Exhibit 10.4

 

NON-COMPETITION AND NON-SOLICITATION AGREEMENT

 

This Non-Competition and Non-Solicitation Agreement (this “Agreement”) is being
executed and delivered as of May 22, 2017 by Dr. Raj Nihalani (“Stockholder”) in
favor and for the benefit of EnteroMedics Inc., Inc., a Delaware corporation
(“Parent”). All capitalized terms used but not defined herein shall have the
respective meanings ascribed thereto in the Merger Agreement (as defined below).

 

RECITALS

 

WHEREAS, concurrently with the execution of this Agreement, Parent, Acorn
Subsidiary Inc., a Delaware corporation and wholly-owned subsidiary of Parent
(“Merger Sub”), Acorn Subsidiary Holdings LLC, a Delaware limited liability
company and wholly-owned subsidiary of Parent (“Sub LLC”), BarioSurg, Inc., a
Delaware corporation (the “Company”), and the stockholder representative named
therein (the “Stockholder Representative”), have entered into an Agreement and
Plan of Merger (the “Merger Agreement”), pursuant to which (i) Merger Sub shall
merge with and into the Company (the “Merger”) and the Company shall become a
wholly-owned subsidiary of Parent, and (ii) following the effectiveness of the
Merger and as part of an integrated plan with the Merger, the Company shall
merge with and into Sub LLC, with Sub LLC thereafter surviving as a wholly-owned
subsidiary of Parent (“Surviving Corporation”);

 

WHEREAS, Stockholder has a substantial interest in the Company as the holder of
a significant number of shares of the Company’s capital stock and, as a result
of the Merger, Stockholder shall receive significant consideration in connection
with the Merger;

 

WHEREAS, Parent and Stockholder mutually desire that the entire goodwill of the
Company be transferred to Parent as part of the Merger and acknowledge that
Parent’s failure to receive the entire goodwill contemplated by the Merger would
have the effect of reducing the value of the Company to Parent; and

 

WHEREAS, as a condition and mutual inducement to the Merger, and to preserve the
value and goodwill of the business being acquired by Parent after the Merger and
to protect the trade secrets of the Company acquired by Parent, the Merger
Agreement contemplates, among other things, that Stockholder shall enter into
this Agreement and that this Agreement shall become effective at the Effective
Time.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the mutual promises made herein, Parent and
Stockholder hereby agree as follows:

 

1.                                      Effective Time.  This Agreement shall be
effective as of the Effective Time.  This Agreement shall be null and void if
the Merger is not consummated.

 

2.                                      Non-Competition.  During the period
commencing on the Closing Date and ending on the third anniversary of the
Closing Date (the “Non-Competition Period”), Stockholder shall not (other than
in connection with any employment services to Parent, Surviving Corporation or
any subsidiary thereof or their respective successors or assigns), without the
prior written consent of Parent, directly or indirectly:

 

--------------------------------------------------------------------------------

 

(a)                                 engage, anywhere in the Restricted Territory
(as defined below), in any business activities (including without limitation
research and development) that are directly related to bariatric surgery medical
devices (a “Competing Business”);

 

(b)                                 be or become an officer, director,
affiliate, salesperson, partner, trustee, promoter, technician, engineer,
analyst, employee, agent, representative, supplier, contractor, consultant,
advisor or manager of or to, or otherwise participate in or facilitate the
financing, operation, management or control of, any firm, partnership,
corporation, person, entity or business that engages or participates in a
Competing Business in the Restricted Territory; or

 

(c)                                  contact, solicit or communicate with
Surviving Corporation’s customers in connection with a Competing Business;

 

provided, however, that nothing in this Agreement shall prevent or restrict
Stockholder from any of the following: (i) owning as a passive investment less
than 5% of the outstanding shares of the capital stock of a corporation (whether
public or private) that is engaged in a Competing Business and Stockholder is
not otherwise associated with such corporation or (ii) any activity consented to
in writing by Parent.

