Eversense Bridge Program (the “program”) in the United States.  Under the program, the Company provides financial assistance, in the form of reimbursement, to eligible patients based on their insurance coverage. Reimbursement payments to the patient under the program are treated as a reduction of revenue in the period in which the corresponding gross revenue is recognized. Estimated reimbursement payments for product shipped to the Company’s customers but not sold to a patient within the same reporting period is based on historical experience and recorded within accrued expenses and other current liabilities in the accompanying consolidated balance sheets. Because of the limited experience with the program as of March 31, 2019, the Company’s estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material. With the exception of the program, the Company offers no discounts, rebates, rights of return, or other allowances to the Customers which would result in the establishment of reserves against product revenue.

 

Cost of Sales

 

The Company uses third-party contract manufacturers to manufacture Eversense and related components and supplies. Cost of sales includes raw materials, contract manufacturing service fees, reserves for expected warranty costs, reserves for inventory valuation, scrap, and shipping and handling expenses associated with product delivery.

 

9


 

Table of Contents

Shipping and Handling Expenses

 

Shipping and handling expenses associated with product delivery are included within cost of sales in the Company’s consolidated statements of operations.

 

Research and Development Costs

 

Research and development costs are expensed as incurred. Research and development expenses include costs related to employee compensation, preclinical studies and clinical trials, supplies, outsource testing, consulting and depreciation and other facilities‑related expenses.

 

Stock‑Based Compensation

 

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight‑line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period. The Company accounts for forfeitures in the period in which they occur.

 

The Company uses the Black‑Scholes option pricing model to determine the fair value of stock‑option awards. Valuation of stock awards requires management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the fair value of the Company’s common stock, future volatility of the Company’s stock price, dividend yields, future employee turnover rates, and future employee stock option exercise behaviors. Changes in these assumptions can affect the fair value estimate.

 

Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740, Income Taxes . The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.

 

Since the Company had net operating loss (“NOL”) carryforwards as of March 31, 2019, no excess tax benefits for the tax deductions related to stock-based awards were recognized in the statements of operations and comprehensive loss.

 

Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that are in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that such tax rate changes are enacted. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

 

Management uses a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. In the ordinary course of business, transactions occur for which the ultimate outcome may be uncertain. Management does not expect the outcome related to accrued uncertain tax provisions to have a material adverse effect on the Company’s financial position, results of operations or cash flows.  The Company recognizes interest and penalties accrued on any unrecognized tax exposures as a component of income tax expense. The Company did not have any amounts accrued relating to interest and penalties as of March 31, 2019 and December 31, 2018.

10


 

Table of Contents

 

The Company is subject to taxation in various jurisdictions in the United States and remains subject to examination by taxing jurisdictions for the year 1998 and all subsequent periods due to the availability of NOL carryforwards. In addition, all of the NOLs and research and development credit carryforwards that may be used in future years are still subject to adjustment.

 

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The Company’s Notes and 2023 Notes are recorded at historical cost, net of discounts, and are not remeasured at fair value.

 

Net Loss per Share

 

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.

 

For periods of net loss, diluted net loss per share is calculated similarly to basic loss per share because the impact of all potential common shares is anti-dilutive. At March 31, 2019 and 2018, the total number of anti-dilutive shares, consisting of common stock options, stock purchase warrants, and the 2023 Notes using the if-converted method, which have been excluded from the computation of diluted loss per share, were as follows:

 

 

 

 

 

 

 

 

March 31,

 

    

2019

    

2018

Stock-based awards

 

27,518,174

 

20,337,858

2023 Notes

 

20,017,048

 

15,573,527

Warrants

 

4,071,581

 

4,221,312

Total anti-dilutive shares outstanding

 

51,606,803

 

40,132,697

 

For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and the 2023 Notes using the if-converted method.

 

Recent Accounting Pronouncements

 

Recently Adopted

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASC 842”). The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. In July 2018, the FASB issued ASU 2018-11 to provide another transition method, allowing a cumulative effect adjustment to the opening balance of retained earnings during the period of adoption. The guidance is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. The Company adopted the new standard effective January 1, 2019 using the modified retrospective approach. The Company did not elect the transition option, but elected certain practical expedients, including not separating lease components from nonlease components for all classes of underlying assets. Additionally, all leases with a term at commencement of 12 months or less will be excluded from analysis under ASC 842.  The standard did not materially affect the Company’s consolidated net loss or cash flows.

 

 

 

 

11


 

Table of Contents

Impact of Adopting ASC 842 on the Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2019

 

 

 

 

January 1, 2019

 

  

Prior to ASC

  

 

  

 

 

 

842 Adoption

 

ASC 842 Adoption

 

As Adjusted

Consolidated Balance Sheet Data (in thousands)

 

 

 

 

 

 

 

 

 

Operating lease assets (1)

 

$

 —

 

$

2,235

 

$

2,235

Deferred rent non-current (2)

 

$

84

 

$

(84)

 

$

 —

Operating lease liabilities (3)

 

$

 —

 

$

417

 

$

417

Non-current operating lease liabilities (3)

 

$

 —

 

$

1,902

 

$

1,902

(1)    Represents capitalization of operating lease assets, including reclassification of deferred rent to operating lease assets.

(2)    As of December 31, 2018, the deferred rent balance was $84.

(3)    Represents recognition of operating lease liabilities.

 

 

The Company has evaluated all other issued unadopted ASUs and believes the adoption of these standards will not have a material impact on its consolidated statements of earnings, balance sheets, or cash flows.

 

 

 

 

4.  Inventory, net

 

Inventory, net consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

    

2018

Finished goods

    

$

1,746

    

$

1,457

Work-in-process

 

 

11,010

 

 

7,211

Raw materials

 

 

1,614

 

 

1,563

Total

 

$

14,370

 

$

10,231

 

 

 

5.  Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

 

2019

    

2018

Contract manufacturing

 

$

2,490

 

$

2,962

Marketing and sales

    

 

675

 

 

287

IT and software

 

 

295

 

 

244

Interest receivable

 

 

670

 

 

239

Clinical and preclinical

 

 

340

 

 

111

Other

 

 

228

 

 

142

Total prepaid expenses and other current assets

 

$

4,698

 

$

3,985

 

 

 

 

 

 

 

12


 

Table of Contents

6. Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

 

2019

    

2018

Contract manufacturing

 

$

6,436

 

$

6,068

Compensation and benefits

 

 

1,885

 

 

3,685

Interest on notes payable and 2023 Notes

 

 

557

 

 

1,268

Product warranty

 

 

311

 

 

816

Sales and marketing services

 

 

2,122

 

 

738

Professional services

 

 

1,428

 

 

727

Clinical and preclinical

    

 

649

    

 

147

Other

 

 

366

 

 

402

Total accrued expenses and other current liabilities

 

$

13,754

 

$

13,851

 

 

 

7. Leases

 

The Company leases approximately 33,000 square feet of research and office space under a non‑cancelable operating lease expiring in 2023. The Company has an option to renew the lease for one additional five‑year term. With the adoption of ASC 842, the Company has recorded a right-of-use asset and corresponding lease liability, and does not include the additional five year term under the option.

 

The Company leases approximately 12,000 square feet of office space under a cancelable operating lease expiring in June 2019. The Company can terminate the lease agreement upon 60 days’ prior written notice. The Company has an option to renew the lease for two additional two-month terms.

 

Expense recognition is based upon a straight‑line basis and was $0.2 million for each of the three months ended March 31, 2019 and 2018.

 

The Company identified and assessed the following estimates in recognizing the right-of-use asset and corresponding liability:

 

Expected lease term : The expected lease term for those leases commencing prior to January 1, 2019 did not change with the adoption of ASC 842. The expected lease term for leases commencing after the adoption of ASC 842 includes noncancelable lease periods and, when applicable, periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, as well as periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option.

 

Incremental borrowing rate : As the discount rates in the Company’s lease are not implicit, the Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term.

 

The following table summarizes the lease assets and liabilities as of March 31, 2019 (in thousands):

 

 

 

 

 

Assets

 

 

 

Operating lease assets

  

$

2,131

Total lease assets

 

$

2,131

Liabilities

 

 

 

Current

 

 

 

 Operating lease liabilities

 

$

431

Non-current

 

 

 

 Operating lease liabilities, net of current portion

 

 

1,791

Total lease liabilities

 

$

2,222

 

13


 

Table of Contents

The following table summarizes the maturity of undiscounted payments due under lease liabilities and the present value of those liabilities as of March 31, 2019 (in thousands):

 

 

 

 

 

2019 (remaining nine months)

  

$

461

2020

 

 

629

2021

 

 

648

2022

 

 

668

2023

 

 

282

Total

 

 

2,688

Present value adjustment

 

 

(466)

Present value of lease liabilities

 

$

2,222

 

 

The following table summarizes the lease term and discount rate as of March 31, 2019:

 

 

 

 

 

Remaining lease term (years)

 

 

 

Operating leases

 

 

4.2

Discount rate

 

 

 

Operating leases

 

 

9.1%

 

 

 

8. Notes Payable

 

Term Loans

 

On June 30, 2016, the Company entered into an Amended and Restated Loan and Security Agreement with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB” and together with Oxford, the “Lenders”). Pursuant to the Amended and Restated Loan and Security Agreement, the Company has borrowed an aggregate principal amount of $25.0 million in the following three tranches: $15.0 million (“Tranche 1 Term Loan”); $5.0 million (“Tranche 2 Term Loan”); and $5.0 million (“Tranche 3 Term Loan”) (each, a “Term Loan,” and collectively, the “Term Loans”). The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, the Company issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million (the “Notes”) on June 30, 2016. The Company used approximately $11.0 million from the proceeds from the Notes to repay the outstanding balance under the Company’s previously existing Loan and Security Agreement with Oxford. The Company borrowed the Tranche 2 Term Loan and Tranche 3 Term Loan in November 2016 and March 2017, respectively. The maturity date for all Term Loans is June 1, 2020 (the “Maturity Date”).

 

The Term Loans bear interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, the Company began to make monthly principal payments that will continue until the Maturity Date.

 

The Company may elect to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the funding date of any Term Loan, 2.00% if the prepayment occurs during the second year following the funding date of any Term Loan, and 1.00% if the prepayment occurs more than two years after the funding date of any Term Loan and prior to the Maturity Date. 

The Amended and Restated Loan and Security Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by the Company, the rendering of certain types of judgments against the Company, the revocation of certain government approvals of the Company, violation of covenants, and incorrectness of representations and warranties in any material respect.  Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by

14


 

Table of Contents

the Company would begin to bear interest at a rate that is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by Lenders.

 

Pursuant to the Amended and Restated Loan and Security Agreement, the Company also issued 10-year stock purchase warrants to purchase an aggregate of 260,251 shares of common stock with an exercise price ranging from $1.86 to $3.86 per share (see Note 9, “Stockholders’ Equity”).

 

The Notes are collateralized by all of the Company’s consolidated assets. The Notes also contain certain restrictive covenants that limit the Company’s ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. The Company incurred issuance costs related to the Notes of approximately $0.6 million that are being amortized as additional interest expense over the term of the Notes using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Notes, which is also being amortized as additional interest expense over the term of the Notes using the effective interest method.

 

At maturity (or earlier prepayment), the Company is also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans. This fee is being accrued as additional interest expense over the term of the Notes using the effective interest method. At March 31, 2019 and December 31, 2018, the final payment fee accrual was $1.9 million and $1.8 million, respectively.

 

The Company estimates the fair value of the Notes based on borrowing rates currently available for loans with similar terms (Level 2). At March 31, 2019, the fair value of the Notes was $13.9 million based on prevailing market rates for secured debt.

 

2023 Notes

 

In January 2018, the Company issued $50.0 million in aggregate principal amount of the 2023 Notes. In February 2018, the Company issued an additional $3.0 million in aggregate principal amount of the 2023 Notes, pursuant to the partial exercise of the overallotment option by the underwriter. The net proceeds from the issuance of the 2023 Notes, after deducting transaction costs, were $50.7 million. The 2023 Notes are general, unsecured, senior subordinated obligations of the Company. The Company pays interest semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as a long-term liability on the Company’s consolidated balance sheet at March 31, 2019.

 

Each $1,000 of principal of the 2023 Notes is initially convertible into 294.1176 shares of the Company’s common stock, which is equivalent to an initial conversion price of approximately $3.40 per share, subject to adjustment upon the occurrence of specified events. Holders may convert at any time prior to February 1, 2023. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of common stock. If specific corporate events occur prior to the maturity date, the Company would increase the conversion rate pursuant to the make-whole fundamental change provision for a holder who elects to convert their 2023 Notes in connection with such an event in certain circumstances. Additionally, if a fundamental change occurs prior to the maturity date, holders of the 2023 Notes may require the Company to repurchase all or a portion of their 2023 Notes for cash at a repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest.

 

In accordance with U.S. GAAP relating to embedded conversion features, the Company bifurcated the embedded conversion option, along with the interest make-whole provision and make-whole fundamental change provision, and in January 2018 recorded the embedded conversion option as a debt discount and derivative liability in the Company’s consolidated balance sheets at its initial fair value of $17.3 million. Additionally, the Company incurred transaction costs of $2.2 million. The debt discount, embedded conversion option and transaction costs, are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. 

 

15


 

Table of Contents

The derivative liability will be remeasured at each reporting period with changes in fair value recorded in the consolidated statements of operations in other income (expense).

 

There was no conversion of 2023 Notes in the first quarter of 2019 or 2018.

 

The following are the scheduled maturities of the 2023 Notes and Term Loans as of March 31, 2019 (in thousands):

 

 

 

 

 

 

2019 (remaining nine months)

    

$

7,500

 

2020

 

 

5,000

 

2021

 

 

 —

 

2022

 

 

 —

 

2023

 

 

52,700

 

Total

    

$

65,200

 

 

   

The Company estimates the fair value of the 2023 Notes using commonly accepted valuation methodologies and market-risk measurements that are indirectly observable, such as credit risk (Level 2). At March 31, 2019, the fair value of the 2023 Notes, excluding the derivative liability, was $40.4 million.

 

 

9. Stockholders’ Equity

 

Preferred Stock

 

As of March 31, 2019 and December 31, 2018, the Company’s authorized capital stock included 5,000,000 shares of undesignated preferred stock, par value $0.001 per share.  No shares of preferred stock were outstanding as of March 31, 2019 or December 31, 2018.

 

Common Stock

 

As of March 31, 2019 and December 31, 2018, the Company’s authorized capital stock included 450,000,000 shares of common stock, par value $0.001 per share. The Company had 176,958,487 and 176,918,381 shares of common stock issued and outstanding at March 31, 2019 and December 31, 2018, respectively.

 

Stock Purchase Warrants

 

In connection with the issuance of the Notes, the Company also issued to the Lenders 10-year stock purchase warrants to purchase an aggregate of 116,581,  63,025 and 80,645 shares of common stock at an exercise price of $3.86,  $2.38 and $1.86 per share, respectively. The cumulative fair value of the warrants, which the Company estimated to be $0.5 million, was recorded as a discount to the Notes. These warrants expire on June 30, 2026, November 22, 2026, and March 29, 2027, respectively, and are classified in equity. In connection with the Company’s original Loan and Security Agreement with Oxford in 2014, the Company issued to Oxford 10-year stock purchase warrants to purchase an aggregate of 167,570 shares of common stock at an exercise price of $1.79 per share. The fair value of the warrants, which the Company estimated to be $0.2 million, was recorded as a discount to the promissory notes issued to Oxford in connection with the original Loan and Security Agreement. These warrants expire on November 2, 2020, July 14, 2021 and August 19, 2021, and are classified in equity. The unamortized deferred financing fees and debt discount related to the notes rollover amount is being amortized along with the deferred financing costs and the discount created by the new issuance of the warrants over the term of the loan using the effective interest method. For the three months ended March 31, 2019 and 2018, the Company recorded amortization of discount of debt of $33,323 and $56,327, respectively, within interest expense in the accompanying statements of operations and comprehensive loss.

