ENTEROMEDICSINC. (NASDAQ:ETRM) Files An 8-K Entry into a Material Definitive Agreement

Item1.01.Entry into a Material Definitive Agreement.

Merger Agreement

On May22, 2017, EnteroMedicsInc., a Delaware corporation (the
“Company”), entered into an Agreement and Plan of Merger (the
“Merger Agreement”), with BarioSurg,Inc., a Delaware
corporation (“BarioSurg”), Acorn SubsidiaryInc., a Delaware
corporation and wholly owned subsidiary of the Company (“Merger
Sub”), Acorn Subsidiary HoldingsLLC, a Delaware limited
liability company and wholly owned subsidiary of the Company
(“SubLLC”), and Dr.Raj Nihalani, solely in his capacity as
representative of BarioSurg’s stockholders, to which, among
other things, Merger Sub merged with and into BarioSurg, with
BarioSurg surviving as a wholly owned subsidiary of the Company
(the “Merger”). BarioSurg was subsequently merged with and into
SubLLC, with SubLLC as the surviving company. The Merger has been
approved by the boards of directors of the Company, Merger Sub
and BarioSurg, by the sole member of SubLLC, and by the
stockholders of BarioSurg.

The aggregate merger consideration to be paid by the Company for
all of the outstanding shares of capital stock and outstanding
options of BarioSurg is: (i)1.38million shares of common stock,
par value $0.01 per share, of the Company (“Company Common
Stock”), (ii)1.0million shares of newly created conditional
convertible preferred stock, par value $0.01 per share, of the
Company (“Company Preferred Stock”), which shares will convert
into 5.0million shares of Company Common Stock subject to and
contingent upon the post-closing approval of the Company’s
stockholders in accordance with the NASDAQ Stock Market Rules,
and (iii)$2million in cash, less the amount of third party
expenses paid by the Company on behalf of BarioSurg, as set forth
in the Merger Agreement. At the closing of the Merger, 100,018
shares of Company Preferred Stock will be deposited with an
escrow agent to fund-post closing indemnification obligations of
BarioSurg’s former stockholders.

The shares of Company Common Stock issued at the closing of the
Merger represent approximately 10.4% of the total outstanding
shares of Company Common Stock immediately following the Merger.
Subject to receipt of the required approval of the Company’s
stockholders, the number of shares of Company Common Stock to be
issued upon conversion of the shares of Company Preferred Stock
represents approximately 37.6% of the total outstanding shares of
Company Common Stock immediately following the Merger, on an
as-converted basis. Collectively, the shares of Company Common
Stock and Company Preferred Stock (assuming conversion of the
Company Preferred Stock into Company Common Stock) to be issued
in connection with the Merger will represent approximately 48.0%
of the issued and outstanding capital stock of the Company
following the Merger, on an as-converted basis. Shares of Company
Preferred Stock will be non-voting until the receipt of the
required Company stockholder approval.

Approval by the Company’s stockholders was not required in
connection with the closing of the Merger and the issuance of
shares of Company Common Stock in connection with the Merger.
Under the terms of the Merger Agreement, the Company has agreed
to use commercially reasonable efforts to call and hold a meeting
of the Company’s stockholders to obtain the requisite approval
for the conversion of the Company Preferred Stock into shares of
Company Common Stock, for purposes of the NASDAQ Stock Market
Rules, within 120days after the date of the Merger Agreement and,
if such approval is not obtained at that meeting, to obtain such
approval at an annual or special stockholders meeting to be held
at least every six months thereafter.

