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 September 30, 2022
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 | 3841 | 47-1210911 |
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)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Common Stock, $0.001 par value | SENS | NYSE American |
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.
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 ☒
There were 478,256,348 shares of common stock, par value $0.001, outstanding as of November 4, 2022.
TABLE OF CONTENTS
2
Senseonics Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30, | December 31, |
| |||||
2022 | 2021 | ||||||
(unaudited) | |||||||
Assets |
|
| |||||
Current assets: | |||||||
Cash and cash equivalents | $ | 35,484 | $ | 33,461 | |||
Short term investments, net | 118,715 | 96,445 | |||||
Accounts receivable, net | 103 | 205 | |||||
Accounts receivable, net - related parties | 2,021 | 1,768 | |||||
Inventory, net | 7,257 | 6,316 | |||||
Prepaid expenses and other current assets |
| 5,714 |
| 6,218 | |||
Total current assets |
| 169,294 |
| 144,413 | |||
Option | 101 | 239 | |||||
Deposits and other assets |
| 3,241 |
| 1,086 | |||
Long term investments, net | 8,851 | 51,882 | |||||
Property and equipment, net |
| 1,183 |
| 1,308 | |||
Total assets | $ | 182,670 | $ | 198,928 | |||
Liabilities and Stockholders’ Equity (Deficit) | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 684 | $ | 1,204 | |||
Accrued expenses and other current liabilities |
| 12,674 |
| 10,667 | |||
Accrued expenses and other current liabilities, related parties | 671 | 3,597 | |||||
Note payable, current portion, net | 15,223 | — | |||||
Derivative liability, current portion | 328 | — | |||||
Option, current | 28,068 | — | |||||
Term Loans, net | — | 2,926 | |||||
Total current liabilities |
| 57,648 |
| 18,394 | |||
Long-term debt and notes payables, net | 53,434 | 59,798 | |||||
Derivative liabilities |
| 83,794 |
| 236,291 | |||
Option | — | 69,401 | |||||
Other liabilities | 2,859 | 579 | |||||
Total liabilities |
| 197,735 |
| 384,463 | |||
Commitments and contingencies | |||||||
Stockholders’ equity (deficit): | |||||||
Common stock, $0.001 par value per share; 900,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 478,211,956 shares and 447,282,263 shares and as of September 30, 2022 and December 31, 2021 |
| 478 |
| 447 | |||
Additional paid-in capital |
| 806,069 |
| 765,215 | |||
Accumulated other comprehensive loss | (1,185) | (212) | |||||
Accumulated deficit |
| (820,427) |
| (950,985) | |||
Total stockholders' equity (deficit) |
| (15,065) |
| (185,535) | |||
Total liabilities and stockholders’ equity (deficit) | $ | 182,670 | $ | 198,928 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except share and per share data)
Three Months Ended | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Revenue, net | $ | 126 | 276 | $ | 555 | $ | 1,196 | |||||
Revenue, net - related parties | 4,496 | 3,256 | 10,263 | 8,471 | ||||||||
Total revenue | 4,622 | 3,532 | 10,818 | 9,667 | ||||||||
Cost of sales | 3,866 | 4,778 | 8,711 | 9,995 | ||||||||
Gross profit (loss) | 756 | (1,246) | 2,107 | (328) | ||||||||
| ||||||||||||
Expenses: | ||||||||||||
Research and development expenses | 10,985 |
| 7,200 | 28,088 | 19,562 | |||||||
Selling, general and administrative expenses | 7,340 |
| 7,585 | 23,785 |
| 23,347 | ||||||
Operating loss | (17,569) |
| (16,031) | (49,766) |
| (43,237) | ||||||
Other income (expense), net: | ||||||||||||
Interest income | 544 | 486 | 878 | 743 | ||||||||
Gain (Loss) on fair value adjustment of option | (8,592) | 13,556 | 41,333 | (74,848) | ||||||||
Gain on extinguishment of debt and option | — | — | — | 330 | ||||||||
Interest expense | (4,801) | (4,245) | (13,806) | (12,337) | ||||||||
Gain (Loss) on change in fair value of derivatives | (28,948) | 50,075 | 152,169 | (255,185) | ||||||||
Impairment cost | (984) | (488) | (138) | (1,650) | ||||||||
Other expense | (41) | (439) | (112) | (723) | ||||||||
Total other income (expense), net | (42,822) | 58,945 | 180,324 | (343,670) | ||||||||
Net Income (Loss) | (60,391) | 42,914 | 130,558 | (386,907) | ||||||||
Other comprehensive income (loss) | ||||||||||||
Unrealized gain (loss) on marketable securities | (57) | 18 | (973) | 2 | ||||||||
Total other comprehensive gain (loss) | (57) | 18 | (973) | 2 | ||||||||
Total comprehensive income (loss) | $ | (60,448) | $ | 42,932 | $ | 129,585 | $ | (386,905) | ||||
Basic net income (loss) per common share | $ | (0.13) | 0.10 | $ | 0.28 | $ | (0.93) | |||||
Basic weighted-average shares outstanding | 472,475,747 | 445,378,308 | 464,244,736 | 414,128,283 | ||||||||
Diluted net income (loss) per common share | $ | (0.13) | 0.08 | $ | (0.10) | $ | (0.93) | |||||
Diluted weighted-average shares outstanding | 472,475,747 | 581,760,516 | 608,345,713 | 414,128,283 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (in thousands)
Additional | Accumulated | Total |
| Series A | |||||||||||||||||
Common Stock | Paid-In | Other | Accumulated | Stockholders' |
| Convertible | |||||||||||||||
| Shares |
| Amount |
| Capital |
| Comprehensive Loss | Deficit | Equity (Deficit) |
| Preferred Stock Temporary Equity |
| |||||||||
Three months ended September 30, 2021: | |||||||||||||||||||||
Balance, June 30, 2021 | 445,125 | 445 | 765,262 | (16) | (1,078,332) | (312,641) | $ | — | |||||||||||||
Exercise of stock options and warrants | 474 | 1 | 737 | — | — | 738 | — | ||||||||||||||
Issued common stock for vested RSUs and ESPP purchase | 16 | — | 24 | — | — | 24 | — | ||||||||||||||
Stock-based compensation expense | — | — | 2,301 | — | — | 2,301 | — | ||||||||||||||
Net income | — | — | — | — | 42,914 | 42,914 | — | ||||||||||||||
Other comprehensive income, net of tax | — | — | — | 18 | — | 18 | — | ||||||||||||||
Balance, September 30, 2021 | 445,615 | $ | 446 | $ | 768,324 | $ | 2 | $ | (1,035,418) | $ | (266,646) | $ | — | ||||||||
Nine months ended September 30, 2021: | |||||||||||||||||||||
Balance, December 31, 2020 |
| 265,582 | 266 | 504,162 | — | (648,511) | (144,083) | $ | 2,811 | ||||||||||||
Issuance of convertible preferred stock, net | — | — | — | — | 42,756 | ||||||||||||||||
Conversion of preferred stock | 54,166 | 54 | 45,512 | — | — | 45,566 | (45,567) | ||||||||||||||
Issuance of common stock, net | 112,571 | 113 | 200,327 | — | — | 200,440 | — | ||||||||||||||
Exercise of stock options and warrants |
| 5,501 | 5 | 4,622 | — | — | 4,627 | — | |||||||||||||
Exchange and conversion of convertible notes, net | 4,925 | 5 | 6,496 | — | — | 6,501 | — | ||||||||||||||
Issued common stock for vested RSUs and ESPP purchase | 2,870 | 3 | 71 | — | — | 74 | — | ||||||||||||||
Stock-based compensation expense | — | — | 7,134 | — | — | 7,134 | — | ||||||||||||||
Net loss | — | — | — | — | (386,907) | (386,907) | — | ||||||||||||||
Other comprehensive income, net of tax |
| — | — | — | 2 | — | 2 | — | |||||||||||||
Balance, September 30, 2021 |
| 445,615 | $ | 446 | $ | 768,324 |
| $ | 2 | $ | (1,035,418) | $ | (266,646) | $ | — | ||||||
Three months ended September 30, 2022: | |||||||||||||||||||||
Balance, June 30, 2022 | 465,326 | 465 | 776,640 | (1,128) | (760,036) | 15,941 | — | ||||||||||||||
Issuance of common stock, net | 12,084 | 12 | 26,427 | — | — | 26,439 | — | ||||||||||||||
Exercise of stock options and warrants | 681 | 1 | 711 | — | — | 712 | — | ||||||||||||||
Issued common stock for vested RSUs and ESPP purchase | 121 | — | 69 | — | — | 69 | — | ||||||||||||||
Stock-based compensation expense | — | — | 2,222 | — | — | 2,222 | — | ||||||||||||||
Net loss | — | — | — | — | (60,391) | (60,391) | — | ||||||||||||||
Other comprehensive loss, net of tax | — | — | — | (57) | — | (57) | — | ||||||||||||||
Balance, September 30, 2022 | 478,212 | $ | 478 | $ | 806,069 | $ | (1,185) | $ | (820,427) | $ | (15,065) | $ | — | ||||||||
Nine months ended September 30, 2022: | |||||||||||||||||||||
Balance, December 31, 2021 | 447,282 | 447 | 765,215 | (212) | (950,985) | (185,535) | — | ||||||||||||||
Issuance of common stock, net |
| 15,161 | 15 | 34,428 | — | — | 34,443 | — | |||||||||||||
Exercise of stock options and warrants |
| 9,892 | 10 | 941 | — | — | 951 | — | |||||||||||||
Issuance of common stock for vested RSUs and ESPP purchase | 6,970 | 7 | 125 | — | — | 132 | — | ||||||||||||||
Stock-based compensation expense | — | — | 6,543 | — | — | 6,543 | — | ||||||||||||||
Shares withheld related to net share settlement of equity awards |
| (1,093) | (1) | (1,183) | — | — | (1,184) | — | |||||||||||||
Net income | — | — | — | — | 130,558 | 130,558 | — | ||||||||||||||
Other comprehensive loss, net of tax |
| — | — | — | (973) | — | (973) | — | |||||||||||||
Balance, September 30, 2022 |
| 478,212 | $ | 478 | $ | 806,069 |
| $ | (1,185) | $ | (820,427) | $ | (15,065) | $ | — | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
Senseonics Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine Months Ended | |||||
September 30, | |||||
2022 | 2021 | ||||
Cash flows from operating activities |
| ||||
Net income (loss) | $ | 130,558 | (386,907) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||
Depreciation and amortization expense |
| 751 | 918 | ||
Non-cash interest expense (debt discount and deferred costs) |
| 8,858 | 5,825 | ||
Change in fair value of derivatives | (152,169) | 255,185 | |||
(Gain) Loss on fair value adjustment of option | (41,333) | 74,848 | |||
Gain on extinguishment of debt and option | — | (330) | |||
Impairment of option, net | 138 | 1,650 | |||
Stock-based compensation expense |
| 6,543 | 7,134 | ||
Changes in assets and liabilities: | |||||
Accounts receivable | (151) | (686) | |||
Prepaid expenses and other current assets |
| 504 | 41 | ||
Inventory | (941) | (2,597) | |||
Deposits and other assets | 163 | (30) | |||
Accounts payable |
| (519) | (971) | ||
Accrued expenses and other liabilities | (1,070) | 1,319 | |||
Accrued interest | (257) | 326 | |||
Net cash used in operating activities |
| (48,925) | (44,275) | ||
Cash flows from investing activities | |||||
Capital expenditures |
| (255) | (75) | ||
Purchase of marketable securities | (82,807) | (154,918) | |||
Proceeds from sale and maturity of marketable securities | 102,594 | — | |||
Net cash provided by (used in) investing activities |
| 19,532 |
| (154,993) | |
Cash flows from financing activities | |||||
Issuance of common stock, net | 34,443 | 200,440 | |||
Proceeds from exercise of stock options, stock warrants and ESPP purchases | 1,083 | 4,701 | |||
Taxes paid related to net share settlement of equity awards | (1,184) | — | |||
Proceeds from issuance of Masters preferred stock, net |
| — | 22,783 | ||
Repayment of term loans | (2,926) | (650) | |||
Net cash provided by financing activities |
| 31,416 |
| 227,274 | |
Net increase in cash and cash equivalents |
| 2,023 |
| 28,006 | |
Cash and cash equivalents, at beginning of period |
| 33,461 | 18,205 | ||
Cash and cash equivalents, at ending of period | $ | 35,484 | $ | 46,211 | |
Supplemental disclosure of cash flow information | |||||
Cash paid during the period for interest | $ | 5,137 | $ | 6,149 | |
Lease liabilities arising from obtaining right-of-use assets | 2,944 | — | |||
Supplemental disclosure of non-cash investing and financing activities | |||||
Issuance of common stock converted from preferred shares | — | 54,166 | |||
Issuance of common stock converted from notes payables | — | 4,925 | |||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
Senseonics Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. | Organization and Nature of Operations |
Senseonics Holdings, Inc., a Delaware corporation, is a medical technology company focused on the development and commercialization of long-term, implantable continuous glucose monitoring (“CGM”) 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, Inc. and was originally incorporated on October 30, 1996 and commenced operations on January 15, 1997. Senseonics Holdings, Inc. and Senseonics, Incorporated are hereinafter collectively referred to as the “Company” unless otherwise indicated or the context otherwise requires.
2. | Liquidity and Capital Resources |
From its founding in 1996 until 2010, the Company has devoted substantially all of its resources to researching various sensor technologies and platforms. Beginning in 2010, the Company narrowed its focus to developing and refining a commercially viable glucose monitoring system. However, to date, the Company has not generated any significant revenue from product sales. The Company has incurred substantial losses and cumulative negative cash flows from operations since its inception in October 1996. The Company has never been profitable from operations, and its net losses were $302.5 million, $175.2 million, and $115.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of September 30, 2022, the Company had an accumulated deficit of $820.4 million. To date, the Company has funded its operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of September 30, 2022, the Company had cash, cash equivalents and marketable securities of $163.0 million.
In November 2021, the Company entered into an Open Market Sale Agreement, (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as its sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the nine months ended September 30, 2022, the Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement.
In November 2019, the Company entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which the Company could offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $50.0 million through Jefferies as its sales agent in an “at the market” offering. In June 2021, the Company received $48.4 million in net proceeds from the sale of 12,830,333 shares of its common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, the Company entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the United States Securities and Exchange Commission (“the SEC”) (the “2021 Public Offering”). The price to the public in the 2021 Public Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from the Company pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the 2021 Public Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of common stock. Total net proceeds from the 2021
7
Public Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
On January 17, 2021, the Company entered into a Securities Purchase Agreement with certain institutional purchasers (the “Purchasers”), pursuant to which the Company sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the SEC on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by the Company, were approximately $46.1 million.
On November 9, 2020, the Company entered into an Equity Line Agreement (the “Equity Line Agreement”) with Energy Capital, LLC, a Florida limited liability company (“Energy Capital”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of the Company’s newly designated series B convertible preferred stock (the “Series B Preferred Stock”) at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that the Company have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company had the right, at its sole discretion, to present Energy Capital with a purchase notice (each, a “Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at a per share price (the “Purchase Price”) equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provided that the Company was not permitted to affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.
On August 9, 2020, the Company entered into a financing agreement with the parent company of Ascensia Diabetes Care Holdings AG (“Ascensia”), PHC Holdings Corporation (“PHC”), pursuant to which the Company issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to PHC. The Company also issued 2,941,176 shares of common stock to PHC as a financing fee. The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining U.S. Food and Drug Administration (“FDA”) approval for the 180-day Eversense product for marketing in the United States before such date. The Company successfully obtained FDA approval in February 2022. The Company has not exercised this option as of September 30, 2022.
Additionally, on August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (collectively, “Masters”), pursuant to which the Company issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds to the Company of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred Stock
8
have been converted to common stock.
3. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Although the Company considers the disclosures in these unaudited consolidated financial statements to be adequate to make the information presented not misleading, certain information or footnote information normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted under the rules and regulations of the SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position at September 30, 2022, and December 31, 2021, results of operations, comprehensive income (loss), and changes in stockholder’s deficit for the three and nine month periods ended September 30, 2022, and 2021 and cash flows for the nine months ended September 30, 2022, and 2021 have been included. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022. The interim results for September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, or for any future interim periods.