 

Stock‑Based Compensation

 

In December 2015, the Company adopted the 2015 Equity Incentive Plan (the “2015 Plan”) under which incentive stock options, non-qualified stock options, and restricted stock awards may be granted to the Company’s

16


 

Table of Contents

employees and certain other persons in accordance with the 2015 Plan provisions. In connection with the March 2016 Offering, the Company’s board of directors adopted and the Company’s stockholders approved an Amended and Restated 2015 Equity Incentive Plan (the “amended and restated 2015 Plan”). The amended and restated 2015 Plan became effective as of the date of the pricing of the March 2016 Offering. The Company’s board of directors may terminate the amended and restated 2015 Plan at any time. Options granted under the amended and restated 2015 Plan expire ten years after the date of grant.

 

Pursuant to the amended and restated 2015 Plan, the number of shares initially reserved for issuance pursuant to equity awards was 17,251,115 shares, representing 8,000,000 shares plus up to an additional 9,251,115 shares in the event that options that were outstanding under the Company’s equity incentive plans as of February 16, 2016 expire or otherwise terminate without having been exercised (in such case, the shares not acquired will revert to and become available for issuance under the amended and restated 2015 Plan). The number of shares of the Company’s common stock reserved for issuance under the amended and restated 2015 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017 and ending on January 1, 2026, by 3.5% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. As of March 31, 2019, 844,301 shares remained available for grant under the amended and restated 2015 Plan.

 

On May 8, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”), under which incentive stock options, non‑qualified stock options, and restricted stock awards may be granted to the Company’s employees and certain other persons in accordance with the 1997 Plan provisions. Approximately 7,099,540 shares of the Company’s common stock underlying options have vested or are expected to vest under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the Company no longer grants any awards under the 1997 Plan.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options, based on the fair value of those awards at the date of grant. The estimated fair value of stock options on the date of grant is amortized on a straight-line basis over the requisite service period for each separately vesting portion of the award for those awards with service conditions only. For awards that also contain performance conditions, expense is recognized beginning at the time the performance condition is considered probable of being met over the remaining vesting period.  

10. Fair Value Measurements

 

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use to price the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

·

Level 1—Quoted prices for identical assets or liabilities in active markets.

·

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

·

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

 

17


 

Table of Contents

The fair value of money market funds was derived from quoted prices in active markets for identical assets. The valuation technique used to measure the fair value of the Company’s debt instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices.

 

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The Company has segregated its financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the table below. The inputs used in measuring the fair value of the Company’s money market funds included in cash equivalents are considered to be Level 1 in accordance with the three-tier fair value hierarchy. The fair market values are based on period-end statements supplied by the various banks and brokers that held the majority of the funds.

 

The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Embedded features of the 2023 Notes

 

$

15,019

 

$

 —

 

$

 —

 

$

15,019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

   

Total

   

Level 1

   

Level 2

   

Level 3

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

Embedded features of the 2023 Notes

 

$

17,091

 

$

 —

 

$

 —

 

$

17,091

 

 

 

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):

 

 

 

 

 

 

 

Embedded

 

 

Features of the

 

   

2023 Notes

December 31, 2018

 

$

17,091

Change in fair value included in other income (expense)

 

 

(2,072)

March 31, 2019

 

$

15,019

 

The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain financial instruments within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were no transfers between Level 1, Level 2, or Level 3 during the three months ended March 31, 2019 and 2018. When a determination is made to classify an asset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.

 

Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

 

The Company has no financial assets and liabilities that are measured at fair value on a non-recurring basis.

 

Non-Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The Company has no non-financial assets and liabilities that are measured at fair value on a recurring basis.

 

18


 

Table of Contents

Non‑Financial Assets and Liabilities Measured at Fair Value on a Non‑Recurring Basis

 

The Company measures its long‑lived assets, including property and equipment, at fair value on a non‑recurring basis. These assets are recognized at fair value when they are deemed to be impaired. No such fair value impairment was recognized in the three months ended March 31, 2019 and 2018.

11. Income Taxes

 

The Company has not recorded any tax provision or benefit for the three months ended March 31, 2019 or March 31, 2018. The Company has provided a valuation allowance for the full amount of its net deferred tax assets since realization of any future benefit from deductible temporary differences, NOL carryforwards and research and development credits is not more-likely-than-not to be realized at March 31, 2019 and December 31, 2018.

 

 

 

19


 

Table of Contents

 

 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those described below and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K, particularly in Part I – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2019. Unless otherwise indicated or the context otherwise requires, all references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the "Company," "we," "our," "ours," "us" or similar terms refer to Senseonics Holdings, Inc. and its subsidiary.

 

Overview

 

We are a medical technology company focused on the design, development and commercialization of glucose monitoring products to improve the lives of people with diabetes by enhancing their ability to manage their disease with relative ease and accuracy. Our continuous glucose monitoring, or CGM, systems, Eversense and Eversense XL, are reliable, long‑term, implantable CGM systems that we have designed to continually and accurately measure glucose levels in people with diabetes for a period of up to 90 and 180 days, respectively, as compared to six to fourteen days for currently available CGM systems. We believe Eversense and Eversense XL will provide people with diabetes with a more convenient method to monitor their glucose levels in comparison with the traditional method of self‑monitoring of blood glucose, or SMBG, as well as currently available CGM systems. In our U.S. pivotal clinical trial, we observed that Eversense measured glucose levels over 90 days with a degree of accuracy superior to that of other currently available CGM systems. Our Eversense and Eversense XL systems are currently approved for sale in Europe, the Middle East and Africa (EMEA) and our Eversense system is currently approved for sale in the United States.

European Commercialization of Eversense

In September 2015, we entered into a distribution agreement with Rubin Medical, or Rubin, pursuant to which we granted Rubin the exclusive right to market, sell and distribute Eversense in Sweden, Norway and Denmark through September 2020. Rubin markets and sells medical products for diabetes treatment in the Scandinavian region, including as the exclusive Scandinavian distributor for the insulin pump manufacturer Tandem Corporation. Under the agreement, Rubin is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices. 

 

In May 2016, we entered into a distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH, together referred to as Roche, pursuant to which we granted Roche the exclusive right to market, sell and distribute Eversense in Germany, Italy and the Netherlands. Under the agreement, Roche is obligated to purchase from us specified minimum volumes of Eversense components at pre-determined prices. We began distributing Eversense through Roche in Germany in September 2016 and in Italy and the Netherlands in the fourth quarter of 2016.

20


 

Table of Contents

 

In November 2016, we entered into an amendment to the distribution agreement with Roche granting Roche the exclusive right to market, sell and distribute Eversense in Europe, the Middle East and Africa, excluding Sweden, Norway, Denmark, Finland and Israel. In January 2019, we entered into an additional amendment to the distribution agreement with Roche to extend the agreement through January 31, 2021. Pursuant to the amendment to the agreement, Roche has agreed to certain purchase levels of Eversense systems and pricing terms through the extended term of the agreement. In addition, under the amendment, Roche’s role as the exclusive distributor of Eversense was expanded to provide Roche with exclusive distribution rights in 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions. To date, we have begun distributing Eversense in an aggregate of 15 European countries through Rubin and Roche.

 

In September 2017, we received the CE mark for Eversense XL, which is indicated for a sensor life of up to 180 days. Eversense XL began commercialization in Europe in the fourth quarter of 2017. All such commercialization and marketing activities remain subject to applicable government approvals.

United States Development and Commercialization of Eversense

In 2016, we completed our PRECISE II pivotal clinical trial in the United States. This trial, which was fully enrolled with 90 subjects, was conducted at eight sites in the United States. In the trial, we measured the accuracy of Eversense measurements through 90 days after insertion. We also assessed safety through 90 days after insertion or through sensor removal. In the trial, we observed a mean absolute relative difference, or MARD, of 8.4% utilizing two calibration points for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. We also observed a MARD of 9.5% utilizing one calibration point for Eversense across the 40-400 mg/dL range when compared to YSI blood reference values during the 90-day continuous wear period. Based on the data from this trial, in October 2016 we submitted a pre-market approval, or PMA, application to the FDA to market Eversense in the United States for 90-day use. On June 21, 2018, we received PMA approval from the FDA for the Eversense system. In July 2018, we began distributing the Eversense system directly in the United States through our own direct sales and marketing organization. We have received Category III CPT codes for the insertion and removal of the Eversense sensor. We intend to pursue a Category I CPT code.

 

In March 2019, we launched a patient access program, the Eversense Bridge Program, to assist those patients who do not have insurance coverage for Eversense, or whose insurance is denied or insufficient. Pursuant to this program, we are providing financial assistance to eligible patients purchasing Eversense to enable more patients to access the Eversense system. The amount of assistance that we provide depends on a patient’s insurance coverage. The program establishes maximum limits per patient and excludes certain patients as ineligible, including government-insured patients and residents of certain states. Although this program has just recently begun, we already see stimulated interest and activity across patients and providers. The program provides opportunities to engage both regional and national payors, which we expect will lead to additional positive payor coverage decisions for the Eversense system.

 

We have never been profitable and our net losses were $29.4 million and $22.3 million for three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, our accumulated deficit totaled $387.2 million, primarily as a result of expenses incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. We expect to continue to incur significant expenses and increasing operations and net losses for the foreseeable future.

 

We have incurred and expect to continue to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. In addition, we expect to continue incurring expenses associated with the research and development of our other products and maintaining, expanding and protecting our intellectual property portfolio and seeking regulatory approvals in other jurisdictions. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need to obtain substantial additional funding in connection with our continuing operations through public or private equity or debt financings or other sources, which may include collaborations with third parties. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise such capital as and when needed would have a negative impact on our financial condition and our ability to successfully commercialize Eversense and develop and commercialize future products and our ability

21


 

Table of Contents

 

to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so.

 

Financial Overview

 

Revenue

 

During the three months ended March 31, 2019, we generated product revenue from sales of the Eversense and Eversense XL system in Europe pursuant to distribution agreements with Roche and Rubin, and from sales of the Eversense system in the United States. We recognize revenue upon the sales of Eversense systems and related components and supplies to our distributors for sales outside of the United States and to our fulfillment partners for sales in the United States, regardless of whether these customers resell those products to health care providers and patients. Under the terms of our distribution agreements with Roche and Rubin, these distributors are contractually obligated to make certain minimum purchases of Eversense systems from us and, accordingly, the revenue we recognize for any given period is not necessarily indicative of the level of sales to end users for that, or any other, period. We expect that our revenue from both European and U.S. product sales will increase for 2019 over 2018 as we continue to ramp up our commercialization efforts. If we fail to successfully commercialize or are otherwise unable to complete the development of Eversense, our ability to generate future revenue, and our results of operations and financial position, will be adversely affected.

 

Under the Eversense Bridge Program, we account for reimbursements to the patient as a reduction of revenue in the period in which the corresponding gross revenue is recognized. For product shipped to our customers but not sold to a patient within the same reporting period, we estimate the amount of reimbursement based on our historical experience and recorded within accrued expenses and other current liabilities in our consolidated balance sheets. Because of our limited experience with the Eversense Bridge Program as of March 31, 2019, our estimated reimbursement rates with respect to such shipped, but unsold, products could change in future periods, and such changes could be material.

 

Cost of Sales

 

We utilize contract manufacturers to produce Eversense. Cost of sales consists primarily of the components of Eversense and assembly, as well as reserves for warranty costs. Other cost of sales includes distribution-related expenses such as logistics and shipping costs of Eversense to Roche and Rubin for distribution in various regions in EMEA and costs associated with distribution through our strategic fulfillment partners in the United States. We calculate gross margin as revenue less costs of sales divided by revenue. We expect our overall gross margin to improve over the long term, as our sales increase and we have more opportunities to leverage our costs over larger production volumes. However, our gross margins may fluctuate from period to period.

 

Sales and Marketing

 

Sales and marketing expenses consist primarily of salaries, commissions, and other related costs, including stock-based compensation, for personnel who perform sales, marketing, and customer support functions. Other significant costs include promotional materials and tradeshow expenses.

 

We anticipate that our sales and marketing expenses will increase substantially in the future as we continue to expand our commercialization of Eversense both in the United States and Europe.

 

Research and Development

 

Research and development expenses consist of expenses incurred in performing research and development activities in developing Eversense, including our clinical trials and feasibility studies. Research and development expenses include compensation and benefits for research and development employees including stock‑based compensation, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, costs related to regulatory operations, fees paid to contract research organizations and other consultants, and other outside expenses. Research and development costs are expensed as incurred.

22


 

Table of Contents

 

 

We have incurred significant research and development expenses from inception, with the substantial majority of the expenses spent on the development of Eversense. We expect to continue to commit significant resources to continue to develop Eversense and future product enhancements and to conduct ongoing and future clinical trials. We expect that our overall research and development expenses will continue to increase in absolute dollars, but to decline as a percentage of total expenses as we expand the commercialization of Eversense.

 

General and Administrative

 

General and administrative expenses consist primarily of salaries and other related costs, including stock‑based compensation, for personnel in our executive, finance, accounting, business development, and human resources functions. Other significant costs include facility costs, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

 

Our general and administrative expenses have increased, and we expect them to continue to increase in the future, as a result of operating as a public company. These increases include increased costs related to the hiring of additional personnel and increased fees to outside consultants, lawyers and accountants as well as expenses related to maintaining compliance with NYSE American listing rules and SEC requirements, insurance, and investor relations costs. These expenses may further increase when we no longer qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, which will require us to comply with certain reporting requirements from which we are currently exempt. We expect to no longer qualify as an “emerging growth company” effective December 31, 2019.

 

Other Income (Expense), Net

 

Interest income consists of interest earned on our cash equivalents. Interest expense primarily consists of interest expense on our convertible senior subordinated notes, and our obligations under the Amended and Restated Loan and Security Agreement with Oxford Finance LLC, or Oxford, and Silicon Valley Bank, or SVB. This interest expense primarily consists of contractual interest on the outstanding debt balances and amortization of debt discounts. During the three months ended March 31, 2018, we issued an aggregate of $53.0 million in aggregate principal amount of convertible senior subordinated notes, or the 2023 Notes. We bifurcated the embedded conversion option of the 2023 Notes, along with the interest make-whole provision and make-whole fundamental change provision, and recorded the embedded conversion option as a derivative liability in our consolidated balance sheets. This embedded derivate instrument is remeasured at the end of each reporting period with changes in fair value recorded to change in fair value of derivative liability in our consolidated results of operations.

 

23


 

Table of Contents

 

Results of Operations

 

Comparison of the three months ended March 31, 2019 and 2018

 

The following table sets forth our results of operations for the three months ended March 31, 2019 and 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

March 31, 

 

Period-to-

 

 

 

2019

 

2018

 

Period Change

 

 

 

(unaudited)

 

 

 

 

Revenue, primarily from a related party

    

$

3,423

    

$

2,946

    

$

477

 

Cost of sales

 

 

6,733

 

 

3,308

 

 

3,425

 

Gross profit

 

 

(3,310)

 

 

(362)

 

 

(2,948)

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

Sales and marketing expenses

 

 

12,834

 

 

3,441

 

 

9,393

 

Research and development expenses

 

 

7,108

 

 

8,113

 

 

(1,005)

 

General and administrative expenses

 

 

6,516

 

 

4,011

 

 

2,505

 

Operating loss

 

 

(29,768)

 

 

(15,927)

 

 

(13,841)

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

627

 

 

184

 

 

443

 

Interest expense

 

 

(2,034)

 

 

(1,771)

 

 

(263)

 

Change in fair value of derivative liability

 

 

2,072

 

 

(4,847)

 

 

6,919

 

Other (expense) income

 

 

(262)

 

 

88

 

 

(350)

 

Total other income (expense), net

 

 

403

 

 

(6,346)

 

 

6,749

 

Net loss

 

$

(29,365)

 

$

(22,273)

 

$

(7,092)

 

 

 

Revenue

 

Our revenue increased to $3.4 million for the three months ended March 31, 2019, compared to $2.9 million for the three months ended March 31, 2018. This increase was primarily due to sales of Eversense in the United States in the three months ended March 31, 2019 following our U.S. launch in July 2018.