 

“Restricted Territory” means each and every country, province, state, city, or
other political subdivision of the world in which the Company’s products or
services previously have been or are as of the Closing Date marketed or sold,
whether to dealers, distributors or ultimate end-users.

 

3.              Non-Solicitation.  Stockholder further agrees that Stockholder
shall not during the period commencing on the Closing Date and ending on the
third anniversary of the Closing Date (the “Non-Solicitation Period”), without
the prior written consent of Parent:

 

(a)                                 Personally, or through others, solicit or
attempt to solicit (on Stockholder’s own behalf or on behalf of any other
Person) any employee of Surviving Corporation, or any subsidiary of Surviving
Corporation, or their respective successors or assigns, to leave his or her
employment with Surviving Corporation, or any subsidiary of Surviving
Corporation or any of their respective successors or assigns;

 

(b)         Personally, or through others, induce, attempt to induce, solicit or
attempt to solicit (on Stockholder’s own behalf or on behalf of any other
Person), any employee of Surviving Corporation, or any subsidiary of Surviving
Corporation, or their respective successors or assigns, to engage in any
activity in which Stockholder would, under the provisions of Section 2 hereof,
be prohibited from engaging.

 

Notwithstanding the foregoing, for purposes of this Agreement, the following not
be deemed to be a breach of this Section 3: (i) placement of general
advertisements that may be targeted to a particular geographic or technical area
but that are not specifically targeted toward employees of Surviving Corporation
or Parent, or any subsidiary of Surviving Corporation or Parent, or their
respective successors or assigns or (ii) solicitation or hiring any employee
whose employment with the Surviving Corporation or Parent, or any subsidiary of
the Surviving Corporation or Parent, or their respective successors or assigns
has been terminated by the Surviving Corporation or parent prior to the
commencement of any such solicitation or employment discussions between
Stockholder and such employee.

 

4.                                      Severability of Covenants.  The
covenants contained in Section 2 hereof shall be construed as a series of
separate covenants, one for each country, province, state, city or other
political subdivision of the Restricted Territory.  Except for geographic
coverage, each such separate covenant

 

2

--------------------------------------------------------------------------------

 

shall be deemed identical in terms to the covenant contained in Section 2
hereof.  If, in any judicial proceeding, a court refuses to enforce any of such
separate covenants (or any part thereof), then Parent, Surviving Corporation and
Stockholder agree that such unenforceable covenant (or such part) shall be
eliminated from this Agreement to the extent necessary to permit the remaining
separate covenants (or portions thereof) to be enforced.  In the event that the
provisions of Section 2 or Section 3 are deemed to exceed the time, geographic
or scope limitations permitted by applicable law, then Parent, Surviving
Corporation and Stockholder agree that such provisions shall be reformed to the
maximum time, geographic or scope limitations, as the case may be, permitted by
applicable law.

 

5.                                      Independence of Obligations.  The
covenants and obligations of Stockholder set forth in this Agreement shall be
construed as independent of any other agreement or arrangement between
Stockholder, on the one hand, and Parent, Surviving Corporation or any
subsidiary of Parent or Surviving Corporation, on the other.

 

6.                                      Stockholder Acknowledgement. 
Stockholder acknowledges that (i) Stockholder has a substantial interest in the
Company, is an officer, significant Stockholder, and key employee; (ii) the
goodwill associated with the existing business and assets of the Company prior
to the Merger is an integral component of the value of the Company to Parent and
is reflected in the consideration payable to Stockholder in connection with the
Merger, and (iii) Stockholder’s agreement as set forth herein is necessary to
preserve the value of the Company for Parent following the Merger.  Stockholder
also acknowledges that the limitations of time, geography and scope of activity
agreed to in this Agreement are reasonable because, among other things: (A) the
Company and Parent are engaged in a highly competitive industry, (B) Stockholder
has had unique access to the trade secrets and know-how of the Company,
including, without limitation, the plans and strategy (and, in particular, the
competitive strategy) of the Company, and (C) Stockholder believes that this
Agreement provides no more protection than is reasonably necessary to protect
Parent’s legitimate interest in the goodwill, trade secrets and confidential
information of the Company.