The consolidated financial statements reflect the accounts of Senseonics Holdings, Inc. and its wholly owned operating subsidiary Senseonics, Incorporated. The Company views its operations and manages its business in one segment, glucose monitoring products. Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.
Certain prior year amounts have been reclassified to conform to the current-year presentation. An adjustment has been made to the Consolidated Statements of Operations and Comprehensive Income (Loss) to consolidate the line items Sales and marketing expenses and General and administrative expenses to Selling, general and administrative expenses in order to conform to current year presentation. These reclassifications had no effect on the reported results of operations.
Recent Accounting Pronouncements
Recently Adopted
In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contract in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). This new guidance is intended to reduce the complexity of accounting for convertible instruments. The guidance also addresses how convertible instruments are accounted for in the diluted earnings per share calculation and requires enhanced disclosures about the terms of convertible instruments. Entities may adopt ASU 2020-06 using either partial retrospective or fully retrospective method of transition. ASU 2020-06 is effective for public business entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2022 and its adoption did not have a material impact on the consolidated financial statements and related disclosures.
Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to record expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities in unrealized loss positions, the new standard requires allowances to be recorded instead of reducing the amortized cost of the investment. The Company currently holds investments in available-for-sale securities. The Company has not historically experienced collection issues or bad
9
debts with trade receivables. Accordingly, the Company does not expect this to have a significant impact on its consolidated financial statements and related disclosures at this time. The Company will adopt this guidance on the effective date for smaller reporting companies, January 1, 2023.
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 revenue and expenses during the reporting period. In the accompanying unaudited consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability of long-lived assets, deferred taxes and valuation allowances, derivative assets and liabilities, obsolete inventory, warranty obligations, variable consideration related to revenue, depreciable lives of property and equipment, and accruals for clinical study costs, which are accrued based on estimates of work performed under contract. The Company considered COVID-19 related impacts to its estimates, as appropriate, within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods due to the uncertainties surrounding the severity and duration of the COVID-19 pandemic. Actual results could differ from those estimates.
Significant Accounting Policies
The accounting policies used by the Company in its presentation of interim financial results are consistent with those presented in Note 3 to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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4. Revenue Recognition
The Company generates product revenue from sales of the Eversense system and related components and supplies to Ascensia, through a collaboration and commercialization agreement (the “Ascensia Commercialization Agreement”), third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively, the “Customers”), who then resell the products to health care providers and patients. Customers pay the Company for sales, regardless of whether or not the Customers resell the products to health care providers and patients. The Company’s policies for recognizing sales have not changed from those described in our Annual Report on Form 10-K for the year ended December 31, 2021.
Revenue by Geographic Region
The following table sets forth net revenue 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 and nine months ended September 30, 2022 and 2021:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2022 | September 30, 2022 | ||||||||||
% | % | ||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | |||||||
Revenue, net: | |||||||||||
Outside of the United States | $ | 2,688 | 58.2 | % | $ | 6,910 | 63.9 | % | |||
United States | 1,934 | 41.8 | 3,908 | 36.1 | |||||||
Total | $ | 4,622 | 100.0 | % | $ | 10,818 | 100.0 | % | |||
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2021 | September 30, 2021 | ||||||||||
% | % | ||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | |||||||
Revenue, net: | |||||||||||
Outside of the United States | $ | 2,928 | 82.9 | % | $ | 7,771 | 80.4 | % | |||
United States | 604 | 17.1 | 1,896 | 19.6 | |||||||
Total | $ | 3,532 | 100.0 | % | $ | 9,667 | 100.0 | % | |||
Contract Assets
Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement. Accounts receivable – related parties, net as of September 30, 2022, and December 31, 2021 included unbilled accounts receivable of $1.1 million and $1.8 million, respectively. The Company expects to invoice and collect all unbilled accounts receivable within 12 months.
Concentration of Revenue and Customers
For the three months ended September 30, 2022 and 2021, the Company derived 97% and 92%, respectively, of its total revenue from one customer, Ascensia. For the nine months ended September 30, 2022 and 2021, the Company derived 95% and 88%, respectively, of its total revenue from one customer, Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.
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5. Net Income (Loss) per Share
Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding during the period and, when dilutive, potential common share equivalents.
Potentially dilutive common shares consist of shares issuable from restricted stock units, stock options, warrants and the Company’s convertible notes. Potentially dilutive common shares issuable upon vesting of restricted stock units and exercise of stock options and warrants are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Company’s convertible notes are determined using the if converted method. The if-converted method assumes conversion of convertible securities at the beginning of the reporting period. Interest expense, dividends, and the changes in fair value measurement recognized during the period are added back to the numerator. The denominator includes the common shares issuable upon conversion of convertible securities.
In periods of net loss, all potentially dilutive common shares are excluded from the computation of the diluted net loss per share for those periods, as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted net income per share for the periods shown:
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Outstanding anti-dilutive securities not included in the diluted net income per share calculations were as follows:
6. | Marketable Securities |
Marketable securities available for sale, were as follows (in thousands):
December 31, 2021 | ||||||||||||
Gross | Gross | Estimated | ||||||||||
Amortized | Unrealized | Unrealized | Market | |||||||||
| Cost |
| Gains |
| Losses |
| Value | |||||
Commercial Paper | $ | 57,369 | — | — | $ | 57,369 | ||||||
Corporate debt securities | $ | 39,825 | — | (77) | $ | 39,748 | ||||||
Asset backed securities | $ | 26,736 | — | (29) | $ | 26,707 | ||||||
Government and agency securities | $ | 24,609 | — | (106) | $ | 24,503 | ||||||
Total | $ | 148,539 | $ | — | $ | (212) | $ | 148,327 | ||||
The following are the scheduled maturities as of September 30, 2022 (in thousands):
2022 (remaining three months) |
| $ | 29,625 |
2023 |
| 90,175 | |
2024 | 2,221 | ||
2025 | 6,730 | ||
Total |
| $ | 128,751 |
The Company periodically reviews its portfolio of debt securities to determine if any investment is impaired due to credit loss or other potential valuation concerns. For debt securities where the fair value of the investment is less than the amortized cost basis, the Company assesses at the individual security level, for various quantitative factors including, but not limited to, the nature of the investments, changes in credit ratings, interest rate fluctuations, industry analyst
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reports, and the severity of impairment. Unrealized losses on available-for-sale securities at September 30, 2022 were not significant and were primarily due to changes in interest rates and not due to increased credit risk associated with specific securities. The Company does not intend to sell these impaired investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases, which may be at maturity.
7. Inventory, net
Inventory, net of reserves, consisted of the following (in thousands):
| September 30, |
| December 31, | |||
2022 |
| 2021 | ||||
Finished goods |
| $ | 1,428 |
| $ | 1,012 |
Work-in-process |
| 4,306 |
| 3,770 | ||
Raw materials |
| 1,523 |
| 1,534 | ||
Total | $ | 7,257 | $ | 6,316 | ||
The Company charged $0.5 million and $1.1 million, respectively, to cost of sales for the three and nine months ended September 30, 2022 and $1.8 million to cost of sales for the three and nine months ended September 30, 2021 to reduce the value of inventory for items that are potentially obsolete due to expiry, in excess of product demand, or to adjust costs to their net realizable value.
8. Prepaid Expenses and Other Current Assets, and Deposits and other assets
Prepaid expenses and other current assets consisted of the following (in thousands):
| (1) | Includes deposits to contract manufacturers for manufacturing process. |
Deposits and other assets as of September 30, 2022 and December 31, 2021, were $3.2 million and $1.1 million, respectively. As of September 30, 2022, deposits and other assets is mainly comprised of $3.1 million for our right-of-use asset related to our operating lease of 33,000 square feet of research and office space for our corporate headquarters. In June 2022, the Company extended our lease for an additional five-year term. We recorded a modification to our right-of-use asset for the right-to-use the underlying asset for the additional lease term.
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9. | Accrued Expenses, Other Current Liabilities, and Other Liabilities |
Accrued expenses and other current liabilities consisted of the following (in thousands):
Other liabilities as of September 30, 2022 and December 31, 2021, were $2.9 million and $0.6 million, respectively. Other liabilities is comprised of the non-current portion of our operating lease liability for our corporate headquarters. In June 2022, the Company extended our lease for an additional five-year term. We recorded a modification to the lease liability upon renewal to reflect our obligation to make the additional lease payments.
The current portion of our operating lease liability is included in the line-item accrued expenses and other current liabilities on our balance sheet. As of September 30, 2022 and December 31, 2021, the current portion of the operating lease liability was $0.7 million and $0.9 million, respectively.
10. | Product Warranty Obligations |
The Company provides a warranty of one year on its smart transmitters. Additionally, the Company may also replace Eversense system components that do not function in accordance with the product specifications. Estimated replacement costs are recorded at the time of shipment as a charge to cost of sales in the consolidated statement of operations and are developed by analyzing product performance data and historical replacement experience, including comparing actual replacements to revenue.
At each of September 30, 2022, and December 31, 2021, the warranty reserve was $0.7 million, respectively. The following table provides a reconciliation of the change in estimated warranty liabilities for the nine months ended September 30, 2022 and for the twelve months ended December 31, 2021 (in thousands):
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11. | Notes Payable, Preferred Stock and Stock Purchase Warrants |
Term Loans
PPP Loan
On April 22, 2020, the Company received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) was evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”) in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accrued on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.
Convertible Preferred Stock and Warrants
On November 9, 2020, the Company entered into the Equity Line Agreement with Energy Capital, which provides that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital is committed to purchase up to an aggregate of $12.0 million of shares of the Company’s Series B Preferred Stock at the Company’s request from time to time during the 24-month term of the Equity Line Agreement. Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including the Company having less than $8 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), the Company has the right, at sole discretion, to present Energy Capital with a Regular Purchase Notice directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of the Company’s Series B Preferred Stock at the Purchase Price equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. The Equity Line Agreement provides that the Company shall not affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the Company’s common stock on the NYSE American is less than $0.25 without the approval of Energy Capital. In addition, beginning on January 1, 2022, since there have been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital has the right, at its sole discretion, by its delivery to the Company of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price.
The Company accounted for the Equity Line Agreement as a put/call option (the “Energy Capital Option”). This put/call option is classified as a liability in accordance with ASC 480, Distinguishing liabilities from equity, on the Company’s balance sheet and was recorded at the estimated fair value of $4.2 million upon issuance. The put/call option is required to be remeasured to fair value at each reporting period with the change recorded in change in fair value of derivatives that is a component of other income (expense). In connection with the execution of the Equity Line Agreement, the Company incurred $7.6 million in debt issuance costs in fiscal year 2020. The fair value of the Energy Capital Option as of September 30, 2022 and December 31, 2021 was $28.1 million and $69.4 million, respectively.
Concurrently with entry into the Equity Line Agreement, the Company issued a warrant to Energy Capital, exercisable beginning on May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share (the “Warrant”). The Warrant was exercised on a net basis in February 2022 and Energy Capital received 8,917,535 shares of common stock upon the net exercise of the Warrants.
On August 9, 2020, the Company entered into a Stock Purchase Agreement with Masters, pursuant to which the Company issued and sold Masters 3,000 shares of Series A Preferred Stock, at a price of $1,000 per share in an initial closing. Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional
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22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock was initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All 25,783 shares of Series A Preferred Stock have been converted to shares of common stock. Masters’ option to purchase the remaining unissued shares of Series A Preferred Stock expired on January 11, 2021, resulting in a gain on extinguishment of $3.5 million.
Convertible Notes
PHC Notes
On August 9, 2020, the Company entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with PHC, as the purchaser (together with the other purchasers from time to time party thereto, the “Note Purchasers”) and Alter Domus (US) LLC, as collateral agent. Pursuant to the Note Purchase Agreement, the Company borrowed $35.0 million in aggregate principal through the issuance and sale of the PHC Notes on August 14, 2020 (the “Closing Date”). The Company also issued 2,941,176 shares of its common stock, $0.001 par value per share to PHC as a financing fee (the “Financing Fee Shares”) on the Closing Date. The Financing Fee Shares are accounted for as debt discount in the amount of $1.5 million.
The PHC Notes are senior secured obligations of the Company and will be guaranteed on a senior secured basis by the Company’s wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at the Company’s option, payment in kind. The interest rate decreased to 8.0% in April 2022 as a result of the Company having obtained FDA approval for the 180-day Eversense E3 system for marketing in the United States. The maturity date for the PHC Notes is October 31, 2024 (the “Maturity Date”). The obligations under the PHC Notes are secured by substantially all of the Company’s and its subsidiary’s assets.
The Note Purchasers are entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes (including any interest added thereto as payment in kind), equivalent to a conversion price of approximately $0.54 per share, subject to specified anti-dilution adjustments, including adjustments for the Company’s issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or certain corporate events that occur prior to the maturity date, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its PHC Notes in connection with such notice of redemption or corporate event. In certain circumstances, the Company will be required to pay cash in lieu of delivering make whole shares unless the Company obtains stockholder approval to issue such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by the Company if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by the Company upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount (including any payment in kind interest which has been added to such amount), plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the Maturity Date or a call premium of 125% if redeemed within six months of the Maturity Date.
The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes become due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross defaults to certain other agreements, judgments against the Company, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
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The Company also has the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022 (the “PHC Option”), which was initially contingent upon obtaining FDA approval for the 180-day Eversense product for marketing in the United States before such date, and which approval the Company successfully obtained in February 2022. The PHC Option represents a freestanding financial instrument and is recognized as an asset in the Company’s consolidated balance sheets at fair value on the date of issuance and subject to impairment testing in each reporting period prior to the options exercise or expiration. The Company acknowledges that while the PHC Option is subject to impairment testing, there is no explicit guidance regarding how impairment should be assessed and measured for the PHC Option. As such, the measurement alternative in ASC Topic 321, Investments—Equity Securities, for equity securities without readily determinable fair values can be applied by analogy to assess and measure impairment of the PHC Option. The Company developed an estimated fair value at September 30, 2022 and December 31, 2021 to be $0.1 million and $0.2 million, respectively, and a loss of less than $0.1 million was recognized in net income as the difference between the fair value of the investment and its carrying amount for the nine months ended September 30, 2022.
The Note Purchase Agreement also contained several provisions requiring bifurcation as a separate derivative liability including an embedded conversion feature, mandatory prepayment upon event of default that constitutes a breach of the minimum revenue financial covenant, optional redemption upon an event of default, change in interest rate after PMA approval and default interest upon an event of default. On the date of issuance, the Company recorded the fair value of the embedded features in the amount of $25.8 million as a derivative liability in the Company’s consolidated balance sheets in accordance with ASC Topic 815, Derivatives and Hedging. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded in change in fair value of derivatives that is a component of other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at September 30, 2022 and December 31, 2021 was $63.8 million and $149.1 million, respectively.
In connection with the issuance of the Note Purchase Agreement, the Company incurred $2.9 million in debt issuance costs and debt discounts. The associated debt issuance costs were recorded as a contra liability in the amount of $1.4 million and are deferred and amortized as additional interest expense over the term of the notes. There have been no conversions of PHC Notes since inception of the Note Purchase Agreement.
2025 Notes
In July 2019, the Company issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. The 2025 Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at an initial conversion rate of 757.5758 shares per $1,000 principal amount of the 2025 Notes (equivalent to an initial conversion price of approximately $1.32 per share).
The 2025 Notes also contained an embedded conversion option requiring bifurcation as a separate derivative liability, along with the fundamental change make-whole provision and the cash settled fundamental make-whole shares provision. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at September 30, 2022 and December 31, 2021 was $19.9 million and $81.4 million, respectively.
In connection with the Exchange on April 24, 2020, $24.0 million aggregate principal of the Company’s outstanding 2025 Notes held by Highbridge Capital Management, LLC (“Highbridge”) were exchanged for $15.7 million of Second Lien Notes (the “Second Lien Notes”), (i) 11,026,086 shares of common stock, (ii) warrants to purchase up to 4,500,000 shares of common stock at an exercise price of $0.66 per share, and (iii) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”). This transaction modified the original 2025 Notes outstanding with Highbridge and resulted in $13.2 million of deferred issuance fees and debt discounts associated with the exchanged 2025 Notes being transferred as a discount to the Second Lien Notes.