 

Cost of sales

 

Our cost of sales increased to $6.7 million for the three months ended March 31, 2019, compared to $3.3 million for the three months ended March 31, 2018. The increase was primarily due to U.S. sales and write-offs associated with product design changes and yield losses at our contract manufacturers.

 

Gross profit was $(3.3) million and $(0.4) million for the three months ended March 31, 2019 and 2018, respectively. Gross profit as a percentage of revenue, or gross margin, was (96.7)% and (12.3)% for the three months ended March 31, 2019 and 2018, respectively. The decrease was primarily due to write-offs associated with product design changes and yield losses at our contract manufacturers.

 

Sales and marketing expenses

 

Sales and marketing expenses were $12.8 million for the three months ended March 31, 2019, compared to $3.4 million for the three months ended March 31, 2018, an increase of $9.4 million. The increase was primarily due to a $4.7 million increase in salaries, bonuses and payroll related costs for additional headcount, an increase in market research and marketing costs of $4.0 million in connection with the U.S. launch of Eversense, and an increase of $0.7 million in other sales and general marketing expenses to support our European distribution of Eversense as well as in connection with our U.S. launch of Eversense.

24


 

Table of Contents

 

 

Research and development expenses

 

Research and development expenses were $7.1 million for the three months ended March 31, 2019, compared to $8.1 million for the three months ended March 31, 2018, a decrease of $1.0 million. The decrease was primarily due to a $0.8 million decrease in development efforts at our contract manufacturers related to development of future generations of Eversense and, a $0.8 million decrease due to the completion of activities associated with U.S. PMA approval, partially offset by an increase in clinical trial expenses of $0.6 million

 

General and administrative expenses

 

General and administrative expenses were $6.5 million for the three months ended March 31, 2019, compared to $4.0 million for three months ended March 31, 2018, an increase of $2.5 million. The increase was primarily due to a $1.2 million increase in salaries, bonuses and payroll related costs for additional headcount, and an increase of $1.3 million in other general and administrative costs to support our operations.

 

Total other income (expense), net

 

Total other income (expense), net, was $0.4 million for the three months ended March 31, 2019, compared to $(6.3) million for the three months ended March 31, 2018, an increase of $6.7 million. The increase was primarily due to a $2.1 million decrease in fair value of the derivative liability during the three months ended March 31, 2019, compared to a $4.8 million increase in the fair value of the derivative liability in the prior year period, partially offset by an increase of $0.2 million in interest expense on our Term Loans and 2023 Notes.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

To date, we have not generated any significant revenue from product sales. We have incurred substantial losses and cumulative negative cash flows from operations since our inception in October 1996. We have never been profitable and our net losses were $29.4 million and $22.3 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, our accumulated deficit totaled $387.2 million.

 

To date, we have funded our operations principally through the issuance of preferred stock, common stock and debt. As of March 31, 2019, we had cash and cash equivalents of $103.7 million. Under the Amended and Restated Loan and Security Agreement with Oxford and SVB, or the Lenders, we have borrowed an aggregate principal amount of $25.0 million.

 

In January 2018, we issued $50.0 million in aggregate principal amount of 5.25% convertible senior subordinated notes due 2023, or the 2023 Notes, and in February 2018, we issued an additional $3.0 million in aggregate principal amount of the 2023 Notes.

 

On March 30, 2018, we entered into an at-the-market sales agreement with Cowen and Company LLC, or Cowen, under which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million through Cowen acting as our sales agent. As of the date of this report, we have not sold any shares of our common stock under the at-the-market facility.

 

On June 28, 2018, pursuant to an underwriting agreement with BTIG, LLC, we closed the June 2018 Offering of 38,076,561 shares of our common stock, including BTIG, LLC’s exercise in full of its option to purchase additional shares, at a price of $3.93 per share. We received aggregate net proceeds of $149.0 million from the June 2018 Offering.

 

Our ability to generate revenue and achieve profitability depends on our completion of the development of Eversense and future product candidates and obtaining and maintaining the necessary regulatory approvals for the

25


 

Table of Contents

 

manufacture, marketing and sales of those products. These activities, including our planned significant research and development efforts, will require significant uses of working capital through 2019 and beyond.

 

We do not expect our existing cash and cash equivalents will be sufficient to fund our operations through the first quarter of 2020. We have based this estimate on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of clinical and regulatory development of medical devices is costly, and the timing of progress of these efforts is uncertain.

 

We anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations. Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs through a combination of equity offerings, which may include additional follow-on offerings or through our at-the-market facility, debt financings and revenue from potential research and development and other collaboration agreements. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant licenses to develop and market products that we would otherwise prefer to develop and market ourselves.

 

Indebtedness

 

On June 30, 2016, we entered into an Amended and Restated Loan and Security Agreement with the Lenders. Pursuant to the Amended and Restated Loan and Security Agreement, we have borrowed an aggregate principal amount of $25.0 million in the following three tranches: $15.0 million, or the Tranche 1 Term Loan; $5.0 million, or the Tranche 2 Term Loan; and $5.0 million, or the Tranche 3 Term Loan. We refer to each of the tranches as a Term Loan, and collectively, the Term Loans. The funding conditions for the Tranche 1 Term Loan were satisfied as of June 30, 2016. Therefore, we issued secured notes to the Lenders for aggregate gross proceeds of $15.0 million, or the Notes, on June 30, 2016. We used approximately $11.0 million from the proceeds from the Notes to repay the outstanding balance under our previously existing Loan and Security Agreement with Oxford, dated as of July 31, 2014, including the applicable final payment fee due thereunder of $1 million. On November 22, 2016, the funding conditions for the Tranche 2 Term Loan were satisfied; therefore, we issued secured notes to the Lenders for aggregate gross proceeds of $5.0 million. On March 29, 2017, the funding conditions for the Tranche 3 Term Loan were satisfied; therefore, we issued secured notes to the Lenders for aggregate gross proceeds of $5.0 million. The maturity date for all Term Loans is June 1, 2020, or the Maturity Date.

 

The Term Loans bear interest at a floating annual rate of 6.31% plus the greater of (i) 90-day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.64%, provided that the minimum floor interest rate is 6.95%, and require monthly payments. The monthly payments initially consisted of interest-only through December 31, 2017. In January 2018, we began to make monthly principal payments that will continue until the Maturity Date.

 

We may elect to prepay all Term Loans prior to the Maturity Date subject to a prepayment fee equal to 3.00% if the prepayment occurs within one year of the funding date of any Term Loan, 2.00% if the prepayment occurs during the second year following the funding date of any Term Loan, and 1.00% if the prepayment occurs more than two years after the funding date of any Term Loan and prior to the Maturity Date. As of March 31, 2019, the outstanding balance of the Term Loans was $12.5 million.  

The Amended and Restated Loan and Security Agreement contains customary events of default, including bankruptcy, the failure to make payments when due, the occurrence of a material impairment on the Lenders’ security interest over the collateral, a material adverse change, the occurrence of a default under certain other agreements entered into by us, the rendering of certain types of judgments against us, the revocation of certain of our government approvals, violation of covenants, and incorrectness of representations and warranties in any material respect.  Upon the occurrence of an event of default, subject to specified cure periods, all amounts owed by us would begin to bear interest at a rate that

26


 

Table of Contents

 

is 5.00% above the rate effective immediately before the event of default, and may be declared immediately due and payable by Lenders.

 

Pursuant to the Amended and Restated Loan and Security Agreement, we also issued to the Lenders 10-year stock purchase warrants to purchase an aggregate of 116,581, 63,025 and 80,645 shares of common stock with exercise prices of $3.86, $2.38, and $1.86 per share, respectively.

 

The Term Loans are collateralized by all of our consolidated assets. The Term Loans also contain certain restrictive covenants that limit our ability to incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements or enter into various specified transactions, as well as financial reporting requirements. We incurred issuance costs related to the Term Loans of approximately $0.6 million that are being amortized as additional interest expense over the term of the Term Loans using the effective interest method. The fair value of the stock purchase warrants, which was estimated to be $0.5 million, was recorded as a discount to the Term Loans, which is also being amortized as additional interest expense over the term of the Term Loans using the effective interest method.

 

At maturity (or earlier prepayment), we are also required to make a final payment equal to 9.00% of the aggregate principal balances of the funded Term Loans. This fee is being accrued as additional interest expense over the term of the Notes using the effective interest method.

 

In January 2018, we issued $50.0 million in aggregate principal amount of 2023 Notes, and in February 2018, we issued an additional $3.0 million in aggregate principal amount of 2023 Notes. The 2023 Notes are general, unsecured, senior subordinated obligations and bear interest at a rate of 5.25% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2018. The 2023 Notes will mature on February 1, 2023, unless earlier repurchased or converted. Payment of the principal of, and accrued and unpaid interest, if any, on the maturity date, and the fundamental change repurchase price of (excluding cash payable in lieu of delivering fractional shares of our common stock), the 2023 Notes is subordinated to the prior payment in full in cash or other payment satisfactory to the holders of senior debt, of all existing and future senior debt, which includes our indebtedness under the Amended and Restated Loan and Security Agreement with the Lenders and any refinancing thereof.

 

The 2023 Notes are convertible into shares of our common stock at the option of the holders at any time prior to the close of business on the business day immediately preceding the maturity date. The conversion rate is initially 294.1176 shares of common stock per $1,000 principal amount of 2023 Notes (equivalent to an initial conversion price of approximately $3.40 per share of common stock), subject to customary adjustments. Holders who convert on or after the date that is six months after the last date of original issuance of the 2023 Notes but prior to February 1, 2021, may also be entitled to receive, under certain circumstances, an interest make-whole payment payable in shares of our common stock. In addition, following certain corporate events that occur prior to the maturity date, we will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2023 Notes in connection with such a corporate event.

 

As of March 31, 2019, the aggregate outstanding principal amount of the 2023 Notes was $52.7 million.

 

27


 

Table of Contents

 

Cash Flows

 

The following is a summary of cash flows for each of the periods set forth below (in thousands).

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

 

2019

 

2018

 

 

 

(unaudited)

Net cash used in operating activities

    

$

(30,152)

    

$

(20,499)

 

Net cash (used in) provided by investing activities

 

 

(490)

 

 

16,187

 

Net cash (used in) provided by financing activities

 

 

(2,476)

 

 

49,064

 

Net (decrease) increase in cash and cash equivalents

 

$

(33,118)

 

$

44,752

 

 

Net cash used in operating activities

 

Net cash used in operating activities was $30.2 million for the three months ended March 31, 2019, and consisted of a net loss of $29.4 million and a net change in operating assets and liabilities of $1.9 million, partially offset by net non-cash items of $1.1 million. Net change in operating assets and liabilities consisted of a $4.2 million increase in inventory, a $1.1 million decrease in accounts payable, a $0.7 million increase in prepaid expenses and other current assets and a $0.6 million decrease in deferred revenue, partially offset by a $4.7 million decrease in accounts receivable. Net non-cash items consisted of stock-based compensation expense of $2.0 million, non-cash interest expense of $0.9 million, depreciation and amortization of $0.2 million, partially offset by decrease in fair value of derivative liability of $2.1 million.

 

Net cash used in operating activities was $20.5 million for the three months ended March 31, 2018, and consisted primarily of a net loss of $22.3 million and a net change in operating assets and liabilities of $5.2 million (consisting of a net decrease in accounts payable, accrued expenses and interest, and deferred rent of $1.8 million, a net increase in accounts receivable, inventory, and prepaid expenses and other current assets of $3.4 million), partially offset by stock-based compensation expense of $1.5 million, an increase in the fair value of derivative liability of $4.8 million, and depreciation, non-cash interest expense, and write-down of the carrying value of our inventory to net realizable value of an aggregate amount of $0.7 million.

 

Net cash provided by (used in) investing activities

 

Net cash used in investing activities was $0.5 million for the three months ended March 31, 2019, and consisted of $0.4 million of capital expenditures for laboratory equipment and $0.1 million of lease payments.

 

Net cash provided by investing activities was $16.2 million for the three months ended March 31, 2018, and consisted of sales and maturities of marketable securities.

 

Net cash provided by financing activities

 

Net cash used in financing activities was $2.5 million for the three months ended March 31, 2019, and consisted of aggregate principal payments on our Term Loans of $2.5 million.

 

Net cash provided by financing activities was $49.1 million for the three months ended March 31, 2018, and consisted primarily of $51.2 million from the issuance of the 2023 Notes and the exercise of stock options of $0.4 million, partially offset by aggregate principal payments on our Term Loans of $2.5 million.

 

Contractual Obligations

 

As of March 31, 2019, there was no material change in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 15, 2019.

28


 

Table of Contents

 

 

Off‑Balance Sheet Arrangements

 

During three months ended March 31, 2019 we did not have, and we do not currently have, any off‑balance sheet arrangements, as defined under SEC rules.

 

JOBS Act

 

In April 2012, the JOBS Act was enacted. Section 107(b) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

 

At the end of the 2019 fiscal year, we will no longer be an emerging growth company and we will no longer be exempt from (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or regarding a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

 

Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by our management. Due to the significant judgment involved in selecting certain of the assumptions used in these areas, it is possible that different parties could choose different assumptions and reach different conclusions.

 

We believe there have been no material changes to our critical accounting policies and use of estimates as disclosed in the footnotes to our audited financial statements for the year ended December 31, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 15, 2019.

 

 

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates. As of March 31, 2019, we had cash and cash equivalents of $103.7 million. We generally hold our cash in interest-bearing money market accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change

29


 

Table of Contents

 

in interest rates would not have a material effect on the fair market value of our cash equivalents. Additionally, the interest rates on our 2023 Notes and our Term Loans are fixed. We do not currently engage in hedging transactions to manage our exposure to interest rate risk.

 

Foreign Currency Risk

 

The majority of our international sales are denominated in Euros. Therefore, our dollar value of sales is impacted by exchange rates versus the dollar. Currency fluctuations or a strengthening U.S. dollar can decrease our revenue from these Euro-denominated international sales. To date, foreign currency transaction gains and losses and exchange rate fluctuations have not been material to our consolidated financial statements, and we do not believe that the effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would have had a material impact on our operating results or financial condition. We do not currently engage in any hedging transactions to manage our exposure to foreign currency exchange rate risk. 

 

 

ITEM 4: Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision of and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2019, the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance 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 rules and forms promulgated by the SEC. 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.

 

In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. 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 policies or procedures may deteriorate. Because of the inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected. Based on the evaluation of our disclosure controls and procedures as of March 31, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

30


 

Table of Contents

 

PART II: OTHER INFORMATION

 

ITEM 1: Legal Proceedings

 

From time to time, we are subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results or financial condition .

 

ITEM 1A: Risk Factors

 

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. Our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in “Part I, Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 15, 2019.

 

ITEM 2: Unregistered Sales of Equity and Securities and Use of Proceeds

 

Not applicable.

 

ITEM 3: Defaults Upon Senior Securities

 

Not applicable .

 

ITEM 4: Mine Safety Disclosures

 

Not applicable.

 

ITEM 5: Other Information

 

None.

 

31


 

Table of Contents

 

ITEM 6: Exhibits

 

The exhibits listed on the Exhibit Index hereto are filed or incorporated by reference (as stated therein) as part of this Quarterly Report on Form 10-Q.

