Exhibit 10.3

FIRST AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is
entered into as of May 9, 2013 by and between Silicon Valley Bank (“Bank”) and
Enteromedics Inc., a Delaware corporation (“Borrower”), whose address is 2800
Patton Road, Saint Paul, MN 55113.

RECITALS

A. Borrower and Bank have entered into that certain Loan and Security Agreement
dated April 16, 2012 (as the same may be amended, modified, supplemented or
restated in writing from time to time, the “Loan Agreement”).

B. Bank has extended credit to Borrower for the purposes permitted in the Loan
Agreement.

C. Borrower has requested that Bank amend the Loan Agreement, as herein set
forth, and Bank has agreed to the same, but only to the extent, in accordance
with the terms, subject to the conditions and in reliance upon the
representations and warranties set forth herein.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, and intending to be legally bound, the parties hereto agree as
follows:

1. Definitions. Capitalized terms used but not defined in this Amendment shall
have the meanings given to them in the Loan Agreement.

2. Amendments and Other Provisions.

2.1. Limited Waiver.

(a) Occurrence of Events of Default. Borrower acknowledges that the following
Events of Default (individually, and collectively, the “Designated Default”)
have occurred: Borrower failed to comply with the minimum revenue and minimum
implant requirements of Section 6.7 of the Loan Agreement (such requirements
existing prior to the amendment of Section 6.7 pursuant to this Amendment).

(b) Limited Waiver. Bank hereby waives the Designated Default. This waiver does
not, however, constitute a waiver of Borrower’s obligation to meet any covenants
at other applicable dates, or Borrower’s obligation to meet all other
requirements of all agreements with Bank, nor does it constitute a waiver of any
of the other terms or provisions of the Loan Agreement, or any other documents,
instruments or agreements, whether or not similar to the foregoing.

 

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2.2. Success Fee. The following is hereby added to the Loan Agreement as a new
Section 2.4(d):

(d) Success Fee. A success fee (the “Success Fee”) in the amount of $186,666.67,
which shall be payable upon the first to occur of the following: (i) the earlier
of (y) Borrower receiving funds from a sale or issuance of its stock that takes
place after the U.S. Food and Drug Administration has given Premarket Approval
for one of Borrower’s products or (z) the passage of 120 days after such
Approval, or (ii) any prepayment of the Term Loan 2012 other than a prepayment
that is required by Bank.

2.3. Cash Collateral. Section 4.2 of the Loan Agreement is hereby amended to
read as follows:

[Reserved].

2.4. Financial Covenants. Section 6.7 of the Loan Agreement is amended to read
as follows for the month of May 2013 and continuing thereafter:

6.7 Financial Covenants. Borrower shall maintain the following at all times, to
be tested as of the last day of each month, unless otherwise noted, on a
consolidated basis with respect to Borrower and its Subsidiaries:

(a) Liquidity Ratio. Borrower shall maintain a Liquidity Ratio of (i) greater
than 1.25:1.00 prior to the U.S. Food and Drug Administration giving Premarket
Approval for one of Borrower’s products and (ii) greater than 0.75:1.00 after
the U.S. Food and Drug Administration has given such approval. For purposes
hereof, “Liquidity Ratio” shall mean (y) the sum of Borrower’s unrestricted cash
and Cash Equivalents held with Bank and Bank’s Affiliates, divided by
(z) Borrower’s Indebtedness.

2.5. Changes to Terms. A portion of Section 6.11 of the Loan Agreement reads as
follows:

if Borrower’s annual operating budgets or annual financial projections, as
approved by Borrower’s board of directors, are revised from the versions
provided to Bank on February 24, 2012, Borrower shall agree, in writing, to any
commercially reasonable changes to the terms of Term Loan 2012 or this Agreement
that Bank shall request.

 

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Said portion of Section 6.11 of the Loan Agreement is hereby amended to read as
follows:

if Borrower’s annual operating budgets or annual financial projections are
revised from the First Amendment Projections, Borrower shall agree, in writing,
to any commercially reasonable changes to the terms of Term Loan 2012 or this
Agreement that Bank shall request.