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As of December 31, 2021, there were conversions of $6.5 million of outstanding principal amount of the 2025 notes for 4,924,998 shares of common stock. Accordingly, $3.2 million of allocated deferred issuance costs and debt discounts were recognized as a loss on extinguishment of debt as of December 31, 2021. There were no conversions of 2025 Notes during the nine months ended September 30, 2022.
2023 Notes
In the first quarter of 2018, the Company issued $53.0 million in aggregate principal amount of senior convertible notes due February 1, 2023 (the “2023 Notes”). In July 2019, the Company used the net proceeds from the issuance of the 2025 Notes to repurchase $37.0 million aggregate principal amount of the outstanding 2023 Notes. 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 will 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.
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 features 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 and transaction costs are being amortized to interest expense over the term of the 2023 Notes at an effective interest rate of 9.30%. The derivative is adjusted to fair value at each reporting period, with the change in the fair value recorded to other income (expense) in the Company’s consolidated statement of operations and comprehensive loss. The fair value of the derivative at September 30, 2022 and December 31, 2021 was $0.3 million and $5.8 million, respectively.
There were no conversions of 2023 Notes during the nine months ended September 30, 2022. As the 2023 Notes have a maturity date of February 1, 2023, they are classified as other current liability on the Company’s consolidated balance sheet at September 30, 2022.
The following carrying amounts were outstanding under the Company’s notes payable as of September 30, 2022 and December 31, 2021 (in thousands):
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Interest expense related to the notes payable for the nine months ended September 30, 2022 and 2021 was as follows (dollars in thousands):
The following are the scheduled maturities of the Company’s notes payable as of September 30, 2022 (in thousands):
2022 (remaining three months) |
| $ | — |
2023 |
| 15,700 | |
2024 | 35,000 | ||
2025 | 51,199 | ||
Total |
| $ | 101,899 |
12. | Stockholders’ Equity (Deficit) |
In November 2021, the Company entered into the 2021 Sales Agreement with Jefferies, under which the Company could offer and sell, from time to time, at its sole discretion, shares of its common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the nine months ended September 30, 2022, the Company received $34.4 million in net proceeds from the sale of 15,160,899 shares of its common stock under the 2021 Sales Agreement.
In November 2019, the Company entered into the 2019 Sales Agreement with Jefferies LLC which allowed the Company to issue and sell up to $50.0 million in gross proceeds of its common stock. In June 2021, the Company sold 12,830,333 shares of common stock under the 2019 Sales Agreement, resulting in gross proceeds of $48.4 million.
During the nine months ended September 30, 2021, in addition to the shares sold under the 2019 Sales Agreement, the Company sold 99,740,259 shares of common stock, of which 59,740,259 shares of common stock were sold in the 2021 Public Offering and 40,000,000 shares of common stock were sold in the Registered Direct Offering. For additional information on the 2021 Public Offering and the Registered Direct Offering, see Note 2—Liquidity and Capital Resources.
13. Stock-Based Compensation
2015 Plan
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 units may be granted to the Company’s employees and certain other persons, such as officers and directors, in accordance with the 2015 Plan provisions. In February 2016, the Company’s Board of Directors adopted, and the Company’s stockholders approved, an Amended and
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Restated 2015 Equity Incentive Plan (the “Amended and Restated 2015 Plan”), which became effective on February 20, 2016. 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 of the Company’s common stock reserved for issuance automatically increases on January 1 of each year, ending on January 1, 2026, by 3.5% of the total number of shares of its common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by its Board of Directors. As of September 30, 2022, 20,390,940 shares remained available for grant under the Amended and Restated 2015 Plan.
Inducement Plan
On May 30, 2019, the Company adopted the Senseonics Holdings, Inc. Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 1,800,000 shares of the Company’s common stock for issuance. The only persons eligible to receive grants of awards under the Inducement Plan are individuals who satisfy the standards for inducement grants in accordance with NYSE American Company Guide Section 711(a), including individuals who were not previously an employee or director of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company. An “Award” is any right to receive the Company’s common stock pursuant to the Inducement Plan, consisting of non-statutory options, restricted stock unit awards and other equity incentive awards. As of September 30, 2022, 701,071 shares remained available for grant under the Inducement Plan.
2016 Employee Stock Purchase Plan
In February 2016, the Company adopted the 2016 Employee Stock Purchase Plan, (the “2016 ESPP”). The 2016 ESPP became effective on March 17, 2016. The maximum number of shares of common stock that may be issued under the 2016 ESPP was initially 800,000 shares and automatically increases on January 1 of each year, ending on and including January 1, 2026, by 1.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; provided, however, the Board of Directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock. At September 30, 2022 there were 13,050,523 shares of common stock available for issuance under the 2016 ESPP. For the nine months ended September 30, 2022, there were purchases of 93,053 shares of common stock pursuant to this plan.
The 2016 ESPP permits participants to purchase shares of the Company’s common stock through payroll deductions of up to 15% of their earnings. Unless otherwise determined by the administrator, the purchase price of the shares will be 85% of the lower of the fair market value of common stock on the first day of an offering or on the date of purchase. Participants may end their participation at any time and deductions not yet used in a purchase are refundable upon employment termination. The Company initiated its first 2016 ESPP offering period on August 1, 2019 and new offering periods occur every six months thereafter, each consisting of two purchase periods of six months in duration ending on or about January 31st and July 31st of each year. A participant may only be in one offering at a time. On February 1, 2020, there were 566,573 shares purchased in connection with the initial offering period. The 2016 ESPP contains an offering reset provision whereby if the fair market value of a share on offering date of an ongoing offering is less than or equal to the fair market value of a share on a new offering date, the ongoing offering will terminate immediately after the purchase date and rolls over to the new offering.
The 2016 ESPP is considered compensatory for financial reporting purposes.
1997 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 1,223,273 shares of the Company’s common stock underlying options have vested under the 1997 Plan. Upon the effectiveness of the 2015 Plan, the
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Company no longer grants any awards under the 1997 Plan.
14. | Fair Value Measurements |
The following table represents the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021 (in thousands):
December 31, 2021 |
| ||||||||||||
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| |||||
Assets | |||||||||||||
Money market funds⁽¹⁾ | $ | 29,197 | $ | 29,197 | — | — | |||||||
Commercial paper | 57,369 | — | 57,369 | — | |||||||||
Corporate debt securities | 39,748 | — | 39,748 | — | |||||||||
Asset backed securities | 26,707 | — | 26,707 | — | |||||||||
Government and agency securities | 24,503 | 19,957 | 4,546 | — | |||||||||
PHC Option | 239 | — | — | 239 | |||||||||
Liabilities | |||||||||||||
Energy Capital Option | $ | 69,401 | $ | — | — | 69,401 | |||||||
Embedded features of the 2023 Notes | 5,817 | — | — | 5,817 | |||||||||
Embedded features of the PHC Notes | 149,058 | — | — | 149,058 | |||||||||
Embedded features of the 2025 Notes | 81,417 | — | 81,417 | — | |||||||||
The following table provides a reconciliation of the beginning and ending net balances of items measured at fair value on a recurring basis that used significant unobservable inputs (Level 3) (in thousands):
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Transfers into Level 2 of liabilities previously classified in Level 3 were due to increased trade activity associated with these instruments providing better price transparency, permitting classification to Level 2.
The recurring Level 3 fair value measurements of the embedded features of the notes payable and preferred stock, include the following significant unobservable inputs at September 30, 2022:
15. | Income Taxes |
The Company has not recorded any tax provision or benefit for the nine months ended September 30, 2022 or September 30, 2021. 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 September 30, 2022 and December 31, 2021.
On March 27, 2020, Congress enacted the CARES Act, as amended by the Flexibility Act, to provide certain relief as a result of the COVID-19 pandemic. The enactment of the CARES Act did not result in any material adjustments to the Company’s income tax provision or net deferred tax assets for the nine months ended September 30, 2022.
16. Related Party Transactions
Ascensia, through the ownership interests of its parent company, PHC, has a noncontrolling ownership interest in the Company. Ascensia also has representation on the Company’s board of directors. Revenue from Ascensia during the nine months ended September 30, 2022 and September 30, 2021 was $10.3 million and $8.5 million, respectively.
The amount due from Ascensia as of September 30, 2022 and December 31, 2021 was $2.0 million and $1.8 million, respectively. The amount due to Ascensia as of September 30, 2022 and December 31, 2021 was $0.7 million and $2.5 million, respectively.
17. Subsequent Events
The Company has evaluated all subsequent events through the filing date of this Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of September 30, 2022, and events which occurred subsequently but were not recognized in the financial statements. Except as described below there were no other subsequent events which required recognition, adjustment to or disclosure in the financial statements.
On November 7, 2022, Energy Capital, LLC delivered a Regular Purchase Notice pursuant to the Equity Line Agreement, exercising their right to purchase $12.0 million of Series B Preferred Stock, having a conversion price of $0.3951 per share.
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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, uncertainties, and assumptions, including the duration and severity of the COVID-19 pandemic and its impact on our business and financial performance, 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, and in 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 Quarterly Report on 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, 2021, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2022. 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 development and manufacturing of glucose monitoring products designed to transform lives in the global diabetes community with differentiated, long-term implantable glucose management technology. Our Eversense, Eversense XL and Eversense E3 continuous glucose monitoring (“CGM”) systems are designed to continually and accurately measure glucose levels in people with diabetes via an under-the-skin sensor, a removable and rechargeable smart transmitter, and a convenient app for real-time diabetes monitoring and management for a period of up to six months in the case of Eversense E3 and Eversense XL, as compared to seven to 14 days for non-implantable CGM systems. We affixed the CE mark to the original Eversense CGM system in June 2016, which marked the first certification for the product to be sold within the European Economic Area (“EEA”). Subsequently, we affixed the CE mark to the extended life Eversense XL CGM system in September 2017 which is currently available in select markets in Europe and the Middle East. In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system and Ascensia began commercialization in select markets in Europe during the third quarter of 2022. In June 2018, the U.S. Food and Drug Administration (“FDA”), approved the Eversense CGM system and it is currently available throughout the United States. In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system. With this approval and the availability of a new app in December 2019, the Eversense system can now be used as a therapeutic CGM in the United States to replace fingerstick blood glucose measurement to make treatment decisions, including insulin dosing. In February 2022, the 180-day extended life Eversense E3 CGM system was approved by the FDA and Ascensia Diabetes Care Holdings AG (“Ascensia”) began commercializing Eversense E3 in the United States in the second quarter of 2022. In June 2022, we affixed the CE mark to the Eversense E3 CGM system and Ascensia Diabetes Care Holdings AG (“Ascensia”) began commercializing Eversense E3 in Europe in the third quarter of 2022.
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Our net revenues are derived from sales of the Eversense system which is sold in two separate kits: the disposable Eversense Sensor Pack which includes the sensor, insertion tool, and adhesive patches, and the durable Eversense Smart Transmitter Pack which includes the transmitter and charger.
We sell directly to our network of distributors and strategic fulfillment partners, who provide the Eversense system to healthcare providers and patients through a prescribed request and invoice insurance payors for reimbursement. Sales of the Eversense system are widely dependent on the ability of patients to obtain coverage and adequate reimbursement from third-party payors or government agencies. We leverage and target regions where we have coverage decisions for patient device use and provider insertion and removal procedure payment. We have reached more than 250 million covered lives in the U.S. through positive insurance payor coverage decisions. In August 2022, we received positive payor coverage decision from Elevance Health, formerly Anthem, who has more than 45 million covered lives. On August 3, 2020, the Center for Medicare and Medicaid Services (“CMS”) released its Calendar Year 2021 Medicare Physician Fee Schedule Proposed Rule that announces proposed policy changes for Medicare payments, including the proposed establishment of national payment amounts for the three CPT© Category III codes describing the insertion (CPT 0446T), removal (0447T), and removal and insertion (0048T) of an implantable interstitial glucose sensor, which describes our Eversense CGM systems, as a medical benefit, rather than as part of the Durable Medical Equipment channel that includes other CGMs. In December 2021, CMS released its Calendar Year 2022 Medicare Physician Fee Schedule that updated global payments for the device cost and procedure fees. In July 2022, CMS provided temporary G-codes to enable immediate access to Eversense E3 for all eligible Medicare beneficiaries. In November 2022, CMS released its Calendar Year 2023 Medicare Physician Fee Schedule Proposed Rule that updates the payment amounts for the three CPT© Category III codes to account for the longer 6-month sensor. In 2022, we have been working with payors to transition their policies to Eversense E3 and have confirmed immediate coverage policy transition from select payors.
We are in the early commercialization stages of the Eversense brand and are focused on driving awareness of our CGM system amongst intensively managed patients and their healthcare providers. In both the United States and our overseas markets, we have entered into strategic partnerships and distribution agreements that allow third party collaborators with direct sales forces and established distribution systems to market and promote Senseonics CGM systems, including Eversense, Eversense XL, Eversense E3 and future generation products.
COVID-19
The current COVID-19 pandemic (“COVID-19”) has presented a substantial public health and economic challenge around the world and is affecting our employees, customers, communities and business operations, as well as the U.S. economy and financial markets. We will continue to monitor the overall impact of the COVID-19 pandemic on our business, financial condition, liquidity, assets and operations, including our personnel, programs, expected timelines, expenses and third-party contract manufacturing and distribution.
As a result of the COVID-19 pandemic’s disruption to our operations, suppliers, employees, and the healthcare community in which we sell to and support, and our limited cash resources, in March 2020, we made significant reductions in our cost structure and operations to improve cash flow and generate future expenditure savings to ensure the long-term success of Eversense. Specifically, commercial sales and marketing of the Eversense CGM System were temporarily suspended and a strategic review of the business was performed. As a result of the strategic review, in the third quarter of 2020, we entered into the Ascensia Commercialization Agreement, granting commercial and distribution responsibilities of Eversense. As we continue to recover from the pandemic we have expanded operations focusing on the design, development and manufacturing of Eversense.
In addition, in response to the ongoing spread of COVID-19, we have established safety protocols for personnel access to our headquarter offices. The effects of the COVID-19 pandemic could adversely impact our business, assets, operations and sales, particularly if the COVID-19 pandemic continues to persist for an extended period of time. See “Our business, product sales and results of operations could be adversely affected by the effects of health epidemics, including the recent COVID-19 outbreak, in regions where we or third parties distribute our products or where we or third parties on which we rely have significant manufacturing facilities, concentrations, clinical trial sites or other business operations. The COVID-19 pandemic has and may continue to, materially affect our operations, including at
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our headquarters in Maryland and at our clinical trial sites, as well as the business or operations of our manufacturers, distributors or other third parties with whom we conduct business” in the Risk Factors section of our most recent Annual Report on Form 10-K for more information regarding the potential impact of the COVID-19 pandemic on our business and operations. We continue to actively monitor this situation and the possible effects on our business and operations.
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 (“MARD”), of 8.5% 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. Based on the data from this trial, in October 2016 we submitted a pre-market approval (“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.
In December 2018, we initiated the PROMISE pivotal clinical trial to evaluate the safety and accuracy of Eversense for a period of up to six months in the United States and in September 30, 2019, we completed enrollment of the PROMISE trial. In the trial, we observed performance matching that of the then current Eversense 90-day product available in the United States, with a MARD of 8.5%. This result was achieved with reduced calibration, down to one per day, while also doubling the sensor life to six months. Following the results of the PROMISE trial, on September 30, 2020, a Premarket Approval, or PMA, supplement application to extend the wearable life of the Eversense CGM System to six months was submitted to the FDA. In February 2022, the extended life Eversense E3 CGM system was approved by the FDA.
In June 2019, we received FDA approval for the non-adjunctive indication (dosing claim) for the Eversense system and launched with an updated app in December 2019. With this approval, the Eversense system can be used as a therapeutic CGM to replace fingerstick blood glucose measurement for treatment decisions, including insulin dosing.