 

 

 

 

Exhibit No.

 

Document

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).

 

 

 

3.2

 

Amended and Restated Bylaws of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37717), filed with the Commission on March 23, 2016).

 

 

 

3.3

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Senseonics Holdings, Inc. (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Quarterly Report on Form 10-Q for the Quarter ended June 30, 2018 (File No. 001-37717), filed with the Commission on August 8, 2018).

 

 

 

10.1*#

 

Fourth Amendment to Distribution Agreement, dated as of January 31, 2019, by and among Senseonics Holdings, Inc., Roche Diagnostics International AG, Basel Branch Diabetes Care and Roche Diabetes Care GmbH.

 

 

 

10.2*+

 

Executive Employment Agreement by and between Senseonics, Incorporated and Jon D. Isaacson, effective as of January 7, 2019.

 

 

 

10.3*+

 

Executive Employment Agreement by and between Senseonics, Incorporated and Francine Kaufman, effective as of March 4, 2019.

 

31.1*

 

Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act.

 

 

 

31.2*

 

Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act.

 

 

 

32.1**

 

Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act.

 

 

 

101.INS*

 

XBRL Instance Document

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document

 

 

 

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


#            Portions of this exhibit (indicated by asterisks) have been excluded because such information (i) is not material and (ii) would be competitively harmful if publicly disclosed.

+ Indicates management contract or compensatory plan.

*            Filed herewith.

**          These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

+            Indicates management contract or compensatory plan.

*            Filed herewith.

 

32


 

Table of Contents

 

SIGNATURES

 

Pursuant to the requirements 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.

 

 

 

 

 

SENSEONICS HOLDINGS, INC.

 

 

 

 

 

 

Date: May 9, 2019

By:

/s/ Jon Isaacson

 

 

Jon Isaacson

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

33


Exhibit 10.1

 

FOURTH AMENDMENT TO DISTRIBUTION AGREEMENT

 

This Fourth Amendment to Distribution Agreement (the “Fourth Amendment”) is effective as of January 31, 2019 (the “Fourth Amendment Effective Date”), by and between Roche Diagnostics International AG, Basel Branch Diabetes Care, with offices located at Peter Merian-Weg 4, 4052 Basel, Switzerland (“Roche Diagnostics”) and Roche Diabetes Care GmbH, with offices located at Sandhofer Strasse 116, 68305 Mannheim, Germany (“Roche Diabetes” and collectively with Roche Diagnostics, “ROCHE”) and Senseonics, Incorporated, with offices located at 20451 Seneca Meadows Parkway, Germantown, MD 20876-7005, USA (“SENSEONICS”).  ROCHE and SENSEONICS are sometimes referred to herein individually as a “Party” and collectively as the “Parties”.

 

WHEREAS, ROCHE and SENSEONICS are parties to that certain Distribution Agreement dated May 23, 2016 (as amended, the “Agreement”), as amended from time to time including the Amendments to Distribution Agreement dated as of November 28, 2016 (the “First Amendment”),  April 11, 2018 (the “Second Amendment”) and December 20, 2018 (the “Third Amendment”); and

 

WHEREAS, the Parties desire to amend the Agreement in accordance with Section 11.11 thereof in order to extend their distribution arrangements through January 31, 2021 and provide for other terms and conditions to govern such arrangements;

 

NOW THEREFORE, in consideration of the premises and mutual covenants contained in the Fourth Amendment, the Parties agree as follows:

 

1.    Extension of Term.  Section 10.1 is hereby deleted and replaced with the following:

 

“The term of this Agreement shall commence on the Effective Date.  Unless terminated earlier in accordance with the terms hereof, this Agreement shall expire on January 31, 2021.  This Agreement may be terminated at any time upon mutual written agreement of the Parties.  Each Party shall have the right to terminate this Agreement for cause as set out in Section 10.2.”

 

2.    Survival.  Section 10.7 is hereby deleted and replaced with the following:

 

“Expiration or early termination of this Agreement shall not relieve either Party of its obligations incurred prior to expiration or early termination.  The obligations under Sections 4.2, 4.6, 4.7, 4.13, 5.6, 6.2 (first paragraph), 6.4(c), 6.4(d), 10.5, 10.6 and 11.7, and Articles 7, 8, 9 and 11 of this Agreement, shall survive expiration or early termination of this Agreement or of any extensions thereof for a period of five (5) years.”

 

3.    Territories.  Exhibit 3 is hereby amended to add the additional countries to the Territory, and related terms, contained on Exhibit 3 hereto.

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

1

 


 

 

4.    Minimum Requirements and Logistics.  For purposes of the calendar years 2019 and 2020, Exhibit 4 of the Agreement is hereby deleted in its entirety and replaced with Exhibit 4 attached herein.

 

4.1.  Section 3.2(b) is hereby deleted and replaced with the following:

 

“Each calendar year 2019 and 2020, ROCHE shall purchase no less than the minimum quantities of each Product for sale in the Territory (“Minimum Requirement”) as set forth on Exhibit 4 for such calendar year.  Quantities which exceed the annual Minimum Requirement in the Territory shall not be deducted from the Minimum Requirement in the Territory in the remaining years.”

 

The third sentence of Section 10.2 is hereby deleted and replaced with the following:

 

“The Parties acknowledge that any failure by ROCHE to meet the Minimum Requirement within the Territory in any calendar year shall be deemed a material breach of this Agreement and SENSEONICS shall have the right to terminate this Agreement or, at SENSEONICS’ sole option, by notice to ROCHE, cause ROCHE’s distribution rights under the Agreement to become non-exclusive.  For clarity, if the purchase of the Minimum Requirement for any of 2019 or 2020 would not be satisfied by ROCHE, but such shortfall is cured by a make-up order which fully satisfies the Minimum Requirements during the calendar year of such shortfall, including full satisfaction by a deemed order pursuant to Paragraph  2 of Exhibit 4, then SENSEONICS shall not have the right to terminate the Agreement for material breach or cause it to become non-exclusive pursuant to this Section 10.2 or Exhibit 4.

 

5.    Further Logistics Provisions .  For purposes of calendar years 2019 and 2020, and in order to effect the provisions of Exhibits 3 and 4 of the Fourth Amendment, the following further changes are hereby made to the Agreement.

 

5.1.  Section 2.2(d) is hereby deleted and replaced with the following:

 

“SENSEONICS shall use commercially reasonable efforts to support ROCHE in distributing the Eversense® XL Sensor Pack to HCPs deemed necessary by the Parties.  ROCHE shall be allowed to distribute the XL Smart Transmitter Pack to HCPs and patients.  ROCHE may promote the Products and Apps through its direct sales force or otherwise as it may determine from time to time, in its sole discretion, but at all times in accordance with this Agreement.”

 

5.2.  Section 2.2(e)  is hereby deleted and replaced with the following:

 

“In markets where currently provided by SENSEONICS as of December 31, 2018, SENSEONICS shall provide Clinical Training Manager (“CTM”) resources at its own cost to ROCHE for training physicians on the implantation of the Eversense® XL Sensors to allow ROCHE to market, offer to sell or sell the Product.  Unless agreed otherwise, ROCHE shall provide CTMs in new markets added by Exhibit 3 of this

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

2

 


 

 

Fourth Amendment as it requires at ROCHE’s cost, and SENSEONICS shall conduct free of charge initial and ongoing training per the Product procedure training SOP.  All CTMs are required to take and pass the Senseonics CTM procedure training to be authorized to conduct procedure training to HCPs in their local markets.  The CTMs shall be able to communicate in English or make use of a translator.  The training provided under this Section 2.2(e) to HCPs will be conducted in the applicable local language and may be done through the use of translators.”

 

5.3.  Section 3.1(b) is deleted in its entirety.

 

5.4.  Sections 3.2(a) and (d) are replaced by the forecast and ordering provisions set out in Paragraphs 4 and 5, respectively, of Exhibit 4.

 

5.5.  Section 3.4 is  deleted in its entirety.

 

6.    Collaborative Business Review.  The Parties shall meet three times per calendar year to conduct a business review of market performance and to discuss their collaboration.  One meeting shall be solely focused on Germany.  During the business review, the Parties will discuss the Key Performance Indicators set out in the Second Amendment.  In addition, SENSEONICS shall present additional key performance indicators and updates on: [***] and e) other matters agreed.  ROCHE shall present additional key performance indicators and updates on: [***].  Furthermore, the Parties will share and discuss information related to the following, to the extent permissible under law and regulation: [***].  The Parties shall also discuss other topics the Parties mutually believe will strengthen the collaboration.

 

7.    Data Sharing.  Within five (5) business days after the Fourth Amendment Effective Date, SENSEONICS and ROCHE shall meet by teleconference to discuss the data sharing initiatives outlined in this section and determine the plan, scope and schedule for the Parties to both address their respective requests relating to an expansion of their data sharing relationship and to negotiate in good faith regarding the following data sharing initiatives:

 

[***]

 

8.    Interpretation.  Except as expressly amended hereby, the terms and conditions of the Agreement shall remain unchanged and in full force and effect.  In the event of any conflict between the terms of this Fourth Amendment and the Agreement, the terms of this Fourth Amendment, including the terms of the Exhibits herein, shall govern.  Except where otherwise expressly noted, the amendments made herein shall be effective as of the Fourth Amendment Effective Date.  Capitalized terms used in this Fourth Amendment that are not otherwise defined herein shall have the same meanings as such terms are given in the Agreement.  For clarity, (i) any reference to the Agreement refers to the Agreement as amended by the First Amendment,  the Second Amendment, and the Third Amendment, and (ii) any cross-references to Agreement Sections refer to those Agreement Sections as amended by this Fourth Amendment.  This Fourth Amendment may be executed in counterparts, each of which shall be deemed an original but all of which shall be considered one and the same instrument.

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

3

 


 

 

[Remainder of Page Intentionally Blank]

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

4

 


 

IN WITNESS WHEREOF, each of the Parties has caused this Fourth Amendment to be executed by its duly authorized representative as of the Fourth Amendment Effective Date.

 

 

Senseonics, Incorporated

 

 

 

 

By:

/s/ Tim Goodnow

 

 

 

 

Name:

Tim Goodnow

 

 

 

 

Title:

President and CEO

 

 

 

 

Roche Diagnostics International AG

 

Basel Branch Diabetes Care

 

 

 

 

By:

/s/ Marcel Gmünder

 

 

 

 

Name:

Marcel Gmünder

 

 

 

 

Title:

Head Diabetes Care

 

 

 

 

 

 

 

By:

/s/ Edwin Sonnenschein

 

 

 

 

Name:

Edwin Sonnenschein

 

 

 

 

Title:

Head Legal DC

 

 

 

 

Roche Diabetes Care GmbH

 

 

 

 

By:

/s/ Edwin Sonnenschein

 

 

 

 

Name:

Edwin Sonnenschein

 

 

 

 

Title:

Head Legal DC

 

 

 

 

 

 

 

By:

/s/ Philipp Hoffmann

 

 

 

 

Name:

Philipp Hoffmann

 

 

 

 

Title:

Legal Counsel DC

 

 

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

5

 


 

 

EXHIBIT 3

 

Exhibit 3, as set out in the Agreement, as amended by the First Amendment, shall survive and shall be supplemented with the following additional countries to be added to the Territory and the following related terms that shall only apply to the additional countries listed in this Fourth Amendment (taking into account that the First Amendment contains such terms relating to the countries listed in the First Amendment):

 

Additional Countries:

 

[***], [***],  Brazil, [***],  China, [***],  [***], India, [***],  [***], [***], [***], Russian Federation, [***], [***], [***]

 

ROCHE shall have the exclusive right, but not the obligation, to distribute the Products in these additional countries. The Parties shall discuss SENSEONICS’ commercially reasonable efforts to support ROCHE’s launch in the additional countries.  Such discussion shall consider, among other things, the business case, whether any material activities in the areas of mobile app development, product labeling and translation approval or regulatory support would be required from SENSEONICS to support such launch, and capacity to support such activities.

 

ROCHE may communicate with sub-distributors for planning, logistical, market assessment and launch preparation purposes.  The Parties shall discuss in good faith timing and launch requirements prior to any communication with clinics, health care providers or patients in the above new markets.

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

6

 


 

 

EXHIBIT 4

 

Pricing

 

1.   Eversense® XL Sensor Pack

a.    Contains the following:

i.  1 Eversense Sensor Insertion Kit—Includes Blunt Dissector, Insertion Tool, Insertion Template, Adhesive Patch 30-Pack (6), Insertion and Removal Instruction Guide

ii.  1 Eversense XL Sensor Kit – Includes Sensor Pouch

b.    2019 Pricing shall be [***]

c.    2020 Pricing shall be [***]

 

2.   Eversense® XL Smart Transmitter and accessories  (the “XL Smart Transmitter Pack”)

a.   Contains the following:

i.   1 Eversense® XL Smart Transmitter

ii.  1 Power Supply

iii. 1 User Guide

iv. 1 Quick Reference Guide

b.   Kitting of Eversense® XL Smart Transmitter Pack and accessories into country-specific transmitter kits to be sold in the Territory will be provided by SENSEONICS [***]. Such kitting operations shall be conducted in accordance with the Parties’ respective quality systems and requirements, and all applicable regulatory requirements.

c.   2019-2020 Pricing shall be [***]

 

Minimum Requirement for 2019  – 2020 (units)

 

 

Eversense®  XL Sensor Pack

Eversense®  XL Smart Transmitter Pack

2019

[***] 

[***]

2020

[***]

[***]

 

1.   Within each calendar year, a minimum of [***] of the annual Minimum Requirement shall be ordered for delivery in each calendar quarter, except that during Q1 of 2019 of the 2019 Minimum Requirement shall be ordered for delivery March 28, 2019.

 

2.   The annual Minimum Requirements  for Eversense® XL Sensor Packs and Eversense® XL Smart Transmitter Packs set out in the table above is a firm and binding commitment in each of 2019 and 2020, respectively.  If during any of 2019 or 2020 ROCHE does not order enough Product to meet the applicable Minimum Requirements for such calendar year,  then on December 17 of any such calendar year during which there is a shortfall,  ROCHE shall be deemed to have placed an order for the number of units of Product to satisfy the remainder of the Minimum Requirements for each Product for such calendar year and ROCHE shall pay for such Product in accordance with Section 3.3(b) of the Agreement. SENSEONICS may, at its option, ship such make-up order Products for

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

7

 


 

 

delivery during December of such year.  In the event ROCHE’s distribution rights under the Agreement become non-exclusive pursuant to Section 10.2, then for such calendar years as the Agreement becomes non-exclusive, no Minimum Requirements are agreed upon by the Parties for the calendar years during which Roche’s distribution rights are non-exclusive.

 

3.   In the event that (i) SENSEONICS has a material failure to deliver or (ii) the Products are not permitted to be distributed because of a material non-compliance with regulatory and quality requirements, then the Parties will immediately discuss such issue and the corrective action plan to cure such issue.  If, in either case (i) or (ii), such failure remains uncured by SENSEONICS for such a period that ROCHE  represents in good faith to SENSEONICS that the failure is adversely impacting ROCHE’s ability to deliver required inventory to countries in time to meet actual sales demand (reasonably taking into account ROCHE minimum lead times, country-specific holding of inventory, and similar factors), then the Parties shall negotiate in good faith an equitable adjustment to the Minimum Requirement to take account of the impact of such delivery or quality failure.