2.6. Additional Capital Requirements. The following is hereby added to the Loan
Agreement as a new Section 6.14:

Additional Capital Requirements. Receive after the date of the First Amendment,
aggregate cash proceeds from the issuance of equity securities of Borrower, or
from any other capital transactions as approved by Bank in writing, (in either
case, net of the financing costs paid to third parties in connection with such
issuance or transaction) of (a) not less than the First Minimum Equity Amount on
or before November 15, 2013, and (b) not less than the Second Minimum Equity
Amount on or before April 15, 2014. Such proceeds shall be held in Collateral
Accounts of Borrower maintained with Bank or Bank’s Affiliates until used in the
ordinary course of Borrower’s business.

2.7. Addition of Definitions. The following definitions are hereby added to
Section 13.1 of the Loan Agreement in the appropriate alphabetical order:

“Cash Available Balance” means, for any applicable date, Borrower’s aggregate,
unrestricted, cash, Cash Equivalents and short-term investments as of such date.

“First Amendment” means that certain First Amendment to Loan and Security
Agreement dated May 9, 2013 by and between the Borrower and Bank.

“First Amendment Projections” means Borrower’s budget/projections emailed by
Borrower to Bank on February 25, 2013.

“First Minimum Equity Amount” means, (i) if Borrower’s projected Cash Available
Balance for October 31, 2013 according to the First Amendment Projections equals
Borrower’s actual Cash Available Balance as of such date (exclusive of any
amounts received from capital raising activities between the date of the First
Amendment and such date), the sum of $5,000,000; (ii) if Borrower’s projected
Cash Available Balance for October 31, 2013 according to the First Amendment
Projections exceeds Borrower’s actual Cash Available Balance as of such date

 

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(exclusive of any amounts received from capital raising activities between the
date of the First Amendment and such date), the sum of $5,000,000 plus such
excess; or (iii) if Borrower’s actual Cash Available Balance as of October 31,
2013 (exclusive of any amounts received from capital raising activities between
the date of the First Amendment and such date) exceeds Borrower’s projected Cash
Available Balance for such date according to the First Amendment Projections,
the sum of $5,000,000 minus such excess.

“Second Minimum Equity Amount” means, (i) if Borrower’s projected Cash Available
Balance for March 31, 2014 according to the First Amendment Projections equals
Borrower’s actual Cash Available Balance as of such date (exclusive of any
amounts received from capital raising activities between the date of the First
Amendment and such date), the sum of $10,000,000; (ii) if Borrower’s projected
Cash Available Balance for March 31, 2014 according to the First Amendment
Projections exceeds Borrower’s actual Cash Available Balance as of such date
(exclusive of any amounts received from capital raising activities between the
date of the First Amendment and such date), the sum of $10,000,000 plus such
excess; or (iii) if Borrower’s actual Cash Available Balance as of March 31,
2014 (exclusive of any amounts received from capital raising activities between
the date of the First Amendment and such date) exceeds Borrower’s projected Cash
Available Balance for such date according to the First Amendment Projections,
the sum of $10,000,000 minus such excess.

2.8. Compliance Certificate. Exhibit B to the Loan Agreement is hereby amended
by replacing it with Exhibit A hereto.

3. Limitation of Amendments.

3.1. The amendments set forth above are effective for the purposes set forth
herein and shall be limited precisely as written and shall not be deemed to
(a) be a consent to any amendment, waiver or modification of any other term or
condition of any Loan Document, or (b) otherwise prejudice any right or remedy
which Bank may now have or may have in the future under or in connection with
any Loan Document.

3.2. This Amendment shall be construed in connection with and as part of the
Loan Documents and all terms, conditions, representations, warranties, covenants
and agreements set forth in the Loan Documents, except as herein amended, are
hereby ratified and confirmed and shall remain in full force and effect.

4. Representations and Warranties. To induce Bank to enter into this Amendment,
Borrower hereby represents and warrants to Bank as follows:

 

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4.1. Immediately after giving effect to this Amendment (a) the representations
and warranties contained in the Loan Documents are true, accurate and complete
in all material respects as of the date hereof (except to the extent such
representations and warranties relate to an earlier date, in which case they are
true and correct as of such date), and (b) no Event of Default has occurred and
is continuing that has not been waived in writing by Bank;

4.2. Borrower has the power and authority to execute and deliver this Amendment
and to perform its obligations under the Loan Agreement, as amended by this
Amendment;

4.3. The organizational documents of Borrower delivered to Bank on the Effective
Date remain true, accurate and complete and have not been amended, supplemented
or restated and are and continue to be in full force and effect;

4.4. The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, have been duly authorized;

4.5. The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, do not and will not contravene (a) any law or regulation
binding on or affecting Borrower, (b) any contractual restriction with a Person
binding on Borrower, (c) any order, judgment or decree of any court or other
governmental or public body or authority, or subdivision thereof, binding on
Borrower, or (d) the organizational documents of Borrower;

4.6. The execution and delivery by Borrower of this Amendment and the
performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, do not require any order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by any governmental or public body or authority, or subdivision
thereof, binding on either Borrower, except as already has been obtained or
made; and

4.7. This Amendment has been duly executed and delivered by Borrower and is the
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium or other similar laws of
general application and equitable principles relating to or affecting creditors’
rights.