On February 26, 2020, we announced that the FDA approved a subgroup of PROMISE trial participants to continue for a total of 365 days to gather feasibility data on the safety and accuracy of a 365-day sensor. This sub-set of 30 participants were left undisturbed for 365 days with the goal of measuring accuracy and longevity over the full 365 days. Information gathered from this sub-set and additional development efforts provided us the confidence to start the Pivotal study for the Eversense 365 System.
In April 2020, we announced that we received regulatory approval in Europe such that the Eversense XL is no longer contraindicated for MRI, which means the sensor does not need to be removed from under the skin during MRI scanning. We had previously obtained this indication for Eversense in the United States in 2019. This MRI approval is a first for the CGM category, as all other sensors are required to be removed during an MRI scan.
On August 9, 2020, we entered into a collaboration and commercialization agreement with Ascensia (the “Commercialization Agreement”) pursuant to which we granted Ascensia the exclusive right to distribute our 90-day Eversense CGM system and our 180-day Eversense CGM system worldwide, with the following initial exceptions: (i) until January 31, 2021, the territory did not include countries covered by our then existing distribution agreement with Roche Diagnostics International AG and Roche Diabetes Care GmbH (together “Roche”), which are the Europe, Middle East and Asia, excluding Scandinavia and Israel, and 17 additional countries, including Brazil, Russia, India and China, as well as select markets in the Asia Pacific and Latin American regions; (ii) until September 13, 2021, the territory did not include countries covered by our current distribution agreement with Rubin Medical, which are Sweden, Norway and Denmark; and (iii) until May 31, 2022, the territory did not include Israel. Pursuant to the Commercialization Agreement, in the United States, Ascensia began providing sales support for the 90-day Eversense product on October 1, 2020 and Ascensia ramped up sales activities and assumed commercial responsibilities for the 90-day Eversense product during the second quarter of 2021.
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In February 2022, we received approval from the FDA for the Eversense E3 CGM System. The approval for our third-generation sensor, with proprietary sacrificial boronic acid (“SBA”) technology doubles the sensor life to six months with MARD of 8.5%. Ascensia began commercializing Eversense E3 in the United States during the second quarter of 2022.
The ENHANCE clinical study was initiated as a pivotal study with the purpose of gathering additional clinical data to support an integrated continuous glucose monitoring (iCGM) submission for the Eversense E3 system using the SBA technology. In March 2022, we extended the ongoing ENHANCE clinical study to evaluate the safety and accuracy of the Eversense 365 System for a period of up to one year in the United States. In September 2022, we completed enrollment of the ENHANCE study. In November 2022, we submitted an IDE for the enrollment of a pediatric cohort in the ENHANCE study and, pending approval, plan to begin enrolling pediatric patients in the first half of 2023.
European Commercialization of Eversense
In September 2017, we received the CE mark for Eversense XL which indicates that the product may be sold freely in any part of the European Economic Area (“EEA”). The Eversense XL 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.
In May 2016, we entered into a distribution agreement with Roche. Pursuant to the agreement, as amended, we had granted Roche the exclusive right to market, sell and distribute Eversense in Europe, Middle East and Asia (“EMEA”), excluding Scandinavia and Israel. In addition, Roche had 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. Roche was obligated to purchase from us specified minimum volumes of Eversense XL CGM components at pre-determined prices. On December 12, 2019, we further amended the distribution agreement to lower minimum volumes for 2020 and increase pricing for the remaining period of the contract. On November 30, 2020 we entered into a final amendment and settlement agreement with Roche to facilitate the transition of distribution to Ascensia as sales concluded on January 31, 2021, including final purchases, and transition support activities. The distribution rights under the agreement expired January 31, 2021.
In June 2022, we affixed the CE mark to the extended life Eversense E3 CGM system, and Ascensia began commercialization in select European markets during the third quarter of 2022, with the commercialization in all European markets in the fourth quarter of 2022.
Financial Overview
Revenue
We generate product revenue from sales of the Eversense system and related components and supplies to Ascensia, through the Commercialization Agreement, third-party distributors in the European Union and to strategic fulfillment partners in the United States (collectively “Customers”), who then resell the products to health care providers and patients. We are paid for our sales directly to the Customers, regardless of whether or not the Customers resell the products to health care providers and patients.
Revenue from product sales is recognized at a point in time when the Customers obtain control of our product based upon the delivery terms as defined in the contract at an amount that reflects the consideration which we expect to receive in exchange for the product. Contracts with our distributors contain performance obligations, mostly for the supply of goods, and is typically satisfied upon transfer of control of the product. Customer contracts do not include the right to return unless there is a product issue, in which case we may provide replacement product. Product conformity guarantees do not create additional performance obligations and are accounted for as warranty obligations in accordance with guarantee and loss contingency accounting guidance.
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Our contracts may contain some form of variable consideration such as prompt-pay discounts, tier-volume price discounts and for the Ascensia commercial agreement, revenue share. Variable consideration, such as discounts and prompt-pay incentives, are treated as a reduction in revenue and variable considerations, such as revenue share, is treated as an addition in revenue when the product sale is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period, when the uncertainty associated with the variable consideration is subsequently resolved. Estimating variable consideration and the related constraint requires the use of management judgment. Depending on the variable consideration, we develop estimates for the expected value based on the terms of the agreements, historical data, geographic mix, reimbursement rates, and market conditions.
Contract assets consist of unbilled receivables from customers and are recorded at net realizable value and relate to the revenue share variable consideration from the Ascensia Commercialization Agreement.
Concentration of Revenue and Customers
For the three months and nine months ended September 30, 2022 and 2021, we derived the majority of our total net revenue from one customer, Ascensia. During the three months ended September 30, 2022 and 2021, we derived 97% and 92%, respectively, of our total revenue from Ascensia. During the nine months ended September 30, 2022 and 2021, we derived 95% and 88%, respectively, of our total revenue from Ascensia. Revenues for these corresponding periods represent sales of sensors, transmitters and miscellaneous Eversense system components.
Revenue by Geographic Region
The following table sets forth net revenue derived from our two primary geographical markets, the United States and outside of the United States, based on the geographic location to which we deliver the product, for three and nine months ended September 30, 2022 and 2021:
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2022 | September 30, 2022 | ||||||||||
% | % | ||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | |||||||
Revenue, net: | |||||||||||
Outside of the United States | $ | 2,688 | 58.2 | % | $ | 6,910 | 63.9 | % | |||
United States | 1,934 | 41.8 | 3,908 | 36.1 | |||||||
Total | $ | 4,622 | 100.0 | % | $ | 10,818 | 100.0 | % | |||
Three Months Ended | Nine Months Ended | ||||||||||
September 30, 2021 | September 30, 2021 | ||||||||||
% | % | ||||||||||
(Dollars in thousands) | Amount | of Total | Amount | of Total | |||||||
Revenue, net: | |||||||||||
Outside of the United States | $ | 2,928 | 82.9 | % | $ | 7,771 | 80.4 | % | |||
United States | 604 | 17.1 | 1,896 | 19.6 | |||||||
Total | $ | 3,532 | 100.0 | % | $ | 9,667 | 100.0 | % | |||
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Results of Operations for the Three Months Ended September 30, 2022 and 2021
Three Months Ended |
| |||||||||
September 30, | Period-to- |
| ||||||||
2022 | 2021 | Period Change |
| |||||||
(in thousands) | (in thousands) |
| ||||||||
Revenue, net |
| $ | 126 |
| $ | 276 |
| $ | (150) | |
Revenue, net - related parties | 4,496 | 3,256 | 1,240 | |||||||
Total revenue | 4,622 | 3,532 | 1,090 | |||||||
Cost of sales | 3,866 | 4,778 | (912) | |||||||
Gross profit | 756 | (1,246) | 432 | |||||||
Expenses: | ||||||||||
Research and development expenses |
| 10,985 |
| 7,200 |
| 3,785 | ||||
Selling, general and administrative expenses |
| 7,340 |
| 7,585 |
| (245) | ||||
Operating loss |
| (17,569) |
| (16,031) |
| (3,108) | ||||
Other (expense) income, net: | ||||||||||
Interest income | 544 | 486 | 58 | |||||||
Gain (Loss) on fair value adjustment of option | (8,592) | 13,556 | (22,148) | |||||||
Interest expense |
| (4,801) |
| (4,245) |
| (556) | ||||
Gain (Loss) on change in fair value of derivatives | (28,948) | 50,075 | (79,023) | |||||||
Impairment cost | (984) | (488) | (496) | |||||||
Other expense |
| (41) |
| (439) |
| 398 | ||||
Total other (expense) income, net |
| (42,822) |
| 58,945 |
| (101,767) | ||||
Net Income (loss) | $ | (60,391) | $ | 42,914 | $ | (104,875) | ||||
Total revenue
Our total revenue increased to $4.6 million for the three months ended September 30, 2022, compared to $3.5 million for the three months ended September 30, 2021. This increase was primarily due to the launch of Eversense E3 in the United States partially offset by slightly lower sales outside of the United States.
Cost of sales and gross profit
Our cost of sales decreased to $3.9 million for the three months ended September 30, 2022, compared to $4.8 million for the three months ended September 30, 2021. Our gross profit increased to $0.8 million for the three months ended September 30, 2022, compared to ($1.2) million for the three months ended September 30, 2021. Gross profit as a percentage of revenue, or gross margin, was 16.4% and (35.3)% for the three months ended September 30, 2022 and September 20, 2021, respectively. The increase in gross margin was primarily driven by the transition from the Eversense 90-day product to the Eversense six-month product, sales channel mix, lower inventory write offs and manufacturing efficiencies.
Research and development expenses
Research and development expenses were $11.0 million for the three months ended September 30, 2022, compared to $7.2 million for the three months ended September 30, 2021, an increase of $3.8 million. The increase was due to investments for next generation technologies including a $2.2 million increase in clinical studies activities, an increase of $0.7 million in personnel related costs due to the expansion of our research and development workforce and an increase of $0.9 million for consulting, contract fabrication and other research and development support services.
Selling, general and administrative expenses
Selling, general and administrative expenses were $7.3 million for the three months ended September 30, 2022, compared to $7.6 million for three months ended September 30, 2021, a decrease of $0.3 million. The decrease was
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primarily the result of a $1.1 million reduction in spend related to marketing programs and support for Ascensia’s marketing programs including direct to consumer campaigns, partially offset by a $0.4 million increase in personnel costs and a $0.5 million in increase in professional fees and other administrative expenses.
Total other (expense) income, net
Total other expense, net, was $(42.8) million for the three months ended September 30, 2022, compared to other income, net, of $58.9 million for the three months ended September 30, 2021, a change of $101.8 million. The change was primarily due to a $79.0 million change in fair value of derivatives, a $22.1 million change in fair value of options and a $0.5 million increase in interest expense, partially offset by a decrease of $0.4 million in other expense.
Results of Operations for the Nine Months Ended September 30, 2022 and 2021
Nine Months Ended |
| |||||||||
September 30, | Period-to- |
| ||||||||
2022 | 2021 | Period Change |
| |||||||
(in thousands) |
| |||||||||
Revenue, net |
| $ | 555 |
| $ | 1,196 |
| $ | (641) | |
Revenue, net - related parties | 10,263 | 8,471 | 1,792 | |||||||
Total revenue | 10,818 | 9,667 | 1,151 | |||||||
Cost of sales | 8,711 | 9,995 | (1,284) | |||||||
Gross profit | 2,107 | (328) | 2,435 | |||||||
Expenses: | ||||||||||
Research and development expenses |
| 28,088 |
| 19,562 |
| 8,526 | ||||
Selling, general and administrative expenses |
| 23,785 |
| 23,347 |
| 438 | ||||
Operating loss |
| (49,766) |
| (43,237) |
| (6,529) | ||||
Other (expense) income, net: | ||||||||||
Interest income |
| 878 | 743 | 135 | ||||||
Gain (Loss) on fair value adjustment of option | 41,333 | (74,848) |
| 116,181 | ||||||
Gain on extinguishment of debt and option | — | 330 | (330) | |||||||
Interest expense | (13,806) | (12,337) | (1,469) | |||||||
Gain (Loss) on change in fair value of derivatives | 152,169 | (255,185) | 407,354 | |||||||
Impairment cost | (138) | (1,650) |
| 1,512 | ||||||
Other expense |
| (112) |
| (723) |
| 611 | ||||
Total other (expense) income, net |
| 180,324 |
| (343,670) |
| 523,994 | ||||
Net Income (loss) | $ | 130,558 | $ | (386,907) | $ | 517,465 | ||||
Total revenue
Our total revenue increased to $10.8 million for the nine months ended September 30, 2022, compared to $9.7 million for the nine months ended September 30, 2021. This increase was primarily due to the launch of Eversense E3 in the United States partially offset by slightly lower sales outside of the United States.
Cost of sales and gross profit
Our cost of sales were $8.7 million for the nine months ended September 30, 2022 compared to $10.0 million for the nine months ended September 30, 2021, a decrease of $1.3 million, primarily driven by reduced inventory obsolescence charges. Our gross profit increased to $2.1 million for the nine months ended September 30, 2022, compared to $(0.3) million for the nine months ended September 30, 2021. Gross profit as a percentage of revenue, or gross margin, was 19.5% and (3.4)% for the nine months ended September 30, 2022 and September 30, 2021, respectively. The increase in gross margin was primarily driven by the transition from the Eversense 90-day product to the Eversense six-month product, sales channel mix, lower inventory write-offs and manufacturing efficiencies.
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Research and development expenses
Research and development expenses were $28.1 million for the nine months ended September 30, 2022, compared to $19.6 million for the nine months ended September 30, 2021, an increase of $8.5 million. The increase was due to investments for next generation technologies including a $4.4 million increase in clinical studies activities, an increase of $1.9 million in personnel related costs due to the expansion of our research and development workforce and an increase of $2.2 million for consulting, contract fabrication and other research and development support services.
Selling, general and administrative expenses
Selling, general and administrative expenses were $23.8 million for the nine months ended September 30, 2022, compared to $23.3 million for nine months ended September 30, 2021, an increase of $0.5 million. The increase was due primarily to an increase of $2.0 million in other general and administrative costs to include recruiting and associated employee overhead, local tax expenses, and legal expenses partially offset by a $1.5 million decrease in sales and marketing costs.
Total other (expense) income, net
Total other income, net, was $180.3 million for the nine months ended September 30, 2022, compared to other expense, net, of ($343.7) million for the nine months ended September 30, 2021, a change of $524.0 million. The change was primarily due to a $407.4 million change in fair value of derivatives and a $116.2 million change in fair value of options primarily driven by volatility in our share price.
Liquidity and Capital Resources
Sources of Liquidity
From our founding in 1996 until 2010, we devoted substantially all of our resources to researching various sensor technologies and platforms. Beginning in 2010, we narrowed our focus to developing and refining a commercially viable glucose monitoring system. However, 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 $302.5 million, $175.2 million, and $115.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of September 30, 2022, we had an accumulated deficit of $820.4 million. To date, we have funded our operations principally through the issuance of preferred stock, common stock, convertible notes and debt. As of September 30, 2022, we had cash, cash equivalents and marketable debt securities of $163.0 million.
In November 2021, we entered into an Open Market Sale Agreement (the “2021 Sales Agreement”) with Jefferies LLC (“Jefferies”), under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as our sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. As of September 30, 2022, we received $34.4 million in net proceeds from the sale of 15,160,899 shares of our common stock under the 2021 Sales Agreement.
In November 2019, we entered into an Open Market Sale Agreement (the “2019 Sales Agreement”) with Jefferies, under which we could 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 Jefferies as our sales agent in an “at the market” offering. In June 2021, we received $48.4 million in net proceeds from the sale of 12,830,333 shares of our common stock utilizing the full capacity under the 2019 Sales Agreement.