 

4.   ROCHE shall comply with the following forecasting provision, which shall replace Section 3.2(a).  The initial twelve-month 2019 forecast is attached hereto as Attachment A.  [***].  By the fifteenth of each month, ROCHE shall provide a monthly, rolling forecast for the quantities of the Products that ROCHE intends to order during the twelve (12) month period beginning with the first day of the next month.  [***], pursuant to the purchase orders submitted by ROCHE in accordance with Section 3.2(d)  of the Agreement as amended by Paragraph 5 of this Exhibit 4.  [***]

 

5.   The Parties shall comply with this provision, which shall replace Section 3.2(d) of the Agreement.  ROCHE shall place each purchase order with SENSEONICS for the Products to be delivered hereunder in writing.  Each purchase order delivered under this Paragraph 5 shall constitute a binding obligation upon ROCHE and shall be confirmed by SENSEONICS within [***] days from receipt of the purchase order, such confirmation to include information on the expected delivery date.  SENSEONICS hereby guarantees an  [***] delivery of the Products (for quantities ordered that are equal to or less than the then current forecast quantity plus the Excess Quantity) from the receipt of each purchase order.  For orders of the Products that exceed the then current rolling forecast plus the Excess Quantity,  SENSEONICS shall use its reasonable efforts to meet the [***] delivery date for such orders and shall reasonably adapt its production capacity accordingly to the extent reasonably practicable, but failure to deliver any such quantities of Products by such delivery date shall not constitute a breach of this Agreement by SENSEONICS.  Delivery of the Products shall be as governed by Section 3.3 of the Agreement.

 

6.   [***] .

 

7.   [***]

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

8

 


 

 

8.   [***]

 

9.   [***]

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

9

 


 

Attachment A to Exhibit 4

 

Roche 2019  Initial Monthly Forecast

 

 

2019 Month

Eversense XL
Sensor

Eversense XL
Transmitter

January

[***]

 

[***]

 

February

March

April

May

June

July

August

September

October

November

December

Total

 

 

 

 

Certain information has been excluded from this agreement (indicated by “[***]”) because such information
(i) is not material and (ii) would be competitively harmful if publicly disclosed.

10

 


Exhibit 10.2

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This EXECUTIVE EMPLOYMENT AGREEMENT  ( Agreement” )   is entered into as of the 30th day of November, 2018 ( Effective Date ), by and between JON D. ISAACSON  ( Executive )   and SENSEONICS, INCORPORATED  (“ Company ”).

 

WHEREAS ,   the Company wishes to employ Executive as the Chief Financial Officer of the Company and Executive wishes to serve as Chief Financial Officer of the Company and be its employee, subject to the terms and conditions of this Agreement;

 

WHEREAS,   the Company and Executive desire to set forth their respective rights and obligations in this Agreement; and

 

WHEREAS,   this Agreement has been duly approved and its execution has been duly authorized by the Company’s Board of Directors.

 

NOW, THEREFORE,   in consideration of the mutual promises and covenants contained herein, the parties agree to the following:

 

1.         Employment by the Company.

 

1.1          Position.    Subject to the terms set forth herein, the Company agrees to employ Executive in the position of Chief Financial Officer and Executive hereby accepts such employment on the terms and conditions set forth in this Agreement. Executive will commence work in this position on January 7, 2019 (the “ Start Date ”).

 

1.2          Duties.    As Chief Financial Officer Executive will report to the Chief Executive Officer (“ CEO ”),   performing such duties as are normally associated with his position and such duties as are assigned to him from time to time, subject to the oversight and direction of the CEO. During the term of Executive’s employment with the Company, Executive will work on a full-time basis for the Company and will devote Executive’s best efforts and substantially all of Executive’s business time and attention to the business of the Company. Executive shall perform Executive’s duties under this Agreement principally out of the Company’s corporate headquarters. In addition, Executive shall make such business trips to such places as may be necessary or advisable for the efficient operations of the Company.

 

1.3          Company Policies and Benefits.   The employment relationship between the parties shall also be subject to the Company’s personnel policies and procedures as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion. Executive will be eligible to participate on the same basis as similarly situated employees in the Company’s benefit plans in effect from time to time during his employment. All matters of eligibility for coverage or benefits under any benefit plan shall be determined in accordance with the provisions of such plan. The Company reserves the right to change, alter, or terminate any benefit plan in its sole discretion. Notwithstanding the foregoing, in the event that the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.

1.


 

 

2.         Compensation.

 

2.1           Salary.     Executive shall receive for Executive’s services to be rendered under this Agreement a base salary of $400,000.00 (Four Hundred Thousand Dollars) on an annualized basis ,   subject to review and adjustment by the Company in its sole discretion, payable subject to standard federal and state payroll withholding requirements in accordance with the Company’s standard payroll practices ( Base Salary ).

 

2.2           Bonus.     During the period Executive is employed with the Company, Executive shall be eligible to earn for Executive ’  s services to be rendered under this Agreement a discretionary annual cash bonus of up to 50% of Base Salary ( Target Amount ), subject to review and adjustment by the Company in its sole discretion, payable subject to standard federal and state payroll withholding requirements. Whether or not Executive earns any bonus will be dependent upon (a) Executive’s continuous performance of services to the Company through the date an y bonus is paid; and (b) the actual achievement by Executive and the Company of the applicable performance targets and goals set by the Board of Directors of the Company ( Board ). The annual period over which pe r formance is measured for purposes of this bonus is January 1 through December 31. The Board will determine in its sole discretion the extent to which Executive and the Company have achieved the performance goals upon which the bonus is based and the amount of the bonus ,   which could be above or below the Target Amount (and may be zero). Any bonus shall be subject to the terms of any applicable incentive compensation plan adopted by the Company. Any bonus, if earned, will be paid to Executive within the time period set forth in the incentive compensation plan.

 

2.3           Stock Option Grant.    Subject to approval by the Board and subject to the terms of the 2015 Plan (the “Plan”), Executive will be granted an option (the “Option”)   to purchase up to 550,000 shares of the Company’s Common Stock pursuant to the Company’s standard Qualified Stock Option Agreement (to the extent permitted) and the terms of the Plan. Twenty-five (25%) percent of the Option Shares will vest on the first anniversary of the Start Date and the remaining seventy-five percent (75%) shall vest in equal amounts at the end of each calendar month for the 36-month period following the first anniversary of the Start Date, in each such case subject to Executive’s continuous employment through the applicable vesting date. The exercise price of the Option will be equal to the fair market value of the Company’s Common Stock on the date of grant of the Option, as determined by the Board in its sole discretion. The Option will be governed by and subject to the terms and conditions of the Plan and other documents issued in connection with the grant.

 

2.4          Expense Reimbursement.   The Company will reimburse Executive for reasonable business expenses in accordance with the Company’s standard expense reimbursement policy, as the same may be modified by the Company from time to time. The Company shall reimburse Executive for all customary and appropriate business-related expenses actually incurred and documented in accordance with Company policy ,   as in effect from time to time. For the avoidance of doubt, to the extent that any reimbursements payable to Executive are subject to the provisions of Section 409A of the Code: (a) any such reimbursements will be paid no later than December 31 of the year following the year in which the expense was incurred, (b) the amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any

2.


 

 

subsequent year, and (c) the right to reimbursement under this Agreement will not be subject to liquidation or exchange for another benefit.

 

3.            Ideas, Inventions, Competition and Confidentiality.   As a condition of employment, Executive agrees to execute and abide by an Ideas, Inventions, Competition and Confidentiality Agreement attached as Exhibit A ( Proprietary Information Agreement ),   which may be amended by the parties from time to time without regard to this Agreement. The Proprietary Information Agreement contains provisions that are intended by the parties to survive and do survive termination of this Agreement.

 

4.            Outside Activities during Employment.    Except with the prior written consent of the CEO, including consent given to Executive prior to the signing of this Agreement, Executive will not, while employed by the Company, undertake or engage in any other employment, occupation or business enterprise that would interfere with Executive’s responsibilities and the performance of Executive’s duties hereunder except for (i) reasonable time devoted to volunteer services for or on behalf of such religious, educational, non-profit and/or other charitable organization as Executive may wish to serve, (ii) reasonable time devoted to activities in the non­ profit and business communities consistent with Executive’s duties; and (iii) such other activities as may be specifically approved by the Board. This restriction shall not, however, preclude Executive (x) from owning less than one percent (1%) of the total outstanding shares of a publicly traded company, or (y) from employment or service in any capacity with Affiliates of the Company. As used in this Agreement, “Affiliates” means an entity under common management or control with the Company. It is acknowledged that Executive shall be permitted to manage his personal investments and affairs, including but not limited to Charm Homes LLC and SET Capital Partners, LLC and their respective subsidiaries and affiliates, and any other investments or activities in ticket broker or home renovation businesses; provided, however, that such activities set out herein shall be limited by Executive so as not to interfere in any substantial respect, individually or in the aggregate, with the performance of Executive’s duties and responsibilities hereunder (which duties include, among other things, the devotion of his full time, best efforts and substantially all of his business time and attention to the business of the Company).

 

5.            No Conflict with Existing Obligations.    Executive represents that Executive’s performance of all the terms of this Agreement does not and will not breach any agreement or obligation of any kind made prior to Executive’s employment by the Company, including agreements or obligations Executive may have with prior employers or entities for which Executive has provided services. Executive has not entered into, and Executive agrees that Executive will not enter into, any agreement or obligation, either written or oral, in conflict herewith. As part of this obligation, Executive agrees that he is subject to a duty to maintain the confidentiality of confidential or proprietary information that he has received from third parties, to hold such information in the strictest confidence, and not to disclose it to any person or entity or use it in carrying out Executive’s work for the Company, consistent with any agreements between Executive and such third party or third parties.

 

6.           Termination of Employment.  The parties acknowledge that Executive’s employment relationship with the Company is at-will, meaning either the Company or Executive may terminate Executive’s employment at any time, with or without cause or advanced notice, except for the notice from Executive set out in Section 8.1 below. The provisions in this Section

3.


 

 

govern the amount of compensation, if any, to be provided to Executive upon termination of employment and do not alter this at-will status.

 

6.1       Termination by the Company without Cause or for Good Reason.

 

(a)           The Company shall have the right to terminate Executive’s employment with the Company pursuant to this Section 6.1 at any time, in accordance with Section 6.6, without “Cause” (as defined in Section 6.2(b) below) by giving notice as described in Section 8.1 of this Agreement. A termination pursuant to Section 6.5 below is not a termination without “Cause” for purposes of receiving the benefits described in this Section 6.1.

 

(b)          If the Company terminates Executive’s employment at any time without Cause or Executive terminates his employment with the Company for Good Reason and provided that such termination constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-l(h), without regard to any alternative definition thereunder, a Separation from Service ), then Executive shall be entitled to receive the Accrued Obligations (defined below). If Executive complies with the obligations in Section 6.l(c) below, Executive shall also be eligible to receive the following severance benefits: (1) an amount equal to Executive’s then current Base Salary for one (1) year, less all applicable withholdings and deductions ( Severance ),   paid in equal installments beginning on the Company’s first regularly scheduled payroll date following the Release Effective Date (as defined in Section 6.l(c) below), with the remaining installments occurring on the Company’s regularly scheduled payroll dates thereafter and (2) a pro rata portion of Executive’s Target Amount for the performance year in which Executive’s termination occurs, with such pro rata portion calculated based upon the number of days that Executive was employed during such performance year divided by the total number of days in such performance year, payable as a lump sum payment on the Release Effective Date (as defined below) ( Bonus Severance ).

 

(c)        Executive will be paid all of the Accrued Obligations on the Company’s first payroll date after Executive’s date of termination from employment or earlier if required by law. Executive shall receive the Severance and Bonus Severance pursuant to Section 6.l(b) of this Agreement and the payments pursuant to Section 6.l(d) if: (i) by the 60th day following the date of Executive’s Separation from Service, he has signed and delivered to the Company a separation agreement containing an effective, general release of claims in favor of the Company and its affiliates and representatives, in a form acceptable to the Company (the Release ),   which cannot be revoked in whole or part by such date (the date that the Release can no longer be revoked is referred to as the Release Effective Date );   and (ii) if he holds any other positions with the Company, he resigns such position(s) to be effective no later than the date of Executive’s termination date (or such other date as requested by the Board); (iii) he returns all Company property; (iv) he complies with his post-termination obligations under this Agreement and the Proprietary Information Agreement; and (v) he complies with the terms of the Release, including without limitation any non-disparagement and confidentiality provisions contained in Release. The separation agreement will not release Senseonics Holdings, Inc. from its obligations to Executive under the Indemnification Agreement nor shall it release the Company from its indemnification obligations under the Company’s articles of incorporation, by-laws or general corporation law, to the extent such obligations arise from matters or conduct occurring prior to the date of Executive’s separation from the Company. To the extent that any severance payments are

 

4.


 

 

deferred compensation under Section 409A of the Code ,   and are not otherwise exempt from the application of Section 409A, then, if the period during which Executive may consider and sign the Release spans two calendar years, the payment of Severance will not be made or begin until the later calendar year.

 

(d)        If Executive timely elects continued coverage under COBRA for himself and his covered dependents under the Company’s group health plans following such termination, then the Company shall pay the COBRA premiums necessary to continue Executive’s and his covered dependents ’  health insurance coverage in effect for himself (and his covered dependents) on the termination date until the earliest of: (i) twelve (12) months following the termination date (the COBRA Severance Period ); (ii) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self­employment; or (iii) the date Executive ceases to  be eligible  for  COBRA  continuation  coverage for any reason, including plan termination (such period from the termination  date  through  the earlier of (i)-(iii), (the  COBRA Payment Period ).  Notwithstanding the foregoing,  if at any time the Company determines that its payment of COBRA premiums  on  Executive s  behalf  would result in a violation of applicable  law (including but not limited  to, the  2010  Patient  Protection and Affordable Care Act ,   as amended by the 2010 Health Care and Education Reconciliation Act) ,   then in lieu of paying COBRA premiums pursuant to this Section ,   the  Company  shall  pay Executive on the last day of each remaining month of the COBRA Payment Period, a fully taxable cash payment equal to the COBRA premium for such month ,   subject to applicable tax withholding (such amount, the Special Severance Payment ) ,   such Special Severance Payment to be made without regard to the COBRA period prior to the end of the COBRA Payment Period. Nothing in this Agreement shall deprive E x ecutive of his rights under COBRA or ERISA for benefits under plans and policies arising under his employment by the Company.

 

(e)        For purposes of this Agreement, Accrued Obligations   are (i) Executive s accrued but unpaid salary through the date of termination ,   (ii) any unreimbursed business expenses incurred by Executive payable in accordance with the Company’s standard expense reimbursement policies, and (iii) benefits owed to Executive under any qualified retirement plan or health and welfare benefit plan in which Executive was a participant in accordance with applicable law and the provisions of such plan.

 

(f)        The Severance and Bonus Severance provided to Executive pursuant to this Section 6.1 are in lieu of, and not in addition to ,   an y   benefits to which Executive may otherwise be entitled under any Company severance plan, policy or program.

 

(g)        Any damages caused by the termination of Executive s employment without Cause would be difficult to ascertain; therefore, the Severance and Bonus Severance for which Executive is eligible pursuant to Section 6.1(b) above in exchange for the Release is agreed to by the parties as liquidated damages, to serve as full compensation, and not a penalty.

 

(h)         For purposes of this Agreement, “ Good Reason ” shall mean the occurrence of any of the following events without Executive’s consent:   (i) a material reduction in Executive’s Base Salary of at least 10%; (ii) a material breach of this Agreement by the Company;  (iii)  any material diminution in Executive’s duties ,   responsibilities ,   authority ,   reporting structure (including being required to report to a person other than the Chief Executive Officer then in office

 

5.