The foregoing description of the Merger Agreement does not
purport to be complete and is subject to, qualified in its
entirety by reference to, the full text of the Merger Agreement,
which is filed as Exhibit2.1 to this report and is incorporated
herein by reference. The Merger Agreement and related description
are intended to provide you with information regarding the terms
of the Merger Agreement and are not intended to modify or
supplement any factual disclosures about the Company in its
reports filed with the Securities and Exchange Commission (the
“SEC”). In particular, the Merger Agreement and related
description are not intended to be, and should not be relied upon
as,

disclosures regarding any facts and circumstances relating to the
Company. The assertions embodied in the representations and
warranties made by BarioSurg in the Merger Agreement are
qualified in information contained in disclosure schedules that
BarioSurg has delivered to the Company in connection with the
signing of the Merger Agreement made for purposes of allocating
contractual risk between the parties to the Merger Agreement
instead of establishing these matters as facts. The
representations and warranties also may be subject to a
contractual standard of materiality different from those
generally applicable under the securities laws. Stockholders of
the Company are not third-party beneficiaries under the Merger
Agreement and should not rely on the representations, warranties
and covenants or any descriptions thereof as characterizations of
the actual state of facts or condition of the Company, BarioSurg
or any of their respective subsidiaries or affiliates. Moreover,
information concerning the subject matter of the representations
and warranties may change after the date of the Merger Agreement.

Voting Agreement and Irrevocable Proxy; Employment Agreement;
Non-Competition Agreement

On May22, 2017, in connection with and as a condition to the
execution of the Merger Agreement, the Company and Dr.Raj
Nihalani, the founder and Chief Executive Officer of BarioSurg,
entered into a voting agreement and irrevocable proxy (the
“Voting Agreement”) to which Dr.Nihalani agreed to vote all
shares of Company Common Stock he owns after the Merger,
including shares of Company Common Stock issued upon conversion
of Company Preferred Stock, in accordance with the recommendation
of the Board of Directors of the Company. Dr.Nihalani holds
approximately 34% of the Company Common Stock immediately after
the Merger (assuming conversion of the Company Preferred Stock
into Company Common Stock).

Dr.Nihalani also entered into an employment agreement (the
“Employment Agreement”) with the Company to which he will serve
as the Company’s Chief Technology Officer. The employment
agreement provides for an annual base salary of $300,000 and a
potential cash incentive payment of up to 32% of annual base
salary. Dr.Nihalani also entered into an indemnification
agreement with the Company (the “Indemnification Agreement”) in
substantially the same form as the Company’s other executive
officers. In connection with the Merger Agreement, the Company
and Dr.Nihalani entered into a non-competition agreement to which
Dr.Nihalani agreed, among other things, not to engage in any
business activities that are directly related to bariatric
surgery medical devices for a period of three-years after the
Merger.

The foregoing description of the Voting Agreement, Employment
Agreement, Indemnification Agreement and Non-Competition
Agreement does not purport to be complete and is subject to,
qualified in its entirety by reference to, the full text of the
Voting Agreement, Employment Agreement, Indemnification Agreement
and Non-Competition Agreement, which are filed as Exhibits10.1,
10.2, 10.3 and 10.4, respectively, to this report and are
incorporated herein by reference.

Item2.01Completion of Acquisition or Disposition of
Assets.

The information contained in Item1.01 is incorporated herein by
reference. The transactions contemplated by the Merger Agreement,
including the Merger, described in Item1.01 above were completed
on May22, 2017.

Item3.02Unregistered Sales of Equity Securities.

The information contained in Item1.01 is incorporated herein by
reference. The issuance of the Company Common Stock in connection
with the Merger was, and the issuance of the Company Preferred
Stock in connection with the Merger is expected to be, exempt
from the registration requirements of the Securities Act of 1933,
as amended (the “Securities Act”), to

Section4(a)(2) thereof and RegulationD promulgated thereunder,
based upon appropriate representations and certifications that
the Company has obtained from BarioSurg and its stockholders.

Item5.01Changes in Control of the Registrant.

The information contained in Item1.01 is incorporated herein by
reference. The transactions contemplated by the Merger Agreement
may be deemed to be a change of control of the Company because in
connection with the Merger (i)Dr.Nihalani will own, or have the
right to acquire, approximately 34% of the outstanding shares of
Company Common Stock, the Company’s largest ownership position
immediately after the Merger, assuming conversion of the Company
Preferred Stock into Company Common Stock, and (ii) to the Voting
Agreement Dr.Nihalani has agreed to vote his shares of Company
Common Stock in accordance with the recommendations of the Board
of Directors of the Company. Prior to the consummation of the
Merger, Dr.Nihalani did not own any shares of Company Common
Stock and the members of the Company’s Board of Directors owned
in the aggregate approximately 3.4% of the outstanding Company
Common Stock.