On January 21, 2021, we entered into an underwriting agreement, which was subsequently amended and restated on the same day (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, as representative of the underwriters (the “Underwriters”), to issue and sell 51,948,052 shares of common stock, in an underwritten public
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offering pursuant to effective registration statements on Form S-3, including a related prospectus and prospectus supplement, in each case filed with the Securities and Exchange Commission (the “2021 Public Offering”). The price to the public in the 2021 Public Offering was $1.925 per share of common stock. The Underwriters agreed to purchase the shares from us pursuant to the Underwriting Agreement at a price of $1.799875 per share and the Company also agreed to reimburse them for customary fees and expenses. The initial closing of the 2021 Public Offering occurred on January 26, 2021. Subsequent to the initial closing, the Underwriters exercised their option to purchase an additional 7,792,207 shares of Common Stock. Total net proceeds from the 2021 Public Offering were $106.1 million after deducting underwriting discounts and commissions and estimated offering expenses.
On January 17, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”), pursuant to which we sold to the Purchasers, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 40,000,000 shares (the “Shares”) of common stock, $0.001 par value per share. The Shares were sold at a purchase price of $1.25 per share for aggregate gross proceeds to the Company of $50.0 million, before deducting fees to the placement agent and other estimated offering expenses payable by the Company. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was originally filed with the Securities and Exchange Commission on November 27, 2019. The net proceeds to the Company from the Registered Direct Offering, after deducting fees and expenses and the estimated offering expenses payable by us are approximately $46.1 million.
On November 9, 2020, we entered into an equity line agreement, (“Equity Line Agreement”), with Energy Capital, LLC (“Energy Capital”), which provided that, upon the terms and subject to the conditions and limitations set forth therein, Energy Capital was committed to purchase up to an aggregate of $12.0 million of shares of our newly designated series B convertible preferred stock (“the Series B Preferred Stock”), at our request from time to time during the 24-month term of the Equity Line Agreement.
Under the Equity Line Agreement, beginning January 21, 2021, subject to the satisfaction of certain conditions, including that we have less than $8.0 million of cash, cash equivalents and other available credit (aside from availability under the Equity Line Agreement), we had the right, in our sole discretion, to present Energy Capital with a purchase notice (“Regular Purchase Notice”) directing Energy Capital (as principal) to purchase shares of Series B Preferred Stock at a price of $1,000 per share (not to exceed $4.0 million worth of shares) once per month, up to an aggregate of $12.0 million of our Series B Preferred Stock at a per share price (the “Purchase Price”), equal to $1,000 per share of Series B Preferred Stock, with each share of Series B Preferred Stock initially convertible into common stock, beginning six months after the date of its issuance, at a conversion price of $0.3951 per share. The Equity Line Agreement provided that we were not permitted to affect any Regular Purchase Notice under the Equity Line Agreement on any date where the closing price of the common stock on the NYSE American is less than $0.25 without the approval of Energy Capital.
In addition, beginning on January 1, 2022, since there had been no sales of the Series B Preferred Stock pursuant to the Equity Line Agreement, Energy Capital had the right, at its sole discretion, by its delivery to us of a Regular Purchase Notice, to purchase up to the $12.0 million of Series B Preferred Stock under the Equity Line Agreement at the Purchase Price. On November 7, 2022, Energy Capital exercised in full its right to purchase $12.0 million of Series B Preferred Stock.
Concurrently with entry into the Equity Line Agreement, we issued a warrant to Energy Capital, exercisable beginning May 9, 2021, to purchase up to 10,000,000 shares of common stock at an exercise price of $0.3951 per share, (the “Warrant”). The Warrant was exercised in full in February 2022.
On August 9, 2020, we entered into a financing agreement with Ascensia pursuant to which we issued $35.0 million in aggregate principal amount of Senior Secured Convertible Notes due on October 31, 2024 (the “PHC Notes”), to Ascensia’s parent company, PHC Holdings Corporation (“PHC”), on the Closing Date. We also issued PHC 2,941,176 shares of common stock to PHC as a financing fee. We also have the option to sell and issue PHC up to $15.0 million of convertible preferred stock on or before December 31, 2022, contingent upon obtaining approval for the 180-day Eversense product for marketing in the United States before such date. Upon the closing of the PHC Notes, we prepaid in full the First Lien Notes, issued and sold pursuant a loan agreement with Highbridge Capital Management, LLC (“Highbridge”) (the “Highbridge Loan Agreement”), in the amount of approximately $17.6 million.
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Additionally, on August 9, 2020, we entered into a Stock Purchase Agreement with Masters Special Solutions, LLC and certain affiliates thereof (collectively, “Masters”), pursuant to which we issued and sold to Masters 3,000 shares of convertible preferred stock, designated as Series A Preferred Stock (the “Series A Preferred Stock”), at a price of $1,000.00 per share in an initial closing (“the Stock Purchase Agreement”). Masters also had the option to purchase up to an additional 27,000 shares of Series A Preferred Stock at a price of $1,000.00 per share in subsequent closings, subject to the terms and conditions of the Stock Purchase Agreement, as amended, through January 11, 2021. In January 2021, Masters and its assignees purchased in aggregate an additional 22,783 shares of Series A Preferred Stock, resulting in additional gross proceeds of $22.8 million. Each share of Series A Preferred Stock is initially convertible into a number of shares of common stock equal to $1,000 divided by the conversion price of $0.476 per share, subject to customary anti-dilution adjustments, including in the event of any stock split. All shares of Series A Preferred Stock have been converted to common stock.
We believe that these agreements provide the financial resources and mutual commitment to support the growth of Eversense and specifically for the Company, the manufacturing of Eversense and continued product development, including the U.S. launch of Eversense E3. The timing and success of these collaborations and financings are dependent on certain events occurring in accordance with our plans, and may be influenced by uncontrollable external factors, including restrictions or impacts of COVID-19. Management has concluded that based on our current operating plans, existing cash and cash equivalents and cash flows from our future operations will be sufficient to meet our anticipated operating needs through 2023.
Common Stock
In November 2021, we entered into the 2021 Sales Agreement with Jefferies, under which we could offer and sell, from time to time, at our sole discretion, shares of our common stock having an aggregate offering price of up to $150.0 million through Jefferies as the sales agent in an “at the market” offering. Jefferies will receive a commission up to 3.0% of the gross proceeds of any common stock sold through Jefferies under the 2021 Sales Agreement. During the nine months ended September 30, 2022, we received $34.4 million in net proceeds from the sale of 15,160,899 shares of our common stock under the 2021 Sales Agreement.
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Indebtedness
Term Loans
PPP Loan
On April 22, 2020, we received $5.8 million in loan funding from the PPP pursuant to the CARES Act, as amended by the Flexibility Act, and administered by the Small Business Administration (“SBA”). The unsecured loan (the “PPP Loan”) is evidenced by the PPP Note dated April 21, 2020 (the “PPP Note”), in the principal amount of $5.8 million with Silicon Valley Bank (“SVB”).
Under the terms of the PPP Note and the PPP Loan, interest accrues on the outstanding principal at a rate of 1.0% per annum. The term of the PPP Note was two years. In April 2022, the Company repaid the outstanding principal and accrued interest in full.
Convertible Notes
The following table summarizes our outstanding convertible notes at September 30, 2022:
Aggregate | Initial Conversion | Conversion Price | |||||||||||||||
Convertible | Issuance | Principal | Maturity | Rate per $1,000 | per Share of | ||||||||||||
Note | Date | Coupon |
| (in millions) |
| Date |
| Principal Amount |
| Common Stock |
| ||||||
2023 Notes | January 1, 2018 | 5.25% | $ | 15.7 | February 1, 2023 | 294.1176 | $ | 3.40 | |||||||||
2025 Notes | July 1, 2019 | 5.25% | $ | 51.2 | January 15, 2025 | 757.5758 | $ | 1.32 | |||||||||
PHC Notes | August 14, 2020 | 8.00% | $ | 35.0 | October 31, 2024 | 1867.4136 | $ | 0.54 | |||||||||
2023 Notes
In the first quarter of 2018, we issued $53.0 million in aggregate principal amount of senior convertible notes that will mature on February 1, 2023, (the “2023 Notes”), of which $15.7 million in aggregate principal remains outstanding as of September 30, 2022, after some of the holders exchanged their 2023 Notes for 2025 Notes, as defined below, in July 2019.
2025 Notes
In July 2019, we issued $82.0 million in aggregate principal amount of senior convertible notes that will mature on January 15, 2025 (the “2025 Notes”), unless earlier repurchased or converted. In connection with an exchange on April 24, 2020, $24.0 million in aggregate principal of Highbridge’s outstanding 2025 Notes were exchanged for (i) $15.7 million aggregate principal amount of Second Lien Notes (“Second Lien Notes”), (ii) 11,026,086 shares of our common stock, (iii) warrants to purchase up to 4,500,000 shares of our common stock at an exercise price of $0.66 per share, and (iv) $0.3 million in accrued and unpaid interest on the 2025 Notes being exchanged (the “Exchange”).
For additional information on the 2025 Notes and the 2023 Notes, see Note 8—Notes Payable, Preferred Stock and Stock Purchase Warrants in the accompanying unaudited consolidated financial statements.
PHC Notes
On August 9, 2020, we entered into a note purchase agreement with PHC (the “Note Purchase Agreement”), pursuant to which we agreed to borrow $35.0 million in aggregate principal through the issuance and sale of PHC Notes on or prior to August 14, 2020. The PHC Notes will be senior secured obligations and will be guaranteed on a senior secured basis by our wholly owned subsidiary, Senseonics, Incorporated. Interest at the initial annual rate of 9.5% is payable semi-annually in cash or, at our option, payment in kind. The interest rate will decrease to 8.0% beginning in April 2022 because we obtained FDA approval for the 180-day Eversense E3 product for marketing in the United States.
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The maturity date for the PHC Notes will be October 31, 2024, provided that the maturity date will accelerate if we have not repaid our Second Lien Notes (other than an aggregate principal amount of up to $1.0 million) by 91 days prior to the maturity of the Second Lien Notes.
PHC will be entitled to convert the PHC Notes to common stock at a conversion rate of 1,867.4136 shares per $1,000 principal amount of the PHC Notes, equivalent to a conversion price of approximately $0.54 per share, subject to specified anti-dilution adjustments, including adjustments for our issuance of equity securities on or prior to April 30, 2022 below the conversion price. In addition, following a notice of redemption or 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 Notes in connection with such notice of redemption or corporate event. In certain circumstances, we will be required to pay cash in lieu of delivering make whole shares unless we obtain stockholder approval to issue such shares.
Subject to specified conditions, on or after October 31, 2022, the PHC Notes are redeemable by us if the closing sale price of the common stock exceeds 275% of the conversion price for a specified period of time and subject to certain conditions upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount, plus any accrued but unpaid interest. On or after October 31, 2023, the PHC Notes are redeemable by us upon 10 days prior written notice at a cash redemption price equal to the then outstanding principal amount, plus any accrued but unpaid interest, plus a call premium of 130% if redeemed at least six months prior to the maturity date or a call premium of 125% if redeemed within six months of the maturity date.
The Note Purchase Agreement contains customary terms and covenants, including financial covenants, such as operating within an approved budget and achieving minimum revenue and liquidity targets, and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions. The Note Purchase Agreement also contains customary events of default, after which the PHC Notes be due and payable immediately, including defaults related to payment compliance, material inaccuracy of representations and warranties, covenant compliance, material adverse changes, bankruptcy and insolvency proceedings, cross-defaults to certain other agreements, judgments against us, change of control or delisting events, termination of any guaranty, governmental approvals, and lien priority.
Funding Requirements and Outlook
Our ability to generate revenue and achieve profitability depends on the successful commercialization and adoption of our Eversense CGM systems by diabetes patients and healthcare providers, along with future product development, regulatory approvals, and post-approval requirements. These activities, including our ongoing focus to grow covered lives through positive insurance payor policy decisions and continued development of Eversense 365-day product, will require significant uses of working capital through 2022 and beyond.
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We expect that existing cash, cash equivalents and cash flows from our future operations will be sufficient to meet the Company’s current operating plans through 2023. As part of our liquidity strategy, we will continue to monitor our capital structure and operating plans and we may access the capital markets or debt markets for additional funding if the opportunity arises to enhance our capital structure for changes to our operating plans, for financing strategic initiatives and to provide financial flexibility.
Cash Flows
The following is a summary of cash flows for each of the periods set forth below (in thousands).
| Nine Months Ended | ||||||
| September 30, | ||||||
| 2022 | 2021 | |||||
Net cash used in operating activities |
| $ | (48,925) |
| $ | (44,275) |
|
Net cash provided by (used in) investing activities |
| 19,532 |
| (154,993) | |||
Net cash provided by financing activities |
| 31,416 |
| 227,274 | |||
Net increase in cash and cash equivalents | $ | 2,023 | $ | 28,006 | |||
Net cash used in operating activities
Net cash used in operating activities was $48.9 million for the nine months ended September 30, 2022 and consisted of an $152.2 million change in fair value of derivatives on convertible notes, a $41.3 million loss on fair value adjustment of the option, and a net change in operating assets and liabilities of $2.3 million (most notably increases in inventory of $0.9 million and a reduction of accrued expenses of $1.0 million), partially offset by net income of $130.6 million, $9.8 million related to depreciation/amortization and other non-cash items and $6.5 million of stock-based compensation.
Net cash used in operating activities was $44.3 million for the nine months ended September 30, 2021 and consisted of a net loss of $386.9 million, a net decrease in operating assets and liabilities of $2.6 million (mostly due to an increase in inventory of $2.6 million, higher accounts receivable of $0.7 million, and a $1.0 million decrease in accounts payable, reflecting reduced operational activities, offset by an increase in accrued liabilities of $1.3 million and an increase of $0.3 million in accrued interest) and $0.3 million for gain on extinguishment for the convertible notes and options, offset by $255.2 million due to the change in fair value of derivatives on convertible notes, a $74.8 million loss on fair value adjustment of the option, $7.1 million of stock-based compensation, a $1.7 million net increase in impairment reserves, and $6.7 million related to depreciation/amortization and other non-cash items.
Net cash provided by (used in) investing activities
Net cash provided by investing activities was $19.5 million for the nine months ended September 30, 2022 and primarily consisted of proceeds from the sale and maturity of marketable securities.
Net cash used in investing activities was $155.0 million for the nine months ended September 30, 2021 and primarily consisted of the purchase of marketable securities.
Net cash provided by financing activities
Net cash provided by financing activities was $31.4 million for the nine months ended September 30, 2022, and primarily consisted of $34.4 million from the issuance of common stock pursuant to the 2021 Sales Agreement and $1.1 million for proceeds related to the exercise of stock options and warrants, partially offset by $2.9 million in repayment of the PPP loan and $1.2 million in tax payments related to the settlement of equity awards.
Net cash provided by financing activities was $227.3 million for the nine months ended September 30, 2021, primarily consisted of $200.4 million from issuance of common stock, proceeds of $22.8 million for the issuance of Series A preferred stock and $4.7 million for proceeds related to the exercise of stock options and warrants.
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Contractual Obligations
As of September 30, 2022, there were no material changes in our contractual obligations and commitments from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
ITEM 3: Quantitative and Qualitative Disclosures about Market Risk
Under SEC rules and regulations, because we are considered to be a “smaller reporting company”, we are not required to provide the information required by this item in this Quarterly Report on Form 10-Q.
ITEM 4: Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the assistance of our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, has reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2022. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving such control objectives. Based on the evaluation of our disclosure controls and procedures as of September 30, 2022, 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 were no changes 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 September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties.
In February 2021, we received notice and accepted service of a civil complaint that had been filed in the Western District of Texas and styled Carew ex rel. United States v. Senseonics, Inc., No. SA20CA0657DAE. The complaint was filed by a relator under seal in May 2020 pursuant to the qui tam provisions in the federal False Claims Act. Prior to the unsealing of the complaint, the government declined to intervene in the case. The case, therefore, is being pursued only by the relator. The complaint alleges the Company’s marketing practices with physicians for its product, Eversense Continuous Glucose Monitoring System, violated the False Claims Act, 31 U.S.C. § 3729 and the Texas Medicaid Fraud Prevention Law, Tex. Hum Res. Code § 36.002. Outside counsel, on behalf of the Company, filed a motion to dismiss the action for failure to state a claim. On March 31, 2022, the court granted the motion to dismiss the action without prejudice which allows the plaintiff 60 days to refile the complaint. On May 27, 2022, the plaintiff filed
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an amended complaint and on July 11, 2022, the Company filed a motion to dismiss the action for failure to state a claim. Briefing on the motion was completed in August 2022 and the motion is before the court for consideration and decision.