 

 

or to the Board of Directors of the Company, any parent or any successor entity), status or title (including a reduction in title from “Chief Financial Officer”), unless approved in writing by Executive; or (iv) the relocation of Executive’s principal place of employment, without Executive’s consent, in a manner that lengthens his one-way commute distance by thirty-five (35) or more miles from his then-current principal place of employment immediately prior to such relocation; provided, however, that, any such termination by Executive shall only be deemed for Good Reason pursuant to this definition if: (1) Executive gives the Company written notice of his intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that he believes constitute(s) Good Reason, which notice shall describe such condition(s); (2) the Company fails to remedy such condition(s) within thirty (30) days following receipt of the written notice (the Cure Period );   and (3) Executive voluntarily terminates his employment within thirty (30) days following the end of the Cure Period.

 

(i)          Any damages caused by the termination of Executive’s employment without Cause or for Good Reason would be difficult to ascertain; therefore, the payments for which Executive is eligible pursuant to this Section 6.1 above in exchange for the Release is agreed to by the parties as liquidated damages, to serve as full compensation, and not a penalty.

 

6.2        Termination by the Company without Cause or for Good Reason Following a Change in Control.

 

(a)        If (x) Executive’s employment by the Company is terminated by the Company without “Cause”  (and not due to Disability or death) or by Executive for Good Reason in anticipation of a Change of Control (as defined below) for which definitive documentation is executed within ninety (90) days of such termination date, or if (y) Executive’s employment by the Company or any successor entity is terminated by the Company or the successor entity without “Cause (and not due to Disability or death) following execution of definitive documentation for or in the twelve (12) months following a Change in Control, then the Company (or successor entity, as applicable) shall pay or provide Executive with the Accrued Obligations and all of the benefits described in Section 6.1 above, subject to Executive’s compliance with Section 6.l(c) ;   provided that: (i) in lieu of the bonus described in Section 6.l(b) ,   the Company shall pay Executive 125% of the Target Amount for the performance year in which Executive’s termination occurs, payable as a lump sum payment on the Release Effective Date; and (ii) 100% of the then unvested portion of any equity awards granted to Executive prior to the Change of Control, or provided in conversion or exchange for such equity awards, shall become fully vested.

 

(b)        For purposes of this Agreement, a Change in Control   means (a) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, continue to hold a majority of the voting power of  the surviving entity (or, if the surviving entity is a wholly owned subsidiary, its parent) immediately after such consolidation ,   merger or reorganization; (b) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred; provided that the foregoing shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof; or

 

6.


 

 

(c) a sale, lease ,   exclusive license or other disposition of all or substantially all of the assets of the Company. In t he even t   of any interpretation of this definition, the Board of Directors of the Company, upon advice of legal counsel, shall have final and conclusive authority, so long as such authority is exercised in good faith .   Notwithstanding the foregoing, a Change in Contro l   will only be deemed to occur for purposes of this Agreement it is also meets the definition used for purposes of Treasury Regulation Section l.409A - 3(a)(5), that is, as defined under Treasury Regulation Section 1.409A-3(i)(5).

 

(c)        Any damages caused by the termination of Executive’s employment without Cause or for Good Reason following a Change in Control wou l d be difficult to ascertain; therefore, the payments for which Executive is eligible pursuant to Section 6.2 above in exchange for the Release is agreed to by the parties as liquidated damages, to serve as full compensation, and not a penalty.

 

6.3       Termination by the Company for Cause .

 

(a)        The Company shall have the right to t erminate Executive’s employment with the Company at any time, in accordance with Section 6.6 ,   for Cause by giving notice as described in Section 8.1 of this Agreement. In the event Executive’s employment is terminated at any time for Cause, Executive will not receive Severance ,   a Severance Bonus or any other severance compensation or benefits ,   except that, pursuant to the Company’s standard payroll policies, the Company shall pay to Executive the Accrued Obligations.

 

(b)         Cause   for termination shall mean that the Company has determined in its sole discretion that Executive has engaged in any of the following: (i) a material breach of any covenant or condition under this Agreement or any other agreement between the parties; (ii) any act constituting dishonesty, fraud, immoral or disreputable conduct; (iii) any conduct which constitutes a felony under applicable law; (iv) violation of any written Company policy or any act of misconduct; (v) refusal to follow or implement a clear and reasonable directive of the Company; (vi) negligence or incompetence in the performance of Executive’s duties or failure to perform such duties in a manner satisfactory  to the Company after the expiration of ten (10) days without cure after written notice of such failure; or (vii) breach of fiduciary duty.

 

6.4       Resignation by Executive.

 

(a)        Executive may resign from Executive’s employment with the Company at any time ,   in accordance with Section 6.6 ,   by giving notice as described in Section 8.1 .

 

(b)        In the event Executive resigns from Executive’s employment with the Company for any reason, Executive will not receive Severance, a Severance Bonus or any other severance compensation or benefits, except that, pursuant to the Company’s standard payroll policies, the Company shall pay to Executive the Accrued Obligations.

 

6.5       Termination by Virtue of Death or Disability of Executive.

 

7.


 

 

(a)        In the event of Executive’s death while employed pursuant to this Agreement, all obligations of the parties hereunder shall terminate immediately, in accordance with Section 6.6 ,   and the Company shall, pursuant to the Company’s standard payroll policies, pay to Executive’s legal representatives all Accrued Obligations.

 

(b)        Subject to applicable state and federal law, the Company shall at all times have the right ,   upon written notice to Executive, and in accordance with Section 6.6 ,   to terminate this Agreement based on Executive’s Disability. Termination by the Company of Executive’s employment based on “ Disability   shall mean termination because Executive is unable due to a physical or mental condition to perform the essential functions of his position with or without reasonable accommodation for 180 days in the aggregate during any twelve (12) month period or based on the written certification by two licensed physicians of the likely continuation of such condition for such period. This definition shall be interpreted and applied consistent with the Americans with Disabilities Act, the Family and Medical Leave Act, and other applicable law. In the event Executive’s employment is terminated based on Executive’s Disability, the Company shall pay or provide Executive with the Accrued Obligations and the Severance, Bonus Severance and all of the benefits described in Section 6.1 above, subject to Executive’s compliance with Section 6.l(c) .

 

6.6       Notice; Effective Date of Termination.

 

(a)        Termination of Executive’s employment pursuant to this Agreement shall be effective on the earliest of:

 

(i)          immediately after the Company gives notice to Executive of Executive’s termination, with or without Cause ,   unless pursuant to Section 6.3(b)(vi) in which case ten (10) days after notice if not cured or unless the Company specifies a later date, in which case, termination shall be effective as of such later date ;

 

(ii)         immediately upon the Executive s death;

 

(iii)        ten (10) days after the Company gives notice to Executive of Executive’s termination on account of Executive’s Disability, unless the Company specifies a later date, in which case, termination shall be effective as of such later date, provided that Executive has not returned to the full time performance of Executive’s duties prior to such date ;

 

(iv)        thirty (30) days after the Executive gives written notice to the Company of Executive’s  resignation,  provided that the Company may set a termination date at any time between the date of notice and the date of resignation, in which case the Executive’s resignation shall be effective as of such other date. Executive will receive compensation through any notice period required by Company; or

 

(v)         for a termination for Good Reason, immediately upon Executive’s full satisfaction of the requirements of Section 6.1(h).

 

(b)        In the event notice of a termination under subsections (a)(i) ,   (iii) (iv) and (iv) is given orally ,   at the other party s request, the party giving notice must provide written confirmation of such notice within five (5) business days of the request in compliance with

 

8.


 

 

the requirement of Section 8.1 below. In the event of a termination for Cause or Good Reason, written confirmation shall specify the subsection(s) of the definition of Cause or Good Reason relied on to support the decision to terminate.

 

6.7       Cooperation with Company after Termination of Employment.   Following termination of Executive’s   employment for any reason, Executive agrees to cooperate fully with the Company in connection with its actual or contemplated defense, prosecution, or investigation of any claims or demands by or against third parties, or other matters arising from events, acts, or failures to act that occurred during the period of Executive’s employment by the Company. Such cooperation includes, without limitation, making Executive available to the Company upon reasonable notice, without subpoena, to provide complete, truthful and accurate information in witness interviews, depositions and trial testimony. In addition, for six months after Executive’s employment with the Company ends for any reason, Executive agrees to cooperate fully with the Company in all matters relating to the transition of Executive’s work and responsibilities on behalf of the Company, including, but not limited to, any present, prior or subsequent relationships and the orderly transfer of any such work and institutional knowledge to such other persons as may be designated by the Company. The Company will reimburse Executive for reasonable out-of-pocket expenses Executive incurs in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate Executive’s scheduling needs.

 

6.8       Application of Section 409A.   It is intended that all of the severance payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, “ Section 409A ”)   provided under Treasury Regulations Sections l.409A-l(b)(4) and l.409A-l(b)(9), and this Agreement will be construed in a manner that complies with Section 409A. If not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A, and incorporates by reference all required definitions and payment terms. No severance payments will be made under this Agreement unless Executive’s termination of employment constitutes a “separation from service” (as defined under Treasury Regulation Section l.409A-l(h)). For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulations Section l.409A-2(b)(2)(iii)), Executive’s   right to receive any installment payments under this Agreement (whether severance payments 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. If the Company determines that the severance benefits provided under this Agreement constitutes “deferred compensation” under Section 409A and if Executive is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i) of the Code at the time of Executive’s Separation from Service, then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance will be delayed as follows:  on the earlier to occur of (a) the date that is six months and one day after Executive’s Separation from Service, and (b) the date of Executive’s death (such earlier date, the “ Delayed Initial Payment Date ”), the Company will (i) pay to Executive a lump sum amount equal to the sum of the severance benefits that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the severance benefits had not been delayed pursuant to this Section 6.8 and (ii) commence paying the balance of the severance benefits in accordance with the

 

9.


 

 

applicable payment schedule set forth in Section 6. No interest shall be due on any amounts deferred pursuant to this Section 6.8.

 

7.         Section 280G.

 

7.1        Anything in this Agreement to the contrary notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the Aggregate Payments ), would be subject to the excise tax imposed by Section 4999 of the Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1.00 less than the amount at which Executive becomes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall only occur if it would result in Executive receiving a higher After Tax Amount (as defined below) than Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash  payments  subject  to  Section  409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).

 

7.2        For purposes of this Section 5, the After Tax Amount   means the amount of the Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on Executive as a result of Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes

 

8.         General Provisions.

 

8.1       Notices.   Any notices required hereunder to be in writing shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by electronic mail or confirmed facsimile if sent during normal business hours of the recipient, and if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at its primary office location to the attention of the Chief Executive Officer and to the General Counsel, and to Executive at either Executive’s address as listed on the Company payroll, or Company-issued email address, or at such other address as the Company or Executive may designate by ten (10) days advance written notice to the other.

 

10.


 

 

8.2       Severability.   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein.

 

8.3       Survival.   Provisions of this Agreement which by their terms must survive the termination of this Agreement in order to effectuate the intent of the parties will survive any such termination, whether by expiration of the term, termination of Executive’s   employment, or otherwise, for such period as may be appropriate under the circumstances.

 

8.4       Waiver.   If either party should waive any breach of any provisions of this Agreement, it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

 

8.5       Complete Agreement. This Agreement constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof. This Agreement is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter and supersedes any prior oral discussions or written communications and agreements. This Agreement is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in writing signed by Executive and an authorized officer of the Company. The parties have entered into a separate Ideas, Inventions, Competition and Confidential Information Agreement and an Indemnification Agreement, and have or may enter into separate agreements related to equity. These separate agreements govern other aspects of the relationship between the parties, have or may have provisions that survive termination of Executive’s employment under this Agreement, may be amended or superseded by the parties without regard to this Agreement and are enforceable according to their terms without regard to the enforcement provision of this Agreement.

 

8.6       Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. The parties agree that facsimile and scanned image copies of signatures will suffice as original signatures.

 

8.7       Headings.   The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning thereof.

 

8.8       Successors and Assigns. The Company shall assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any Company or other entity with or into which the Company may hereafter merge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said Company or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto, but may not otherwise assign this Agreement or its rights and obligations hereunder. Executive may not assign or transfer this Agreement or any rights or obligations hereunder, other than to his estate upon his death.

 

11.


 

 

8.9       Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of Maryland.

 

8.10     Dispute Resolution. The parties recognize that litigation in federal or state courts or before federal or state administrative agencies of disputes arising out of the Executive’s employment with the Company or out of this Agreement, or the Executive’s termination of employment or termination of this Agreement, may not be in the best interests of either the Executive or the Company, and may result in unnecessary costs, delays, complexities, and uncertainty. The parties agree that any dispute between the parties arising out of or relating to the negotiation, execution, performance or termination of this Agreement or the Executive’s employment, including, but not limited to, any claim arising out of this Agreement, claims under Title VII of the Civil Rights Act of 1964, as amended, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, Section 1981 of the Civil Rights Act of 1966, as amended, the Family Medical Leave Act, the Executive Retirement Income Security Act, and any similar federal, state or local law, statute, regulation, or any common law doctrine, whether that dispute arises during or after employment, shall be settled by binding arbitration in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association; provided however, that this dispute resolution provision shall not apply to any separate agreements between the parties that do not themselves specify arbitration as an exclusive remedy. The location for the arbitration shall be the Washington, DC metropolitan area. Any award made by such panel shall be final, binding and conclusive on the parties for all purposes, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. The arbitrators’ fees and expenses and all administrative fees and expenses associated with the filing of the arbitration shall be borne by the Company;  provided however ,   that at the Executive’s option, Executive may voluntarily pay up to one-half the costs and fees. The parties acknowledge and agree that their obligations to arbitrate under this Section survive the termination of this Agreement and continue after the termination of the employment relationship between Executive and the Company. The parties each further agree that the arbitration provisions of this Agreement shall provide each party with its exclusive remedy ,   and each party expressly waives any right it might have to seek redress in any other forum, except as otherwise expressly provided in this Agreement. By election arbitration as the means for final settlement of all claims, the parties hereby waive their respective rights to, and agree not to, sue each other in any action in a Federal, State or local court with respect to such claims, but may seek to enforce in court an arbitration award rendered pursuant to this Agreement. The parties specifically agree to waive their respective rights to a trial by jury, and further agree that no demand, request or motion will be made for trial by jury.

 

[SIGNATURES TO FOLLOW ON NEXT PAGE]

 

 

 

12.


 

 

IN WITNESS WHEREOF ,   the parties have duly executed this Agreement as of the date first above written.

 

 

 

 

 

SENSEONICS, INCORPORATED

 

 

 

 

 

By:

/s/ Tim Goodnow

 

 

Tim Goodnow

 

 

President  & Chief Executive Officer

 

 

 

 

 

EXECUTIVE

 

 

 

/s/ Jon D. Isaacson

 

 

Jon D. Isaacson

 

 


Exhibit 10.3

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This EXECUTIVE EMPLOYMENT AGREEMENT  (the Agreement )   is entered into as of the 4th day of March, 2019 ( Effective Date ) ,   by and between FRANCINE R. KAUFMAN  ( Executive )  and SENSEONICS, INCORPORATED  ( Company ).

 

WHEREAS ,   the Company wishes to continue to employ Executive as the Chief Medical Officer of the Company and Executive wishes to serve in such capacity for the Company and be its employee, subject to the terms and conditions of this Agreement;

 

WHEREAS ,   the Company and Executive desire to set forth their respective rights and obligations in this Agreement; and

 

WHEREAS ,   this Agreement has been duly approved and its execution has been duly authorized by the Company’s   Board of Directors.

 

NOW , THEREFORE ,   in consideration of the mutual promises and covenants contained herein, the parties agree to the following:

 

1.         Employment by the Company.

 

1.1       Position.   Subject to the terms set forth herein, the Company agrees to employ Executive in the position of Chief Medical Officer and Executive hereby accepts such continued employment on the terms and conditions set forth in this Agreement.