5. Integration. This Amendment and the Loan Documents represent the entire
agreement about this subject matter and supersede prior negotiations or
agreements. All prior agreements, understandings, representations, warranties,
and negotiations between the parties about the subject matter of this Amendment
and the Loan Documents merge into this Amendment and the Loan Documents.

 

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6. Counterparts. This Amendment may be executed in any number of counterparts
and all of such counterparts taken together shall be deemed to constitute one
and the same instrument.

7. Effectiveness. This Amendment shall be deemed effective upon the execution
and delivery of this Amendment by each party hereto.

[Signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered as of the date first written above.

 

BANK

 

Silicon Valley Bank

   

BORROWER

 

Enteromedics Inc.

By:   /s/ Benjaman Johnson     By:   /s/ Greg S. Lea Name:   Benjaman Johnson  
  Name:   Greg S. Lea Title:   Managing Director     Title:   Senior Vice
President, Chief Financial Officer and Chief Operating Officer

 

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EXHIBIT A TO FIRST AMENDMENT

EXHIBIT B

COMPLIANCE CERTIFICATE

 

TO:      SILICON VALLEY BANK    Date:                                    FROM:
     ENTEROMEDICS INC.   

 

The undersigned authorized officer of EnteroMedics Inc. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”), (1) Borrower is in complete compliance for
the period ending                              with all required covenants
except as noted below, (2) there are no Events of Default, (3) all
representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, (4) Borrower, and each of its
Subsidiaries, has timely filed all required tax returns and reports, and
Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies that
these are prepared in accordance with GAAP consistently applied from one period
to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges that no borrowings may be requested at any time or date
of determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered. Capitalized terms used but not otherwise defined
herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

 

REPORTING COVENANT   REQUIRED           COMPLIES          Monthly financial
statements with Compliance Certificate  

Monthly within 30 days

  Yes    No Annual financial statement (CPA Audited)  

FYE within 90 days

  Yes    No Annual financial projections  

60 days after start of FY

  Yes    No 10-Q, 10-K and 8-K  

Within 5 days after filing with SEC      

  Yes    No  

The following is a list of Intellectual Property that was registered (or a
registration application submitted), and registered Intellectual Property (or
Intellectual Property for which a registration application has been submitted)
that was obtained, and not included on the Perfection Certificate or on a prior
Compliance Certificate: (if none, state “None”)

 

 

 

 

FINANCIAL COVENANT           REQUIRED                    ACTUAL           
        COMPLIES          Maintain per Section 6.7 of the Agreement:            
Liquidity Ratio prior to FDA Premarket Approval   greater than

1.25:1.00

  __________   Yes    No Liquidity Ratio after to FDA Premarket Approval  
greater than

0.75:1.00

  __________   Yes    No

 

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The following financial covenant analys[is][es] and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

 

 

 

 

 

 

 

 

 

ENTEROMEDICS INC. By:    

Name:    

Title:    

BANK USE ONLY Received by:       AUTHORIZED SIGNER

Date:    

Verified:               AUTHORIZED SIGNER

Date:    

Compliance Status:   Yes    No        

 

 

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SCHEDULE 1 TO COMPLIANCE CERTIFICATE

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Agreement, the terms of
the Agreement shall govern.

Dated:                                 

Liquidity Ratio (Section 6.7)

Required:     Greater than 1.25:1.00 prior to FDA Premarket Approval and greater
than .75:1.00 thereafter

Actual:

 

  A.        Borrower’s unrestricted cash (and Cash Equivalents) held with Bank
and its Affiliates    $                  B.    Borrower’s Indebtedness    $
                 C.    Liquidity Ratio (line A divided by line B)     
     :        

Is line C greater than 1.25:1.00 or .75:1.00, as applicable?

 

             No, not in compliance

               Yes, in compliance        

 

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