As previously reported, since February 2021 the Company has been in communication with the Italian Data Protection Authority, or Garante, with respect to the Garante’s review of the Company’s unintended disclosure of certain Italian user e-mail addresses to other users in Italy and other GDPR-related obligations of the Company. On July 29, 2022, the Garante delivered its decision to the Company finding that the Company had breached certain provisions of the GDPR, assessing a fine of EUR 45,000 and directing the Company to make certain changes within three months to its European privacy notice, including simplifications to the privacy notice and the inclusion of certain references. In accordance with the Garante’s decision, the Company was permitted to settle the matter for EUR 22,500 if it made the payment within 30 days, undertook to update the privacy notice and did not appeal the decision. The Company made such payment, confirmed it would not appeal the decision and released a new privacy notice intended to comply with the directive of the Garante. It is possible under the applicable process that the Garante may, in the future, follow up further regarding the Company’s corrective measures.
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. Other than the risk factors set forth below, 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.
The ongoing military action by Russia in Ukraine could have negative impact on the global economy which could materially adversely affect our business, operations, operating results and financial condition.
On February 24, 2022, Russian forces launched significant military action against Ukraine, and sustained conflict and disruption in the region is possible. The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by Canada, the United Kingdom, the European Union, the U.S. and other countries and companies and organizations against officials, individuals, regions, and industries in Russia and Ukraine, and actions taken by Russia in response to such sanctions, and each country’s potential response to such sanctions, tensions, and military actions could adversely affect the global economy and financial markets and thus could affect our business, operations, operating results and financial condition as well as the price of our common stock and our ability to raise additional capital when needed on acceptable terms. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial. Any such disruptions caused by Russian military action or resulting sanctions may magnify the impact of other risks described in our Annual Report on Form 10-K.
While our suppliers may source certain raw materials from Russia and Ukraine, to date we have not been notified that the supply of these materials has been significantly impacted by the conflict. We continue to monitor the situation closely and are proactively assessing and evaluating alternative sources to bolster supply of these materials moving forward, in addition to working closely with our suppliers in any product re-qualification that may be required. Revenue relating to products manufactured from raw materials sourced from this region does not constitute a material portion of our business. Further, there is uncertainty regarding the ultimate impact the conflict, including any escalation or further expansion of the conflict’s current scope, will have on our customers, the global economy, supply chains, logistics, fuel prices, raw material pricing and our business.
Surging natural gas and electricity costs in Europe poses a threat to our contract manufacturers ability to maintain operations in Europe which can adversely affect or business supply chain
Europe’s energy crisis driven by the impacts of Russia’s military action in Ukraine is quickly soaring and causing extreme disruption to the manufacturing industry across the continent. The reduced natural gas supply to Europe has resulted in higher gas costs which have been unsustainable for energy intensive companies that operate across Europe. Several manufacturers have shut down, suspended or reduced operations amidst the skyrocketing prices. Several of our suppliers operate in Europe and may be impacted by the energy crisis as the result of increased production costs.
Across Europe, these energy constraints could result in nations or regions enacting emergency energy related policies, limiting energy availability for manufacturers. The impact of these developments cannot be predicted with certainty, however, any such production constraints could further exacerbate an already ailing supply chain and could have a material, adverse effect on our operations and our ability to source materials that are required to manufacture our products. We continue to monitor the situation closely and continue to have discussions with our suppliers to determine
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whether there may be any uncertainty with regards to our ability to source materials that are required to manufacture our products. If the energy crisis or other supply chain challenges impact our ability to obtain raw materials on a timely basis or without significant increases in costs, our financial results and business operations may be adversely affected.
Our business could be adversely affected by economic downturns, inflation, increases in interest rates, natural disasters, public health crises such as the COVID-19 pandemic, political crises, geopolitical events, such as the crisis in Ukraine, or other macroeconomic conditions, which have in the past and may in the future negatively impact our business and financial performance.
The global economy, including credit and financial markets, has experienced extreme volatility and disruptions,
including, among other things, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, supply chain shortages, increases in inflation rates, higher interest rates and uncertainty about economic stability. For example, the COVID-19 pandemic resulted in widespread unemployment, economic slowdown and extreme volatility in the capital markets. The Federal Reserve recently raised interest rates multiple times in response to concerns about inflation and it may raise them again. Higher interest rates, coupled with reduced government spending and volatility in financial markets may increase economic uncertainty and affect consumer spending. If the equity and credit markets deteriorate, including as a result of political unrest or war, it may make any necessary debt or equity financing more difficult to obtain in a timely manner or on favorable terms, more costly or more dilutive. Increased inflation rates can adversely affect us by increasing our costs, including labor and employee benefit costs.
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.
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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 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
10.1+ | Amended and Restated Employment Agreement with Frederick Sullivan. | |
10.2+ | ||
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** | ||
101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document) | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* 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. |
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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: November 8, 2022 | By: | /s/Rick Sullivan |
Rick Sullivan | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
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Exhibit 3.5
SENSEONICS HOLDINGS, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, Timothy Goodnow, does hereby certify that:
1. He is the President and Chief Executive Officer of Senseonics Holdings, Inc., a Delaware corporation (the “Corporation”).
2. The Corporation is authorized to issue 5,000,000 shares of preferred stock, 30,000 of which have been designated Series A Convertible Preferred Stock (the “Series A Preferred Stock”).
3. The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”):
WHEREAS, the certificate of incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of 5,000,000 shares, $0.001 par value per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized, without further stockholder approval, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of, except as otherwise set forth in the Purchase Agreement (as defined below), up to 12,000 shares of the preferred stock which the Corporation has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:
TERMS OF PREFERRED STOCK
Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:
“2018 Indenture” means that certain base indenture dated as of January 30, 2018, as supplemented by that certain first supplemental indenture dated as of January 30, 2018 and that certain second supplemental indenture, dated as of July 25, 2019, between the Corporation and U.S. Bank National Association, as trustee, as amended, supplemented, restated or otherwise modified to the extent permitted under the Note Purchase Agreement.
“2019 Indenture” means that certain indenture dated as of July 25, 2019, between the Corporation and U.S. Bank National Association, as trustee, as amended, supplemented, restated or otherwise modified to the extent permitted under the Note Purchase Agreement.
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
“Beneficial Ownership Cap” shall have the meaning set forth in Section 6(d).
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Buy-In” shall have the meaning set forth in Section 6(c)(iv).
“Capital Stock” means, for any entity, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by that entity, but shall not include any debt securities convertible into or exchangeable for any securities otherwise constituting Capital Stock pursuant to this definition. Unless the context otherwise requires, Capital Stock shall refer to Capital Stock of the Corporation.
“Change of Control” means (a) any reorganization, recapitalization, consolidation or merger (or similar transaction or series of related transactions) of the Corporation, or any sale or exchange of
outstanding shares (or similar transaction or series of related transactions) of the Corporation in which the holders of the Corporation’s outstanding shares immediately before consummation of such transaction or series of related transactions do not, immediately after consummation of such transaction or series of related transactions, retain shares representing more than sixty-five percent (65%) of the voting power of the surviving entity of such transaction or series of related transactions (or the parent of such surviving entity if such surviving entity is wholly owned by such parent) in substantially the same proportions vis-à-vis each other as immediately before such transaction or series of related transactions, in each case without regard to whether the Corporation is the surviving entity, (b) any sale, lease, license or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries on a consolidated basis in any transaction or series of related transactions, including any transaction as a result of which the Corporation ceases to own 100% of the Capital Stock of Senseonics, Incorporated (or any successor thereof), (c) any “change of control” (or any comparable term) in any document pertaining to the Second Lien Notes, the Existing Notes, any Permitted Refinancing Indebtedness or any other Junior Indebtedness (as defined under the Note Purchase Agreement), in each case, the aggregate principal amount of which is in excess of the $500,000 (or any Permitted Refinancing Indebtedness with respect to any of the foregoing) and such “change of control” allows such holders to redeem such Indebtedness or otherwise requires the Corporation to prepay such Indebtedness, (d) the Corporation’s stockholders approve any plan or proposal for the liquidation or dissolution of the Corporation or (e) the Common Stock ceases to be listed on any of The New York Stock Exchange, The NYSE American, The NASDAQ Capital Market, The NASDAQ Global Market or The NASDAQ Global Select Market (or any of their respective successors).
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the Corporation’s common stock, par value $0.001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Corporation which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Amount” means the sum of the Stated Value at issue.
“Conversion Date” shall have the meaning set forth in Section 6(a).
“Conversion Eligibility Date” means, for each share of Series B Preferred Stock, the date which is six (6) months after the Issue Date for such share of Series B Preferred Stock.
“Conversion Price” shall have the meaning set forth in Section 6(b).
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series B Preferred Stock in accordance with the terms hereof.
“Distribution” shall have the meaning set forth in Section 7(b).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Existing Notes” means, collectively (a) those certain 5.25% Convertible Senior Notes due 2023, issued under the 2018 Indenture, in an aggregate principal amount of up to $15,700,000 and (b) those certain 5.25% Convertible Senior Notes due 2025, issued under the 2019 Indenture, in an aggregate principal amount not to exceed, from and after the date of the closing of the purchase and sale of the secured promissory notes pursuant to the Note Purchase Agreement, $58,000,000.
“Holder” means a holder of the Series B Preferred Stock.
“Issuance Date” means the date each share of Series B Preferred Stock is issued.
“Liquidation” shall have the meaning set forth in Section 5.
“New York Courts” shall have the meaning set forth in Section 10(d).
“Note Purchase Agreement” means that certain Note Purchase Agreement dated as of August 9, 2020 by and among PHC Holdings Corporation and any other persons otherwise a party thereto from time to time, the Corporation, the guarantors from time to time party thereto and Alter Domus (US) LLC, as collateral agent.
“Notice of Conversion” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of any shares of the Series B Preferred Stock regardless of the number of transfers of any particular shares of Series B Preferred Stock and regardless of the number of certificates which may be issued to evidence such Series B Preferred Stock.
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“Permitted Refinancing Indebtedness” means Indebtedness (as defined under the Note Purchase Agreement) constituting an extension or renewal of, replacement of, or substitution for, or issued in exchange for, or the net proceeds of which are used to repay, redeem, repurchase, refinance or refund, including by way of defeasance then outstanding Indebtedness.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Purchase Agreement” means the Equity Line Agreement, dated November 8, 2020, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Purchase Rights” shall have the meaning set forth in Section 7(c).
“Redemption Election” shall have the meaning set forth in Section 8(b).
“Redemption Notice” shall have the meaning set forth in Section 8(b).
“Second Lien Notes” means the second lien secured notes issued pursuant to that certain Second Lien Note Purchase and Exchange Agreement, dated as of April 21, 2020, by and between the Corporation, as issuer, Senseonics, Incorporated, as guarantor, Wilmington Savings Fund Society, FSB, as collateral agent, and the purchasers party thereto, as amended, supplemented, restated or otherwise modified to the extent permitted under the Note Purchase Agreement..
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Series B Preference Amount” shall have the meaning set forth in Section 8(a).
“Series B Preferred Stock” shall have the meaning set forth in Section 2.
“Share Delivery Date” shall have the meaning set forth in Section 6(c).
“Stated Value” shall have the meaning set forth in Section 2, as the same may be increased pursuant to Section 3.
“Trading Day” means a day on which the principal Trading Market is open for business.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (or any successors to any of the foregoing).
“Transaction Documents” means this Certificate of Designation, the Purchase Agreement, and the Warrant, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.
“Transfer Agent” means Computershare Trust Company, N.A., the current transfer agent of the Corporation, with a mailing address of Meidinger Tower, 462 South 4th Street, Louisville, KY 40202, and any successor transfer agent of the Corporation.
“Warrant” means the warrant to purchase 10,000,000 shares of Common Stock issued on November 8, 2020 to Energy Capital, LLC.
Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and the number of shares so designated shall be up to 12,000. Each share of Series B Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $1,000, subject to increase set forth in Section 3 below (the “Stated Value”).
Section 3. Dividends. Except for stock dividends or distributions for which adjustments are to be made pursuant to Section 7, Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series B Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends shall be paid on shares of Series B Preferred Stock.
Section 4. Voting Rights. Except as otherwise explicitly provided herein and as otherwise prohibited by law, the Series B Preferred Stock shall have voting rights on an as converted basis with the holders of the Common Stock and shall be entitled to a number of votes per share equal to $1,000 divided by $1.24. Without limiting the generality of the foregoing sentence, so long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not (by amendment, conversion, merger, consolidation or otherwise), without the affirmative
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vote of the Holders of a majority of the shares of Series B Preferred Stock then outstanding, (a) alter or change adversely the powers, privileges, preferences or rights of the Series B Preferred Stock, (b) amend its certificate of incorporation, bylaws or other charter documents so as to affect adversely any rights of the Holders, or (c) enter into any agreement with respect to any of the matters addressed in the foregoing clauses (a)- (b). Provided however, that such “as converted” votes shall be capped at 29.0% of the total voting power of the Company’s securities then outstanding (on an as converted basis) such that no Holder (and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with such Holder’s for purposes of Section 13(d) of the Exchange Act, including shares held by any “group” of which such Holder is a member) would exceed 29.0%% of the total voting power of the Company’s securities pursuant to this Section 4.
Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation the greater of (i) the Stated Value per share plus any accrued and unpaid dividends thereon or (ii) such amount per share as would have been payable had all shares of Series B Preferred Stock been upon any such Liquidation converted to Common Stock pursuant to Section 6 immediately prior to such Liquidation, which amounts shall be paid in preference to, and prior to any payments being made to, the holders of Common Stock. For the avoidance of doubt, such payment shall be pari passu with any payment made to holders of Series A Preferred Stock. The Corporation shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder. For the avoidance of doubt, if a Liquidation constitutes a Change of Control, then Section 8 shall take precedence.
Section 6. Conversion.
a) Conversions at Option of Holder. Subject to the Beneficial Ownership Cap in Section 6(d) below, each share of Series B Preferred Stock shall be convertible, at any time and from time to time from and after the Conversion Eligibility Date of such share, at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series B Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series B Preferred Stock to be converted, the number of shares of Series B Preferred Stock owned prior to the conversion at issue, the number of shares of Series B Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Series B Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Series B Preferred Stock to the Corporation unless all of the shares of Series B Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series B Preferred Stock promptly following the Conversion Date at issue. Shares of Series B Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be canceled and shall not be reissued.
b) Conversion Price. The conversion price for the Series B Preferred Stock shall equal $0.3951, subject to adjustment as provided herein (the “Conversion Price”).
c) Mechanics of Conversion
i. Delivery of Conversion Shares Upon Conversion. Not later than two (2) Trading Days after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of the Series B Preferred Stock and (B) a bank check in the amount of accrued and unpaid dividends, if any.
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iii. Obligation Absolute. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Series B Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Series B Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or anyone associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series B Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of the Series B Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue Conversion Shares upon a properly noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Series B Preferred Stock equal to the number of shares of Series B Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Series B Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including,
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without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver Conversion Shares upon conversion of the shares of Series B Preferred Stock as required pursuant to the terms hereof.
v. Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series B Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Series B Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Series B Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable .
vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series B Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Series B Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series B Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
d) Ownership limits; Exchange Cap.
Notwithstanding anything to the contrary herein, the Company shall not issue to any Holder, and no Holder may acquire, a number of shares of Common Stock upon conversion of shares of Series B Preferred Stock to the extent that, upon such exercise, the number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons or entities whose beneficial ownership of Common Stock would be aggregated with such Holder’s for purposes of Section 13(d) of the Exchange Act (including shares held by any “group” of which such Holder is a member, but excluding shares beneficially owned by virtue of the ownership of any securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) would exceed 9.90% of the total number of shares of common stock then issued and outstanding (the “Beneficial Ownership Cap”), except that any Holder may, by written notice to the Company, which will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, reset the Beneficial Ownership Cap to a higher or lower percentage of the total number of shares of common stock then issued and outstanding, subject to a maximum of 29.0%; provided, however, that the Beneficial Ownership Cap shall only apply to the extent that the Common Stock is deemed to constitute an “equity security” pursuant to Rule 13d-1(i) promulgated under the Exchange Act. For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the SEC, and the percentage held by any Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. Upon the written request of a Holder, the Company shall, within two (2) trading days, confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding.