 

1.2       Duties .   Executive will report to Tim Goodnow, Chief Executive Officer ( CEO ), performing such duties as are normally associated with her position and such duties as are assigned to her from time to time, subject to the oversight and direction of the CEO .   During the term of Execut i ve’s employment with the Company, Executive’s   position with the Company is a full-time role, provided that Company acknowledges and agrees that Executive intends to maintain her current academic and clinical posts. Executive shall perform Executive’s   duties under this Agreement primarily on a remote basis and Executive shall make such business trips to the Corporate Headquarters and such other places as may be necessary or advisable for the efficient operations of the Company and performance of her duties.

 

1.3       Company Policies and Benefits. The employment relationship between the parties shall also be subject to the Company’s per s onnel and other policies and procedures as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion. Executive will be eligible to participate on the same basis as similarly situated employees in the Company’s   benefit plans in effect from time to time during her employment. All matters of eligibi li ty for coverage or benefits under any benefit plan shall be determined in accordance with the provisions of such plan. The Company reserves the right to change, alter ,   or terminate any benefit p lan in its sole discretion. Notwithstanding the foregoing, in the event that the terms of this Agreement differ from or are in conflict with the Company’s general employment policies or practices, this Agreement shall control.

 

2.          Compensation.

 

 

1.


 

 

 

 

 

2.1       Salary.   Executive shall receive for Executive’s services to be rendered under this Agreement a base salary of $495,000.00 on an annualized basis, subject to review and adjustment by the Company in its sole discretion, payable subject to standard federal and state payroll withholding requirements in accordance with the Company’s standard payroll practices ( Base Salary ) .

 

2.2       Bonus.   During the period Executive is employed with the Company, Executive shall be eligible to earn for Executive’s services to be rendered under this Agreement a discretionary annual cash bonus of up to 50% of Base Salary ( Target Amount ),   subject to review and adjustment by the Company in its sole discretion, payable subject to standard federal and state payroll withholding requirements. Whether or not Executive earns any bonus will be dependent upon (a) Executive’s continuous performance of services to the Company through the date any bonus is paid; and (b) the actual achievement by Executive and the Company of the applicable performance targets and goals set by the Board of Directors of the Company ( Board ).   The annual period over which performance is measured for purposes of this bonus is January 1 through December 31. The Board will determine in its sole discretion the extent to which Executive and the Company have achieved the performance goals upon which the bonus is based and the amount of the bonus, which could be above or below the Target Amount (and may be zero). Any bonus shall be subject to the terms of any applicable incentive compensation plan adopted by the Company. Any bonus, if earned, will be paid to Executive within the time period set forth in the incentive compensation plan.

 

2.3       Stock Options. Subject to approval by the Board and subject to the terms of the 2015 Equity Incentive Plan (the Plan ), Executive will be granted an option (the Option )   to purchase up to 550,000 shares of the Company’s Common Stock pursuant to the Company’s   standard Qualified Stock Option Agreement (to the extent permitted) and the terms of the Plan. Twenty-five (25%) percent of the Option Shares will vest on the first anniversary of the Start Date and the remaining seventy-five percent (75%) shall vest in equal amounts at the end of each calendar month for the 36-month period following the first anniversary of the Start Date, in each such case subject to Executive’s   continuous employment through the applicable vesting date. The exercise price of the Option will be equal to the fair market value of the Company’s Common Stock on the date of grant of the Option, as determined by the Board in its sole discretion. The Option will be governed by and subject to the terms and conditions of the Plan and other documents issued in connection with the grant.

 

2.4        Expense Reimbursement. The Company will reimburse Executive for reasonable business expenses in accordance with the Company’s   s tandard  expense reimbursement policy, a s   the same may be modified by the Company from time to time. The Company shall reimburse Executive for all customary and appropriate business-related expenses actually incurred and documented in accordance with Company policy, as in effect from time to time. For the avoidance of doubt ,   to the extent that any reimbursements pa yab le to Executive are s ubj e ct to the provisions of Section 409A of the Code: (a) any such reimbursements will be paid no lat er than December 31 of the year following the year in which the expense was incurred ,   (b) the amount of expenses reimbursed in one year will not affect the amount eligible for reimbursement in any subsequent year, and (c) the right to reimbursement under this Agreement will not be subject to liquidation or exchange for anoth e r   benefit.

 

2.


 

 

 

 

 

3.         Proprietary Information, Inventions, Confidentiality and Non-Solicitation Obligations. As a condition of employment, Executive agrees to execute and abide by an Employee Confidential Information, Non-solicitation and Inventions Assignment Agreement attached as Exhibit A ( Proprietary Information Agreement ),   which may be amended by the parties from time to time without regard to this Agreement. The Proprietary Information Agreement contains provisions that are intended by the parties to survive and do survive termination of this Agreement.

 

4.         Outside Activities during Employment. Except with the prior written consent of the CEO, including consent given to Executive prior to the signing of this Agreement, and subject to the exception in Section 1.2 for Executive’s   current academic and clinical posts, Executive will not, while employed by the Company, undertake or engage in any other employment, occupation or business enterprise that would interfere with Executive’s responsibilities and the performance of Executive’s   duties hereunder except for (i) reasonable time devoted to volunteer services for or on behalf of such religious, educational, non-profit and/or other charitable organization as Executive may wish to serve, (ii) reasonable time devoted to activities in the non-profit and business communities consistent with Executive’s duties; and (iii) such other activities as may be specifically approved by the Board. This restriction shall not ,   however, preclude Executive (x) from owning less than one percent ( 1 % ) of the total outstanding shares of a publicly traded company, or (y) from employment or service in any capacity with Affiliates of the Company. As used in this Agreement, “Affiliates”  means an entity under common management or control with the Company.

 

5.         No Conflict with Existing Obligations. Executive represents that Executive’s performance of all the terms of this Agreement does not and will not breach any agreement or obligation of any kind made prior to Executive’s employment by the Company ,   including agreements or obligations Executive may have with prior employers or entities for which Executive has provided services. Executive has not entered into ,   and Executive agrees that Executive will not enter into ,   any agreement or obligation, either written or oral, in conflict herewith. As part  of this obligation, Executive agrees that she is subject to a   duty to maintain the confidentiality of confidential or proprietary information that she has received from third parties, to hold such information in the strictest confidence, and not to disclose it to any person or entity or use it in carrying out Executive’s work for the Company, consistent with any agreements between Executive and such third party or third parties.

 

6.          Termination of Employment. The parties acknowledge that Executive’s employment relationship with the Company is at-will, meaning either the Company or Executive may terminate Executive’s   employment at any time ,   with or without cause or advanced notice. The provisions in this Section govern the amount of compensation, if any, to be provided to Executive upon termination of employment and do not alter this at-will status.

 

6.1       Termination by the Company without Cause or for Good Reason.

 

(a)         The Company shall have the right to terminate Executive’s employment with the Company pursuant to this Section 6.1 at any time, in accordance with  Section 6.6, without “Cause”  (as defined in Section 6.2(b) below) by givin g   notice as described

 

3.


 

 

 

 

 

in Section 8.1 of this Agreement. A termination pursuant to Section 6.5 below is not a termination without “Cause” for purposes of receiving the benefits described in this Section 6.1.

 

(b)        If the Company terminates Executive’s employment at any time without Cause or Executive terminates her employment with the Company for Good Reason and provided that such termination constitutes a “separation from service” (as defined under Treasury Regulation Section l.409A-l (h) ,   without regard to any alternative definition thereunder, a Sepa ration from Service ), then Executive shall be entitled to receive the Accrued Obligations (defined below). If Executive complies with the obligations in Section 6.1(c) below, Executive shall also be eligible to receive the following severance benefits: (1) an amount equal to Executive’s then current Base Salary for nine (9) months, less all applicable withholdings and deductions (“ Severance ”), paid in equal installments beginning on the Company’s first regularly scheduled payroll date following the Release Effective Date (as defined in Section 6.1(c) below),  w ith the remaining installments occurring on the Company’s regularly scheduled payroll dates thereafter and (2) a pro rata portion of Executive ’  s Target Amount for the performance year in which Executive’s   termination occurs, with such pro rata portion calculated based upon the number of days that Executive was emp loyed during such performance year divided by the total number of days in such performance year, payable as a lump sum payment on the Release Effective Date (as defined below) ( Bonus Severance ).

 

(c)        Executive will be paid all of the Accrued Obligations on the Company’s first payroll date after Executive’s date of termination from employment or earlier if required by law. Executive shall receive the Severance and Bonus Severance pursuan t   to Section 6.1(b) of this Agreement and the payments pursuant to Section 6.1(d) if: (i) by the 60th day following the date of Executiv e ’ s Separation from Service, she has signed and delivered to the Company a separation agreement containing an effective, general release of claims in favor of the Company and its affiliates and representatives, in a form acceptable to the Company (the Release ),   which cannot be revoked in whole or part   by such date (the date that the Release can no longer be revoked is referred to as the  Release Effective Date ); and (ii) if she holds any other positions with the Company, she resigns such position(s) to be effective no later than the date of Executive’s termination date (or such other date as requested by the Board); (iii) she returns all Company property; (iv) she complies with his post-termination obligations under this Agreement and the Proprietary Information Agreement; and (v) she complies with the terms of the Release, including without limitation any non -disparagemen t   and confidentiality provisions contained in Release. To the extent that any severance payments are deferred compensation under Section 409A of the Code, and are not othe1wise exempt from the application of Section 409A, then ,   if the period during which Executive may consider and sign the Release spans t wo calendar years, the payment of Severance will not be made or begin until the later calendar  year.

 

(d)        If Executive timely elects continued coverage under COBRA for herself and her covered dependents under the Company’s   group health plans following such termination, then the Company shall pay the COBRA premiums necessary to continue Execut iv e’s and her covered dependents’ health insurance coverage in effect for herself (and her covered dependents) on the termination date until the earliest of :   (i) twelve (12) months  following the termination date (the “ COBRA Severance Period ”);   (ii) the date when Executive becomes e li g ibl e for substantially equivalen t   health insurance coverage in connection with ne w   employment or self-employmen t; or (iii) the date Executive ceases to be eligible for COBRA continuation coverage

 

4.


 

 

 

 

 

for any reason, including plan termination (such period from the termination date through the earlier of (i)-(iii), (the  COBRA Payment Period ). Notwithstanding the foregoing ,   if at any time the Company determines that its payment of COBRA premiums on Executive’s   behalf would result in a violation of applicable law (including, but not limited to ,   the 2010 Patient Protection and Affordable Care Act, as amended by the 2010 Health Care and Education Reconciliation Act), then in lieu of paying COBRA premiums pursuant to this Section, the Company shall pay Executive on the last day of each remaining month of the COBRA Payment Period, a fully taxab le cash payment equal to the COBRA premium for such month, subject to applicable tax withholding (such amount ,   the Special Severance Payment ),   such Special Severance Payment to be made without regard to the COBRA period prior to the end of the COBRA Payment Period. Nothing in this Agreement shall deprive Executive of her rights under COBRA or ERISA for benefits under plans and policies arising under her employment by the Company.

 

(e)         For purposes of this Agreement, Accrued Obligations   are  (i) Executive’s   accrued but unpaid salary through the date of termination, (ii) any unreimbursed business expenses incurred by Executive payable in accordance with the Company’s standard expense reimbursement po licies ,   and (iii) benefits owed to Executive under any qualified retirement plan or health and welfare benefit plan in which Executive was a participant in accordance with applicable law and the provisions of such plan.

 

(f)         The Severance and Bonus Severance provided to Executive pursuant to this Section 6.1 are in lieu of, and not in addition to, any benefits to which Executive may otherwise be entitled under any Company severance plan, policy or program.

 

(g)         Any damages caused by the termination of Executive’s employment without Cause would be difficult to ascertain; therefore, the Severance and Bonus Severance for which Executive is eligible pursuant to Section 6.1(b) above in exchange for the Release is agreed to by the parties as liquidated damages, to serve as full compensation, and not a   penalty.

 

(h)        For purposes of this Agreement, “ Good Reason   shall mean the occurrence of any of the following events without Exec utive s   consent: (i) a   material reduction in Executive’s Base Salary of at least 10%; (ii) a   material breach of this Agreement by the Company;  (iii)  any material diminution in Executive’s duties ,   responsibilities, authority, reporting structure, status or title, unless approved in writing by Executive; or (iv) the relocation of Executive’s principal place of employment, without Executive’s consent ,   in a manner that lengthens her one- way commute distance by fifty (50) or more mil es from her th e n-current principal place of employment immediately prior to such relocation ;   provided, however, that, any such termination by Executive shall only be de e med for Good Rea so n   pursuant to this definition if: (1) Executive gives the Company written notice of her intent to terminate for Good Reason within thirty (30) days following the first occurrence of the condition(s) that she believes constitute(s) Good Reason, which notice s hall describe such condition(s) ;   (2) the Company fails to rem e dy such condition( s) within thirty (30) days following receipt of the written notice (the C ure Period ); and (3) Executive voluntarily terminates her employment within thirty (30) days following the end of the Cure Period.

 

(i)           Any damages caused by the termination of Ex ecutive’s emp loyment without Cause or for Good R easo n   would be difficult to ascertain; therefore, the pa yme nt s   for

 

5.


 

 

 

 

 

which Executive is eligible pursuant to this Section 6.1 above in exchange for the Release is agreed to by the parties as liquidated damages ,   to serve as full compensation, and not a penalty.

 

6.2       Termination by the Company without Cause or for Good Reason Following a Change in Control.

 

(a)         If Executive’s employment by the Company is terminated by the Company without “Cause” (and not due to Disability or death) or by Executive for Good Reason coincident with a Change in Control (as defined below), then the Company shall pay or provide Executive with the Accrued Obligations and all of the benefits described in Section 6.1 above, subject to compliance with Section 6.1(c) ;   provided that: (i) in lieu of the bonus described in Section 6.1(b), the Company shall pay Executive the larger of a   pro-rata amount as described in Section 6.1(b) or 125% of the Target Amount for the performance year in which Executive’s termination occurs ,   payable as a lump sum payment on the Release Effective Date; (ii) the severance payable under Section 6.1(b) shall be calculated based on one year rather than nine months; and (iii) if Executive’s   employment by the Company or any successor entity is terminated by the Company or the successor entity without “Cause” (and not due to Disability or death) within twelve (12) months following a   Change in Control, 100% of the then unvested portion of the equity awards granted to Executive shall become fully vested.

 

(b)         For purposes of this Agreement ,   a   Change in Control  means (a) any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, other than any such consolidation, merger or reorganization in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, continue to hold a majority of the voting power of the surviving entity (or, if the surviving entity is a wholly owned subsidiary ,   its parent) immediately after such consolidation, merger or reorganization; (b) any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company’s voting power is transferred ;   provided that the foregoing shall not include any transaction or series of transactions principally for bona fide equity financing purposes in which cash is received by the Company or indebtedness of the Company is cancelled or converted or a combination thereof ;   or (c)  a sale, lease, exclusive license or other disposition of all or substantially all of the assets of the Company. In the event of any interpretation of this definition ,   the Board of Directors of the Company, upon advice of legal counsel ,   shall have final and conclusive authority, so long as such authority is exercised in good faith .   Notwithstanding the foregoing, a Change in Control will only be deemed to occur for purpos es of this Agreement it is also meets the definition used for purposes of Treasury Regulation Section l.409A-3(a)(5), that is, as defined under Treasury Regulation Section l .409A-3(i)(5).

 

(c)        Any damages caused by the termination of Ex ecutive’s employment without Cause or for Good Reason following a Change in Control would be difficult to ascertain; therefore, the payments for which Executive is eligible pursuant to Section 6.2 above in exchange for the Release is agreed to by the parties as liquidated damages ,   to serve as full compen sa tion ,   and not a   penalty.

 

6.3        Termination  by the Company for Cause.

 

6.