Item7.01RegulationFD Disclosure.

On May22, 2017, the Company announced the transaction described
in Item1.01 above. A copy of the press release is furnished as
Exhibit99.1 to this report and is incorporated herein by
reference.

The information contained in this Item7.01 and Exhibit99.1 to
this report shall not be deemed to be “filed” for purposes of
Section18 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), or otherwise subject to the liability of that
section, and shall not be incorporated by reference into any
filings made by the Company under the Securities Act or the
Exchange Act, except as may be expressly set forth by specific
reference in such filing.

Item9.01Financial Statements and Exhibits.

(a)

Financial Statements of Businesses Acquired.

(b)

Pro Forma Financial Information.

(c)

Shell Company Information.

Not applicable.

(d)

Exhibits.

Important Additional Information and Where to Find
It

The Company intends to filea proxy statement and other
relevant materials with the SEC to obtain approval from the
Company’s stockholders of the conversion of the Company
Preferred Stock to be issued to BarioSurg’s stockholders in
connection with the acquisition into shares of Company Common
Stock (the “Stockholder Approval”). INVESTORS AND SECURITY
HOLDERS ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT
MATERIALS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY AS THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION
ABOUT THE STOCKHOLDER APPROVAL. The proxy statement, any
amendments or supplements to the proxy statement and other
relevant documents filed by the Company with the SEC will be
available free of charge through the web site maintained by the
SEC at www.sec.gov or by calling the SEC at telephone
number1-800-SEC-0330. Free copies of these documents may also be
obtained from the Company’s website at www.enteromedics.com or
by writing to: EnteroMedicsInc., 2800 Patton Road, St.Paul,
Minnesota55113, Attention: Investor Relations.

The Company and its directors and
executive officers are deemed to be participants in the
solicitation of proxies from the stockholders of the Company in
connection with the Stockholder Approval. Information regarding
the Company’s directors and executive officers is included in
the Company’s definitive proxy statement for its 2017 annual
meeting of stockholders to be held on June1, 2017, which was
filed with the SEC on April27, 2017.

Other information regarding
the participants in such proxy solicitation and a description of
their direct and indirect interests, by security holdings or
otherwise, will be included in the proxy statement to be filed in
connection with the Stockholder Approval.

Cautionary Statement

The issuance of the
securities in the transactions described in this report have not
been registered under the Securities Act, or any state securities
laws and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration
requirements of the Securities Act and applicable state
securities laws. This report shall not constitute an offer to
sell or the solicitation of an offer to buy the securities, nor
shall there be any sale of the securities in any jurisdiction or
state in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws
of any such jurisdiction or state.

to the requirements of the
Securities Exchange Act of 1934, as amended, the registrant has
duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

ENTEROMEDICSINC. CURRENT
REPORT ON FORM 8-K

Exhibit
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About ENTEROMEDICS INC. (NASDAQ:ETRM)

EnteroMedics Inc. (EnteroMedics) is a medical device company. The Company is focused on the design and development of devices that use neuroblocking technology to treat obesity, metabolic diseases and other gastrointestinal disorders. The Company’s neuroblocking technology, which is referred to as VBLOC therapy, is designed to intermittently block the vagus nerve. The Company’s initial product is the Maestro Rechargeable System, which uses VBLOC therapy to limit the expansion of the stomach, help control hunger sensations between meals, reduce the frequency and intensity of stomach contractions and produce a feeling of early and prolonged fullness. The Company’s VBLOC therapy is designed to block the gastrointestinal effects of the vagus nerve by replicating a vagotomy using high-frequency, low-energy electrical impulses to intermittently interrupt naturally occurring neural impulses on the vagus nerve between the brain and the digestive system.

ENTEROMEDICS INC. (NASDAQ:ETRM) Recent Trading Information

ENTEROMEDICS INC. (NASDAQ:ETRM) closed its last trading session up +0.49 at 5.08 with 301,989 shares trading hands.