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Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Series B Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Series B Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Pro Rata Distributions. During such time as this Series B Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Series B Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Series B Preferred Stock (without regard to any limitations on Conversion hereof) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution.
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Series B Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
d) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
e) Notice to the Holders.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the
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assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series B Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Series B Preferred Stock (or any part hereof) during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 8. Change of Control.
a) In the event of a Change of Control, each Holder shall have the right to require the Corporation to redeem all or a portion of the Series B Preferred Stock held by such Holder at a redemption price per share equal to the greater of (i) the Stated Value per share plus any accrued and unpaid dividends thereon or (ii) such amount per share as would have been payable had such shares of Series B Preferred Stock been converted to Common Stock pursuant to Section 6 immediately prior to such Change of Control (the “Series B Preference Amount”), which amounts shall be paid in preference to, and prior to any payments being made to, the holders of Common Stock. For the avoidance of doubt, such payment shall be pari passu with any payment made to holders of Series A Preferred Stock. The Corporation shall redeem the number of shares specified in the Redemption Election (as defined below) on the date fixed for redemption set forth in the Redemption Notice (as defined below).
b) On or before the 20th Business Day prior to the date on which the Corporation anticipates consummating a Change of Control (or, if later, promptly after the Corporation discovers that a Change of Control may occur), then, the Corporation shall give written notice to each Holder of Series B Preferred Stock at its address as it appears in the records of the Corporation, which notice shall describe such Change of Control and shall state the date of the Change of Control (the “Redemption Notice”). Such notice shall also set forth (i) each Holder’s right to require the Corporation to redeem for cash shares of Series B Preferred Stock held by such holder as a result of such Change of Control; (ii) the Series B Preference Amount; (iii) the optional redemption date (which date shall be no earlier than 30 days and no later than 180 days from the date of such Change of Control unless the Corporation and the Holder agree to a later date); and (iv) the procedures to be followed by such Holder in exercising its right of redemption, including the place or places where certificates for such shares are to be surrendered for payment of the Series B Preference Amount (which place shall be the principal place of business of the Corporation). In the event a Holder of shares of Series B Preferred Stock shall elect to require the Corporation to redeem any or all of such shares of Series B Preferred Stock, such Holder shall deliver, within 20 days of the mailing to it of the Redemption Notice, a written notice stating such Holder’s election and specifying the number of shares to be redeemed (the “Redemption Election”). Notwithstanding the foregoing, the Corporation and a Holder may mutually agree to extend the time period for such Redemption Election from time to time.
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c) Any shares of Series B Preferred Stock redeemed pursuant to this Section 8 shall no longer be deemed to be outstanding and shall not have the status of shares of Series B Preferred Stock, and all rights of the holders thereof as stockholders of the Corporation with respect to the shares of Series B Preferred Stock shall cease. The shares of Series B Preferred Stock not redeemed shall remain outstanding and entitled to all the rights, preferences and privileges provided in this Certificate of Designation.
Section 9. Noncircumvention. The Corporation hereby covenants and agrees that the Corporation will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designations, and will at all times in good faith carry out all the provisions of this Certificate of Designations and take all action as may be required to protect the rights of the Holders. Without limiting the generality of the foregoing or any other provision of this Certificate of Designations, the Corporation (i) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any Series B Preferred Stock above the Conversion Price then in effect without the consent or vote of the Holders of a majority of the shares of Series B Preferred Stock then outstanding, (ii) shall take all such actions as may be necessary or appropriate in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of Series B Preferred Stock and (iii) shall, so long as any Series B Preferred Stock are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series B Preferred Stock, the maximum number of shares of Common Stock as shall from time to time be necessary to effect the conversion of the Series B Preferred Stock then outstanding (without regard to any limitations on conversion contained herein).
Section 10. Miscellaneous.
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the address set forth above Attention: Chief Financial Officer, e-mail address nick.tressler@senseonics.com or such other e-mail address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 10. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books of the Corporation, or if no such facsimile number or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
b) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages and accrued dividends, as applicable, on the shares of Series B Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
c) Lost or Mutilated Series B Preferred Stock Certificate. If a Holder’s Series B Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series B Preferred
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Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation.
d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Certificate of Designation and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Certificate of Designation or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Certificate of Designation, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
e) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.
f) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.
i) Status of Converted or Redeemed Series B Preferred Stock. Shares of Series B Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Series B Preferred Stock shall be converted, redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series B Convertible Preferred Stock.
*********************
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RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on November 7, 2022.
/s/ Timothy Goodnow | |
Name: Timothy Goodnow | |
Title: President and Chief Executive Officer |
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ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES
OF PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series B Convertible Preferred Stock indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of Senseonics Holdings, Inc., a Delaware corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of an individual or entity other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Equity Line Agreement, dated November 8, 2020, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms. No fee will be charged to the holders of Series B Convertible Preferred Stock for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion:
Number of shares of Series B Preferred Stock owned prior to Conversion:
Number of shares of Series B Preferred Stock to be Converted:
Stated Value of shares of Series B Preferred Stock to be Converted:
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Number of shares of Series B Preferred Stock subsequent to Conversion:
Address for Delivery:
or
DWAC Instructions:
Broker no:
Account no:
[HOLDER] | ||
By: | ||
Name: | ||
Title: | ||
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Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is entered into as of the 1st day of September, 2022 (“Effective Date”), by and between RICK SULLIVAN (“Employee”) and SENSEONICS, INCORPORATED (“Company”).
WHEREAS, the Company wishes to continue to employ Employee, now in a new role as Chief Financial Officer of the Company, and Employee wishes to serve in such capacity for the Company and continue to be its Employee, subject to the terms and conditions of this Agreement;
WHEREAS, the Company and Employee entered into a the prior Employment Agreement (the “Prior Agreement”), dated as of October 1, 2020 (the “Start Date”) and desire to amend and restate the Prior Agreement it its entirety; and
WHEREAS, the Company and Employee desire to set forth their respective rights and obligations in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree to the following:
1.Employment by the Company.
1.1Position. Subject to the terms set forth herein, the Company agrees to continue to employ Employee, in the new position of Chief Financial Officer, and Employee hereby accepts such continued employment on the terms and conditions set forth in this Agreement. Employee will commence work in this new position commencing on the date hereof, September 1, 2022 (the “Transition Date”).
1.2Duties. Employee will report to the Chief Executive Officer (“CEO”), or the CEO’s designee, performing such duties as are normally associated with Employees 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 Employee’s employment with the Company, Employee will work on a full-time basis for the Company and will devote Employee’s best efforts and substantially all of Employee’s business time and attention to the business of the Company. Employee shall perform Employee’s duties under this Agreement principally out of the Company’s corporate headquarters. In addition, Employee shall make such business trips to such places as may be necessary or advisable for the efficient operations of the Company.
1.3Company Policies and Benefits. The employment relationship between the parties shall also be subject to the Company’s personnel and other policies and procedures as they may be interpreted, adopted, revised or deleted from time to time in the Company’s sole discretion. Employee 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
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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.
2.1Salary. From the Transition Date, Employee shall receive for Employee’s services to be rendered under this Agreement a base salary of $370,000.00 (Three-hundred seventy 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”).
2.2Bonus. During the period Employee is employed with the Company, Employee shall be eligible to earn for Employee’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 Employee earns any bonus will be dependent upon (a) Employee’s continuous performance of services to the Company through the date any bonus is paid; and (b) the actual achievement by Employee 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 Employee 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 Employee within the time period set forth in the incentive compensation plan. For the 2022 period, Employee’s bonus shall be prorated, so that 8/12 is payable based on a 35% Target Amount on a $310,000 Base Salary, and 4/12 shall be prorated based on the Target Amount and Base Salary in this Section 2.2.
2.3Equity Incentives. In addition to equity already granted to employee in conjunction with the Prior Agreement, subject to approval by the Board and subject to the terms of the 2015 Equity Incentive Plan (the “Plan”), Employee will be granted on the Transition Date an award of restricted stock units (the “RSU Award”) to acquire the number of shares of Common Stock equal to $110,000 divided by the closing trading price of the Common Stock on the NYSE American on the Transition Date (rounded to the nearest whole number of shares) pursuant to the Company’s standard form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement (to the extent permitted) and the terms of the Plan, with such changes as the Company’s management and legal counsel may deem to be necessary or advisable. The RSU Award shall vest, subject to Employee’s continued service, in eight equal installments with the first installment vesting on November 15, 2022 and the remaining seven installments vesting in six month increments commencing on May 15, 2023, subject to Employee’s continuous service with the Company as of the applicable vesting date. The RSU Award will be governed by and subject to the terms and conditions of the Plan and other documents issued in connection with the grant.
2.4Expense Reimbursement. The Company will reimburse Employee for reasonable business expenses in accordance with the Company’s standard expense reimbursement
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policy, as the same may be modified by the Company from time to time. The Company shall reimburse Employee 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 Employee 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 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, Confidentiality, Competition and Confidentiality. As a condition of employment, Employee has executed and agreed to abide by, and Employee agrees to continue to abide by, an Ideas, Inventions, Competition and Confidentiality Agreement attached as Exhibit A to the Prior Agreement (“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 Employee prior to the signing of this Agreement, Employee will not, while employed by the Company, undertake or engage in any other employment, occupation or business enterprise that would interfere with Employee’s responsibilities and the performance of Employee’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 Employee may wish to serve, (ii) reasonable time devoted to activities in the non-profit and business communities consistent with Employee’s duties; and (iii) such other activities as may be specifically approved by the Board. This restriction shall not, however, preclude Employee (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. Employee represents that Employee’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 Employee’s employment by the Company, including agreements or obligations Employee may have with prior employers or entities for which Employee has provided services. Employee has not entered into, and Employee agrees that Employee will not enter into, any agreement or obligation, either written or oral, in conflict herewith. As part of this obligation, Employee 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 Employee’s work for the Company, consistent with any agreements between Employee and such third party or third parties.
6.Termination of Employment. The parties acknowledge that Employee’s employment relationship with the Company is at-will, meaning either the Company or Employee may terminate Employee’s employment at any time, with or without cause or advanced notice,
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except for the notice from Employee set out in Section 8.1 below. The provisions in this Section govern the amount of compensation, if any, to be provided to Employee upon termination of employment and do not alter this at-will status.
6.1Termination by the Company without Cause or for Good Reason.
(a)The Company shall have the right to terminate Employee’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 Employee’s employment at any time without Cause or Employee 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-1(h), without regard to any alternative definition thereunder, a “Separation from Service”), then Employee shall be entitled to receive the Accrued Obligations (defined below). If Employee complies with the obligations in Section 6.1(c) below, Employee shall also be eligible to receive the following severance benefits: (1) an amount equal to Employee’s then current Base Salary for twelve (12) 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), with the remaining installments occurring on the Company’s regularly scheduled payroll dates thereafter and (2) a pro rata portion of Employee’s Target Amount for the performance year in which Employee’s termination occurs, with such pro rata portion calculated based upon the number of days that Executive was employed during such performanc 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) (“Severance Bonus”).
(c)Employee will be paid all of the Accrued Obligations on the Company’s first payroll date after Employee’s date of termination from employment or earlier if required by law. Employee shall receive the Severance pursuant 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 Employee’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 Employee’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. To the extent that any severance payments are 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 Employee 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.
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(d)If Employee 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 Employee’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 Employee becomes eligible for substantially equivalent health insurance coverage in connection with new employment or self-employment; or (iii) the date Employee 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 Employee’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 Employee 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 Employee 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) Employee’s accrued but unpaid salary through the date of termination, (ii) any unreimbursed business expenses incurred by Employee payable in accordance with the Company’s standard expense reimbursement policies, and (iii) benefits owed to Employee under any qualified retirement plan or health and welfare benefit plan in which Employee was a participant in accordance with applicable law and the provisions of such plan.
(f)The Severance provided to Employee pursuant to this Section 6.1 is in lieu of, and not in addition to, any benefits to which Employee may otherwise be entitled under any Company severance plan, policy or program.
(g)Any damages caused by the termination of Employee’s employment without Cause would be difficult to ascertain; therefore, the Severance for which Employee 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 Employee’s consent: (i) a material reduction in Employee’s Base Salary of at least 10%; (ii) a material breach of this Agreement by the Company; (iii) any material diminution in Employee’s duties, responsibilities, authority, reporting structure, status or title, unless approved in writing by Employee; or (iv) the relocation of Employee’s principal place of employment, without Employee’s consent, in a manner that lengthens his one-way commute distance by fifty (50) or more miles from his then-current principal place of employment immediately prior to such relocation; provided, however, that, any such termination by Employee shall only be deemed for Good Reason pursuant to this definition if: (1) Employee gives the Company written notice of his intent to terminate for Good Reason within thirty (30)
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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) Employee voluntarily terminates his employment within thirty (30) days following the end of the Cure Period.
(i)Any damages caused by the termination of Employee’s employment without Cause or for Good Reason would be difficult to ascertain; therefore, the payments for which Employee 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.
6.2Termination by the Company without Cause or for Good Reason Following a Change in Control.
(a)If Employee’s employment by the Company is terminated by the Company without “Cause” (and not due to Disability or death) or by Employee for Good Reason coincident with a Change in Control (as defined below), then the Company shall pay or provide Employee 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: if Employee’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 Employee 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 purposes of this Agreement it is also meets the definition used for purposes of Treasury Regulation Section 1.409A-3(a)(5), that is, as defined under Treasury Regulation Section 1.409A-3(i)(5).
(c)Any damages caused by the termination of Employee’s employment without Cause or for Good Reason following a Change in Control would be difficult to ascertain; therefore, the payments for which Employee is eligible pursuant to Section 6.2 above in exchange
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for the Release is agreed to by the parties as liquidated damages, to serve as full compensation, and not a penalty.
6.3Termination by the Company for Cause.
(a)The Company shall have the right to terminate Employee’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 Employee’s employment is terminated at any time for Cause, Employee 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 Employee the Accrued Obligations.
(b)“Cause” for termination shall mean that the Company has determined in its sole discretion that Employee 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 Employee’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.
6.4Resignation by Employee.
(a)Employee may resign from Employee’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 Employee resigns from Employee’s employment with the Company for any reason, Employee 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 Employee the Accrued Obligations.
6.5Termination by Virtue of Death or Disability of Employee.
(a)In the event of Employee’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 Employee’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 Employee, and in accordance with Section 6.6, to terminate this Agreement based on Employee’s Disability. Termination by the Company of Employee’s employment based on “Disability” shall mean termination because Employee 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
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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 Employee’s employment is terminated based on Employee’s Disability, Employee will not receive Severance, a Severance Bonus or any other severance compensation or benefit, except that, pursuant to the Company’s standard payroll policies, the Company shall pay to Employee the Accrued Obligations.
6.6Notice; Effective Date of Termination.
(a)Termination of Employee’s employment pursuant to this Agreement shall be effective on the earliest of:
(i)immediately after the Company gives notice to Employee of Employee’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 Employee’s death;
(iii)ten (10) days after the Company gives notice to Employee of Employee’s termination on account of Employee’s Disability, unless the Company specifies a later date, in which case, termination shall be effective as of such later date, provided that Employee has not returned to the full-time performance of Employee’s duties prior to such date;
(iv)thirty (30) days after the Employee gives written notice to the Company of Employee’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 Employee’s resignation shall be effective as of such other date. Employee will receive compensation through any notice period required by Company; or
(v)for a termination for Good Reason, immediately upon Employee’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 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.
6.7Cooperation with Company after Termination of Employment. Following termination of Employee’s employment for any reason, Employee 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 Employee’s employment by the Company. Such cooperation includes, without limitation, making Employee 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
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Employee’s employment with the Company ends for any reason, Employee agrees to cooperate fully with the Company in all matters relating to the transition of Employee’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 Employee for reasonable out-of-pocket expenses Employee incurs in connection with any such cooperation (excluding forgone wages, salary, or other compensation) and will make reasonable efforts to accommodate Employee’s scheduling needs.