 

 

 

 

 

(a)        The Company shall have the right to terminate  Executive’s employment with the Company at any time, in accordance with Section 6.6, for Cause by giving notice as described  in Section 8.1 of this Agreement. In the event Executive’s employment is terminated at any time for Cause, Executive will not receive Severance, a Severance Bonus or any other severance compensation or benefits, except that, pursuant to the Company’s   standard payroll policies, the Company shall pay to Executive the Accrued Obligations.

 

(b)         Cause   for termination shall mean that the Company has determined in its sole discretion that Executive has engaged in any of the following: (i) a material breach of any covenant or condition under this Agreement or any other agreement between the parties; (ii) any act constituting dishonesty, fraud, immoral or disreputable conduct;  (iii) any conduct which constitutes a felony under applicab l e   law ;   (iv) violation of any written Company policy or any act of misconduct; (v) refusal to follow or implement a clear and reasonable directive of the Company; (vi) negligence or incompetence in the performance of Executive’s duties or failure to perfom  such duties in a   manner satisfactory to the Company after the expiration of ten (10) days without cure after written notice of such failure; or (vii) breach of fiduciary duty .

 

6.4       Resignation by Executive.

 

(a)        Executive may resign from Executive’s employment with the Company at any time ,   in accordance with Section 6.6 ,  by giving notice as described in Section 8.1.

 

(b)        In the event Executive resigns from Exe cutive’ s employment with the Company for any reason, Executive will not receive Severance, a   Severance Bonus or any other severance compensation or benefits, except that, pursuant to the Company’s standard payroll policies ,   the Company shall pay to Executive the Accrued Obligations.

 

6.5       Termination by Virtue of Death or Disability of Executive .

 

(a)        In the event of Ex ecutive’s death while employed pursuant to this Agr ee ment ,   all obligations of the parties hereunder shall terminate immediately ,   in accordance with Section 6.6, and the Company shall, pursuant to the Company’s standard payroll policies, pay to Executive’s   leg a l representatives all Accrued Obligations.

 

(b)         Subject to applicable state and federal law, the Company shall at all times have the right ,   upon written notice to Executive, and in accordance with Section 6.6 ,   to terminate this Agreement based on Executive ’s   Disability. Termination by the Company of Executive’s employment based on Disability   shall mean termination because Executive is unable due to a physical or mental condition to perform the essential functions of his position with or without reasonable accommodation for 180 da ys in the aggregate during any twelve (12) month period or based on the written certification by two lic e n se d physicians of the likel y   continuation of such condition for such p er iod. This definition shall be int e rpreted and applied consistent with th e   Americans with Disabilities Act, the Family and Medical Lea ve Act, and other applicable law. In the event Executive’s   employment is terminated based on Executive s   Disability, Executive will not receive Severance, a Severance Bonus or any other severance compensation or benefit, except

 

7.


 

 

 

 

 

that, pursuant to the Company’s standard payroll policies, the Company shall pay to Executive the Accrued Obligations.

 

6.6        Notice;   Effective Date of Termination.

 

(a)         Termination of Executive’s   employment pursuant to this Agreement shall be effective on the earliest of:

 

(i)          immediately after the Company gives notice to Executive of Executive’s   termination, with or without Cause, unless pursuant to Section 6.3(b)(vi) in which case ten (10) days after notice if not cured or unless the Company specifies a later date, in which case, termination shall be effective as of such later date;

 

(ii)         immediately upon the Executive’s   death;

 

(iii)        ten (10) days after the Company gives notice to Executive of Executive’s   termination on account of Executive’s   Disability, unless the Company specifies a later date, in which case, termination shall be effective as of such later date, provided that Executive has not returned to the full-time performance of Executive’s   duties prior to such date;

 

(iv)        ten (10) days after the Executive gives written notice to the Company of Executive’s resignation, provided that the Company may set a termination date at any time between the date of notice and the date of resignation, in which case the Executive’s resignation shall be effective as of such other date. Executive will receive compensation through any required notice period; or

 

(v)         for a termination for Good Reason, immediately upon Executive’s   full satisfaction of the requirements of Section 6.l(h).

 

(b)         In the event notice of a   termination under subsections (a)(i), (iii) (iv)  and (iv) is given orally, at the other party s   request, the party giving notice must provide written confirmation of such notice within five (5) business days of the request in compliance with the requirement of Section 8.1 below. In the event of a   termination for Cause or Good Reason, written confirmation shall specify the subsection( s) of the definition of Cause or Good Reason relied on to support  the decision to terminate.

 

6.7        Cooperation with Company after Termination of Employment. Following termination of Executive’s employment for any reason, Executive agrees to cooperate fully with the Company in connection with its actual or contemplated defense, prosecution ,   or investigation of any claims or demands by or against third parties, or other matters arising from events, acts, or failures to act that occurred during the period of Executive’s employment by the Company. Such cooperation includes, without limitation, making Executive available to the Company upon reasonable notice, without subpoena, to provide complete, truthful and accurate information in witness interviews, depositions and trial testimony .   In addition, for six months after Executive’s employment with the Company ends for any reason, Executive agrees to cooperate fully with the Company in all matters relating to the transition of Executive’s work and responsibilities on behalf of the Company, including, but not limited to ,   any present ,   prior or subsequent relationships and the orderly transfer of any such work and institutional knowled g e to

8.


 

 

 

 

 

such other persons as may be designated by the Company. The Company will reimburse Executive for reasonable out-of-pocket expenses Executive incurs in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate Executive’s scheduling needs .

 

6.8       Application of Section 409A. It is intended that all of the severance payments payable under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code and the regulations and other guidance thereunder and any state law of similar effect (collectively, Section 409A )  provided under Treasury Regulations Sections 1.409A-l(b)(4) and l.409A - l(b)(9), and this Agreement will be construed in a manner that complies with Section 409A. If not so exempt, this Agreement (and any definitions hereunder) will be construed in a manner that complies with Section 409A, and incorporates by reference all required definitions and payment terms. No severance payments will be made under this Agreement unless Executive’s termination of employment constitutes a  “separation from service” (as defined under Treasury Regulation Section 1.409A-l(h)) .   For purposes of Section 409A (including, without limitation ,   for purposes of Treasury Regulations Section 1.409A-2(b)(2)(iii)), Executive’s   right to receive any installment payments under this Agreement ( whether severance payments 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. If the Company determ i nes that the severance benefits provided under this Agreement constitutes “deferred compensation” under Section 409A and if Executive is a specified employee” of the Company ,   as such term is defined in Section 409A(a)(2)(B)(i) of the Code at the time of Executive’s   Separation from Service ,   then, solely to the extent necessary to avoid the incurrence of the adverse personal tax consequences under Section 409A, the timing of the Severance will be delayed as fo ll ows: on the earlier to occur of (a) the date that is six months and one day after Executive’s   Separation from Service, and (b) the date of Executive’s death (such earlier date, the  Delayed Initial Payment Date ), the Company will (i) pay to Executive a lump sum amount equal to the sum of the severance benefits that Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the severance benefits had not been delayed pursuant to this Section 6.8 and (ii) commence paying the balance of the severance benefits in accordance with the applicable payment schedule set forth in Section 6. No interest shall be due on any amounts deferred pursuant to this Section 6.8.

 

7.         Section 280G.

 

7.1        Anything in this Agreement to the contrary   notwithstanding, in the event that the amount of any compensation, payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the Aggregate Payments ),   would be subject to the excise tax impos e d by Section 4999 of the Code ,   then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate Payments shall be $1. 00 less than the amount at which Executive b eco mes subject to the excise tax imposed by Section 4999 of the Code; provided that such reduction shall on l y   occur if it would result in Executive rec e iving a   higher After Tax Amount (as defined below) than Executive would receive if the Aggregate Payments were not subject to such reduction. In such event, the Agg r egate Payments shall be reduced in the

 

9.


 

 

 

 

 

following order, in each case ,   in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments that are not subject to calculation under Treas. Reg. §1.280G-l, Q&A-24(b) or (c) shall be reduced before any amounts that are subject to calculation under Treas. Reg. §l.280G-1, Q&A-24(b) or (c).

 

7.2        For purposes of this Section 5, the  After Tax Amount  means the amount of the Aggregate Payments less all federal, state, and local income ,   excise and employment taxes imposed on Executive as a result of Executive’s receipt of the Aggregate Payments .   For purposes of determining the After Tax Amount, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals for the calendar year in which the determination is to be made, and state and local income taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes

 

8.         General Provisions.

 

8.1       Notices.   Any notices required hereunder to be in writing shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when se nt by electronic mail or confirmed facsimile if sent during normal business hours of the recipient, and if not, then on th e   next business day, (c) five (5) days after having been sent by registered or certified mail ,   return receipt requested, postage prepaid ,   or (d) one (1) day after deposit with a nationally recognized overnight courier ,   specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at its primary office locati on and to Executive at either Execut i ve’ s address as listed on the Company payroll ,   or Company-issued email address, or at such other address as the Company or Executive may designate by ten (10) days advance  w ritten notice to the other.

 

8.2       Severability .   Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law ,   but if any provision   of this Agreement is held to be invalid, illegal or unenforceable in any respect under any app licabl e   law or rule in any jurisdiction ,   such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction ,   but this Agreement will be reformed, construed and enforced in such jurisdiction as if such in va lid, ille ga l   or unenforceable provisions had never been contained herein.

 

8.3       Survival.   Provisions of this Agreement which by their terms must survive the termination of this Agreement in order to effectuate the intent of the parties will survive any such termination, whether by expiration of the term, termination of Executive s emp lo yment, or otherwise, for such period as may be appropriate under the circumsta n ces.

 

8.4       Waiver.   If either party should wa ive any breach of any provisions of this Agreement, it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement.

 

10.


 

 

 

 

 

8.5        Complete Agreement. This Agreement, together with the Proprietary Information Agreement, constitutes the entire agreement between Executive and the Company with regard to the subject matter hereof. This Agreement is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter and supersedes any prior oral discussions or written communications and agreements, including the Offer Letter dated [DATE]. This Agreement is entered into without reliance on any promise or representation other than those expressly contained herein, and it cannot be modified or amended except in writing signed by Executive and an authorized officer of the Company. The parties have entered into a separate Proprietary Information Agreement and have or may enter into separate agreements related to equity. These separate agreements govern other aspects of the relationship between the parties, have or may have provisions that survive termination of Executive’s employment under this Agreement, may be amended or superseded by the parties without regard to this Agreement and are enforceable according to their terms without regard to the enforcement provision of this Agreement.

 

8.6       Counterparts.   This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party ,   but all of which taken together will constitute one and the same Agreement. The parties agree that facsimile and scanned image copies of signatures will suffice as original signatures.

 

8.7       Headings.   The headings of the sections hereof are inserted for convenience only and shall not be deemed to constitute a part hereof nor to affect the meaning th e reof.

 

8.8       Successors and Assigns. The Company shall assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any Company or other e ntity with or into which the Company may hereafter mer ge or consolidate or to which the Company may transfer all or substantially all of its assets, if in any such case said Company or other entity shall by operation of law or expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a patty hereto, but may not otherwise assign this Agreement or its rights and obligations hereund e r. Executiv e   may not assign or transfer this Agreement or any rights or obligations h e reunder ,   other than to his estate upon his death.

 

8.9        Choice of Law. All questions concerning the construction, validity and interpretation of this Agr ee ment will be governed by the laws of the State of Maryland.

 

8.10     Dispute Resolution. The parti es recogni ze that litigation in federal or s tate courts or before federal or state administrative agencies of disputes arising out of the Executive’s employment with the Company or out of this Agreement, or the Executive’s   termination of employment or termination of this Agreement, may not be in the best interests of either  the Exec utive or the Company, and may result in unnecessary costs, delay s, complexities,  an d uncertainty. The part i e s   agree that any dispute between the partie s   arising out of or relating to the negotiation, exe cution ,   performance or termination of this Agreement or the Executive’s employment, including ,   but not limited to, any claim arising out of this Agreement, claims under Title VII of the Civil Rights Act of 1964, as a mended ,   the Civil Rights Act of 1991 ,   the Age Discrimination in Employment Act of 1967 ,   the Americans with Disabilities Act of 1990, Se ct ion 1981 of the Civil Ri gh t s   Act of 1966, as amended, the Family Medical Leave Act ,   the Exe c utive Retirement Income Security Act, and any similar federa l , state or local la w, statute, regulation, or

 

11.


 

 

 

 

 

any common law doctrine ,   whether that dispute arises during or after employment ,   shall be sett led by binding arbitration in accordance with the National Rules for the Resolution of Emp lo yment Disputes of the American Arbitration Association; provided however, that this dispute resolution provision shall not apply to any separate agreements between the parties that do not themselves specify arbitration as an exclusive remedy. The location for the arbitration shall be the Washington, DC metropolitan area. Any award made by s uch panel shall be final, binding and conclusive on the parties for all purposes, and judgment upon the award rendered by the arbitrators may be en ter ed in any court having jurisdiction thereof. The arbitrators’ fees and expenses and all administrative fees and expenses associated with the filing of the arbitration shall be borne by the Company; provided however, that at the Executive’s option, Executive may voluntarily pay up to one-half the costs and fees. The parties acknowledge and agree that their obligations to arbitrate under this Section survive the termination of this Agreement and continue after the termination of the employment relationship between Executive and the Company. The parties each further agree that the arbitration provisions of this Agreement shall provide each party wi th its exclusive remedy, and each party expressly waives any right it might have to seek redress in any other forum, except as otherwise expressly provided in this Agreement. By e lection arbitration as the means for final settlement of all claims, the parties hereby waive their respective rights to, and agree not to, sue each other in any action in a Federal, State or local court with respect to such claims, but may seek to enforce in court an arbitration award rendered pursuant to this Agreement. The parties specifically agree to waive their respective rights to a tr ial by jury, and further agree that no demand, request or motion will be made for trial by jury.

 

[SIGNATURES TO FOLLOW ON NEXT PAGE]

 

 

 

12.


 

 

 

IN WITNESS WHEREOF,   the parties have duly executed this Agreement as of the date first above written.

 

 

 

 

 

SENSEONICS, INCORPORATED

 

 

 

 

 

By:

/s/ Tim Goodnow

 

 

Tim Goodnow, Ph.D.

 

 

President & Chief Executive Officer

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

 

/s/ Francine R. Kaufman

 

 

Francine R. Kaufman, M.D.

 

 


EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Timothy T. Goodnow, Ph.D., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Senseonics Holdings, Inc. (the “registrant”);

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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) 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: May 9, 2019

 

 

 

 

 

 

/s/ Timothy T. Goodnow, Ph.D. 

 

Timothy T. Goodnow, Ph.D.

 

President & Chief Executive Officer

 

(principal executive officer)

 


EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jon Isaacson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Senseonics Holdings, Inc. (the “registrant”);

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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) 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: May 9, 2019 

 

 

 

 

 

 

/s/ Jon Isaacson

 

Jon Isaacson

 

Chief Financial Officer

 

(principal financial officer)

 


EXHIBIT 32.1

CERTIFICATIONS OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Timothy T. Goodnow, Ph.D., President and Chief Executive Officer of Senseonics Holdings, Inc. (the “Company”), and Jon Isaacson, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the quarter ended March  31, 2019 (the “Quarterly Report”), to which this Certification is attached as Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company as of the end of the period covered by the Quarterly Report and results of operations of the Company for the periods covered by the Quarterly Report.

In Witness Whereof, the undersigned have set their hands hereto as of the 9th day of May, 2019.  

 

 

 

 

 

 

 

/s/ Timothy T. Goodnow, Ph.D. 

 

/s/ Jon Isaacson 

Timothy T. Goodnow, Ph.D.

 

Jon Isaacson

President & Chief Executive Officer

 

Chief Financial Officer

(principal executive officer)

 

(principal financial officer)

 

 

* This Certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.