6.8Application 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-1(b)(4) and 1.409A-1(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 Employee’s termination of employment constitutes a “separation from service” (as defined under Treasury Regulation Section 1.409A-1(h)). For purposes of Section 409A (including, without limitation, for purposes of Treasury Regulations Section 1.409A-2(b)(2)(iii)), Employee’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 Employee 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 Employee’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 Employee’s Separation from Service, and (b) the date of Employee’s death (such earlier date, the “Delayed Initial Payment Date”), the Company will (i) pay to Employee a lump sum amount equal to the sum of the severance benefits that Employee 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.
7.1Anything 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 Employee, 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
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at which Employee 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 Employee receiving a higher After Tax Amount (as defined below) than Employee 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).
7.2For 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 Employee as a result of Employee’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, Employee 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.
8.1Notices. 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 to the Attention of the Chief Executive Officer, with a copy to the General Counsel, at its primary office location and to Employee at either Employee’s address as listed on the Company payroll, or Company-issued email address, or at such other address as the Company or Employee may designate by ten (10) days advance written notice to the other.
8.2Severability. 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.
8.3Survival. 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
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such termination, whether by expiration of the term, termination of Employee’s employment, or otherwise, for such period as may be appropriate under the circumstances.
8.4Waiver. 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.
8.5Complete Agreement. This Agreement constitutes the entire agreement between Employee 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 Employee 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 Employee’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.
8.6Counterparts. 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.
8.7Headings. 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.
8.8Successors 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. Employee may not assign or transfer this Agreement or any rights or obligations hereunder, other than to his estate upon his death.
8.9Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the laws of the State of Maryland.
8.10Dispute Resolution. The parties recognize that litigation in federal or state courts or before federal or state administrative agencies of disputes arising out of the Employee’s employment with the Company or out of this Agreement, or the Employee’s termination of employment or termination of this Agreement, may not be in the best interests of either the Employee 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
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negotiation, execution, performance or termination of this Agreement or the Employee’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 Employee 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 Employee’s option, Employee 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 Employee 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]
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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 | |
| | |
| EMPLOYEE | |
| | |
| | /s/ Rick Sullivan |
| | Rick Sullivan |
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Exhibit 10.2
TRANSITION AGREEMENT AND RELEASE
THIS TRANSITION AGREEMENT AND RELEASE (“Agreement”) is made and entered into between Nick Bryan Tressler (“Executive”) and Senseonics, Incorporated (“Senseonics”). The terms of this Agreement are set forth below:
1.Senseonics and Executive have agreed that other than as explicitly set forth herein all employment agreements between Executive and Senseonics will terminate effective on September 1, 2022, and that on that date Senseonics will allow Executive to enter into a “Transition Period” that will continue through December 31, 2022 (the “Resignation Date”), provided that Executive continues to perform his work in a reasonably satisfactorily manner as reasonably determined by Senseonics. During the Transition Period Executive shall support the Chief Financial Officer, Chief Executive Officer and General Counsel on an as needed basis;
2.In further consideration of and in exchange for Executive’s execution of this Agreement and a second severance and release agreement on or after December 31, 2022, Senseonics will:
(a)following the successful conclusion of the Transition Period, and subject to the delivery of the second severance and release agreement (attached hereto as Exhibit A) and expiry of the revocation waiting period thereunder, provide Executive will severance pay in the form of continued compensation at his existing annualized base salary rate of $361,000 per annum (for a total of $240,667) through August 31, 2023, at regularly scheduled pay periods, less deductions and withholdings required by law (“Severance Payments”). Executive acknowledges and agrees that the payments he will receive during the Transition Period pursuant to Paragraph 1 and the Severance Payments under this Paragraph 2(a) will satisfy any severance obligation owed to Executive under any employment agreement between the parties; and
(b)reimburse to Executive the premiums for general health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) through August 31, 2023 an amount equal to the premium previously paid by Senseonics on his behalf while he was employed by Senseonics, to the extent that he remains eligible for said insurance coverage under COBRA, and provided that he submits proof of payment of the COBRA premium to Senseonics within 7 business days of payment. If Executive does not submit to Senseonics proof of payment within 7 business days of payment, he agrees that Senseonics does not have any obligation to reimburse him for that or any further COBRA premiums;
(c)provide Executive with additional severance pay in the amount of $96,267, less deductions and withholdings required by law, representing approximately 8/12 of the 40% target payout bonus for 2022 Executive was eligible to earn under his existing Amended and Restated Employment Agreement and Senseonics’s incentive plans (the “Severance Bonus” as defined in the Employment Agreement), paid when other Company executives are paid the 2022 annual bonus but in no event later than April 15, 2023;
(d)provided Executive remains employed as contemplated by this Agreement, allow Executive to continue to vest in his equity under the terms of the Company’s equity incentive plans to December 31, 2022 for equity awards with vesting dates between the date of this Agreement and the Resignation Date; and
(e)in the event that Senseonics terminates Executive’s employment after the date
hereof and prior to the Resignation Date and such termination would not qualify as a “for Cause” termination under the definition of Cause provided in subsections (i), (ii), (iii), (iv), and (vii) of Section 6.3(b) of the Employment Agreement, including without limitation for a breach of the Employee Agreement on Ideas, Inventions, and Confidentiality referenced in Section 7(b) below, then: the Resignation Date shall be amended to be such termination date; Executive shall remain entitled to the benefits set forth in Sections 2 (a), (b) and (c) above; and the Severance Payments under Section 2(a) shall be increased by pro rata amount calculated by multiplying $361,000 by the number of days from the new termination date to December 31, 2022 and dividing by 365, all provided that Executive delivers and does not revoke in accordance with its terms the second severance and release agreement.
3.Executive forever releases and discharges Senseonics and its current and former shareholders, members, directors, officers, managers, employees, agents, attorneys, accountants, representatives, parent companies, subsidiaries, divisions, predecessors, successors, entities who are or may be considered joint employers, assigns, trusts, and affiliates (the “Releasees”) from any and all claims, demands, suits, or any other form of dispute for adjudication in any forum, whether known or unknown, relating in any way to Executive’s employment with Senseonics or the termination thereof or any event or transaction that occurred before this Agreement is signed, including, without limitation, claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C.A. section 1981 and section 1983, as amended, Title 20 of the Maryland State Government Code, as amended, the Americans with Disabilities Act, as amended, the Equal Pay Act, as amended, the Employee Retirement Income Security Act, as amended (with respect to unvested benefits), the Civil Rights Act of 1991, as amended, the Sarbanes-Oxley Act of 2002, as amended, the Worker Adjustment and Retraining Notification Act, as amended, the federal Family and Medical Leave Act (“FMLA”), as amended, and all other federal, state or local laws relating to the employment relationship or governing employment practices, and claims for breach of contract, wrongful discharge, personal injuries or torts. Executive is not waiving rights or claims that may arise after the date of this Agreement or which otherwise cannot be waived. EMPLOYEE FULLY UNDERSTANDS THAT THIS IS A GENERAL WAIVER AND RELEASE OF ALL CLAIMS.
4.Executive agrees that he shall not initiate, and represents that he has not initiated and does not intend to initiate, any action before any administrative, judicial or other forum with respect to any matter arising out of, relating to, or connected in any way with, his current employment by Senseonics or the termination thereof, to the extent permitted by law. Executive hereby releases and waives his right to any monetary recovery in connection with any proceeding initiated by any state or federal agency, or Executive, or anyone on his behalf, against Senseonics or any other Releasee, in connection with any matter arising out of, relating to, or connected in any way with, his current employment by Senseonics or the termination thereof, to the extent permitted by law. Moreover, nothing in this Agreement prohibits Executive from reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of any law or regulation, nor can this Agreement be construed to prohibit Executive from filing a charge with or participating in any investigation or proceeding conducted by any government agency charged with enforcement of any law.
5.Executive acknowledges and agrees that the payments made pursuant to this Agreement shall not be construed or interpreted as an admission of any liability on the part of
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Senseonics or any other Releasee. Senseonics specifically disclaims liability to or wrongful treatment of Executive on the part of Senseonics or any other Releasee.
6.Executive represents and warrants that as of the date he executes this Agreement he has received any and all wages and other compensation for work performed and all overtime compensation and family and medical leave and other leave to which he may have been entitled, and that he is not currently aware of any facts or circumstances constituting sexual harassment, sexual abuse, or retaliation for reporting sexual harassment or abuse, by Senseonics or any other Releasee, or a violation by Senseonics or any other Releasee of the Fair Labor Standards Act (“FLSA”), as amended, the Maryland Wage Payment and Collection Law (“MWPCL”), as amended, the Families First Coronavirus Response Act, as amended, or other federal, state or local laws relating to the employment relationship or governing employment practices. Executive further represents that he has not suffered any on-the-job injury for which he has not already filed a claim.
7.(a)Except as relating to claims of sexual harassment or sexual abuse, Executive agrees that he will keep the terms, amount and fact of this Agreement confidential, and that he will not hereafter disclose or discuss any information concerning this Agreement, or any discussions preceding it, to any third person, including, but not limited to, any past, present or future employee of Senseonics. Executive may only disclose this Agreement to his attorney, tax advisor or immediate family, provided that he expressly advises them of the obligation to keep this Agreement confidential and that they agree to do so.
(b)Executive agrees to comply with the Employee Agreement on Ideas, Inventions, and Confidentiality executed between you and the Company, incorporated by reference and attached as Exhibit B to this Agreement, and further agrees to comply with the obligations set forth in Section 6.1 (c) of his Employment Agreement. Except as provided by Paragraph 4 of this Agreement, Executive specifically understands and acknowledges his obligation to keep confidential the information of Senseonics as specified in Exhibit B and represents that he has returned, or will hereafter promptly return, all property and information belonging to Senseonics, including, but not limited to, all keys, access cards, equipment of any kind, technical information, customer information and pricing information, such as customer lists and customer identification information, employee information, specifications, quotations, marketing strategies, inventory records, sales records, and confidential or trade secret materials. Executive acknowledges that he has not kept, and will not keep, any copies, nor made or retained any abstracts or notes of such information. Executive recognizes that Senseonics has received from third parties confidential or proprietary information subject to a duty on Senseonics’s part to maintain the confidentiality of such information and to use it only for certain limited purposes. Executive agrees to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or use it.
Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, provided that it is disclosed solely for the purpose of reporting or investigating a suspected violation of law, or is made in a complaint or other document filed in a lawsuit or other proceeding filed under seal so that it is not disclosed to
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the public. If Executive brings suit against Senseonics for retaliation based on the reporting of a suspected violation of law, he may disclose a trade secret to his attorney and use the trade secret information in the court proceeding, so long as any document containing the trade secret is filed under seal and he does not disclose the trade secret except pursuant to court order.
(c)Neither this Agreement nor the fact of this Agreement shall be offered into evidence by any of the parties hereto in any action or proceeding in any court, arbitration, administrative agency or other tribunal for any purpose whatsoever other than to carry out or enforce the provisions of this Agreement. If Executive is subpoenaed for any reason having to do with his employment with Senseonics, he will provide notice of the subpoena by electronic mail or hand delivery within five days of the receipt of the subpoena, and at least five days prior to any requested production of documents or testimony, to Meredith S. Campbell, Esq., Shulman, Rogers, Gandal, Pordy & Ecker, P.A., 12505 Park Potomac Ave., Sixth Floor, Potomac, Maryland 20854.
8.(a)Executive confirms that he has not and agrees that he will at no time willfully make any derogatory statements about or otherwise disparage, defame, impugn or damage the reputation or integrity of Senseonics or any other Releasee, to any person or entity, including but not limited to, any employee, customer, former customer or potential customer of Senseonics, except as provided by Paragraph 4 or in response to valid compulsory legal process or as otherwise required by law, subject to the provisions of Paragraph 4 and Paragraph 7(c) hereof.
(b)Senseonics agrees that during the Transition Period it will work in good faith with Executive to draft a mutually acceptable letter of reference, and that once that letter is drafted, if agreed by Executive it will send the letter in response to any request for reference submitted to Human Resources on behalf of Executive and otherwise direct the CEO, CFO, General Counsel and head of HR to respond to reference inquiries consistently with the letter.
9.Executive agrees that he will not voluntarily aid, provide any information to or assist in any capacity whatsoever any other employee or former employee of Senseonics or any other person, in the pursuit of any claims, actions or proceedings brought against Senseonics or any other Releasee, except in response to valid compulsory legal process or as otherwise required by law, subject to the provisions of Paragraph 4 and Paragraph 7(c) hereof.
10.Executive agrees that all requests for reference shall be directed to Human Resources. Senseonics agrees that in response to a reference request directed to Human Resources, it will respond with Executive’s title and dates of employment and, if agreed by Executive in writing, the letter and response to reference inquiries referenced in Section 8 (b) above.
11. Executive agrees that the Releasees have no obligation, contractual or otherwise, to rehire, reinstate, re-employ, or recall him in the future, or to consider any employment application submitted by him. Executive acknowledges and agrees that a refusal by the Releasees to hire him in the future as an employee or independent contractor, whether on a full-time, part-time or temporary basis, shall not be deemed retaliatory.
12.Executive affirms that the only consideration for signing this Agreement are the terms stated herein, that no other promises or agreements of any kind have been made to or with
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him by any person or entity whatsoever to cause him to sign this Agreement. Executive has accepted the terms of this Agreement because he believes it to be fair and reasonable and for no other reason. This Agreement, including Exhibit A, sets forth the entire agreement of the parties, and supersedes any and all prior agreements or understandings between the parties, pertaining to the subject matter of this Agreement. Any modifications or changes to this Agreement must be made in writing and signed by all parties.
13.This Agreement is binding upon and inures to the benefit of Executive, Senseonics and the other Releasees, and their respective, heirs, personal and legal representatives, successors and assigns. This Agreement may not be assigned by Executive.
14.This Agreement may be executed in counterparts, and execution in such manner shall in no way affect or alter the validity of this Agreement or the rights and responsibilities of the parties thereto. Facsimile or PDF signatures shall be treated as originals for all purposes.
15.In the event of a dispute regarding the meaning of any language contained in this Agreement, the parties agree that the same shall be accorded a reasonable construction and shall not be construed more strongly against one party than the other by virtue of that party having drafted this Agreement or any portion thereof.
16.This Agreement shall be governed by and interpreted according to the law of the State of Maryland, without regard to or application of choice-of-law rules or principles. The parties to this Agreement agree that any action pursued may only be brought in Maryland and consent to the jurisdiction of the Maryland state and federal courts. If any provision of this Agreement is held to be invalid, illegal, void or unenforceable, the invalid, illegal, void or unenforceable term shall be deemed not to be a part of this Agreement, and the validity of the remaining terms of this Agreement shall not be affected thereby and shall continue in full force and effect. The parties agree to waive their right to a trial by jury in any action related to or arising out of this Agreement or Executive’s current employment relationship with Senseonics, except as related to future claims of sexual harassment or retaliation for reporting sexual harassment.
17.Should Executive fail to execute and return this Agreement within 10 days of the date he was presented with this Agreement, the severance offer is revoked and the terms herein are null and void.
[Remainder of Page Intentionally Blank]
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THE UNDERSIGNED FURTHER STATE THAT EACH HAS CAREFULLY READ THE FOREGOING AGREEMENT, KNOWS THE CONTENTS THEREOF, FREELY AND VOLUNTARILY ASSENTS TO ALL THE TERMS AND CONDITIONS THEREOF, AND SIGNS THE SAME AS HIS OR HER OWN FREE ACT.
/s/Nick Bryan Tressler | |
Nick Bryan Tressler | Date: September 1, 2022 |
| |
SENSEONICS, INCORPORATED | ||
By: | /s/Tim Goodnow | Date: September 1, 2022 |
Tim Goodnow | | |
President & Chief Executive Officer | | |
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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: November 8, 2022
| |
| /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, Rick Sullivan, 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: November 8, 2022
| |
| /s/ Rick Sullivan |
| Rick Sullivan |
| 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 Rick Sullivan, 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 September 30, 2022 (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 8th day of November 2022.
/s/ Timothy T. Goodnow, Ph.D. |
| /s/ Rick Sullivan |
Timothy T. Goodnow, Ph.D. |
| Rick Sullivan |
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.