 

7.                                      Injunctive Relief.  The remedy at law
for any breach of this Agreement is and will be inadequate, and in the event of
a breach or threatened breach by Stockholder of this Agreement, Parent shall be
entitled to an injunction restraining Stockholder from breaching or otherwise
violating any provision of this Agreement.  Nothing herein contained shall be
construed as prohibiting Parent from pursuing any other remedies available to it
for such breach or threatened breach, including, without limitation, the
recovery of damages from Stockholder.

 

8.                                      Non-Exclusivity.  The rights and
remedies of Parent hereunder are not exclusive of or limited by any other rights
or remedies that Parent hereunder may have, whether at law, in equity, by
contract or otherwise, all of which shall be cumulative (and not alternative). 
Without limiting the generality of the foregoing, the rights and remedies of
Parent hereunder, and the obligations and liabilities of Stockholder hereunder,
are in addition to their respective rights, remedies, obligations and
liabilities under the law of unfair competition, misappropriation of trade
secrets and the like.  This Agreement does not limit Stockholder’s obligations
or the rights of Parent (or any affiliate of Parent) under the terms of any
other agreement between Stockholder and Parent or any affiliate of Parent.

 

9.                                      Notices.  All notices and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by commercial messenger or courier service, or mailed by
registered or certified mail (return receipt requested) or sent via facsimile
(with acknowledgment of complete transmission) or e-mail to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice or, if specifically provided for elsewhere in this Agreement, by
email); provided, however, that notices sent by mail will not be deemed given
until received:

 

3

--------------------------------------------------------------------------------

 

(a)                                 if to Parent or Sub, to:

 

EnteroMedics Inc.

2800 Patton Road

St. Paul, MN 55113

Attention: Dan W. Gladney, President and Chief Executive Officer

Facsimile No.: (651) 634-3212

Email: dwgladney@enteromedics.com

 

with a copy (which shall not constitute notice) to:

 

Fox Rothschild LLP
                                                222 South Ninth Street,
Suite 2000
                                                Minneapolis, MN 55402
                                                Attention:  Bruce A. Machmeier
and Brett R. Hanson
                                                Facsimile No.: (612) 607-7100

Email: bmachmeier@foxrothschild.com
                                                bhanson@foxrothschild.com

 

(b)                                 if to Stockholder, to the address for notice
set forth on Stockholder’s signature page hereto, with a copy (which shall not
constitute notice) to:

 

Stradling Yocca Carlson & Rauth, P.C.

660 Newport Center Drive, Suite 1600

Newport Beach, CA 92660

Attention: Marc G. Alcser

Facsimile No.: (949) 823-5136

Email: malcser@sycr.com

 

10.                               Severability.  If any provision of this
Agreement or any part of any such provision is held under any circumstances to
be invalid or unenforceable in any jurisdiction, then (a) such provision or part
thereof shall, with respect to such circumstances and in such jurisdiction, be
deemed amended to conform to applicable laws so as to be valid and enforceable
to the fullest possible extent, (b) the invalidity or unenforceability of such
provision or part thereof under such circumstances and in such jurisdiction
shall not affect the validity or enforceability of such provision or part
thereof under any other circumstances or in any other jurisdiction and (c) such
invalidity of enforceability of such provision or part thereof shall not affect
the validity or enforceability of the remainder of such provision or the
validity or enforceability of any other provision of this Agreement.

 

11.                               Governing Law.  This Agreement shall be
construed in accordance with, and governed in all respects by, the laws of the
State of California, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof.

 

12.                               Attorneys’ Fees.  Should any litigation,
arbitration or other proceeding be commenced between the parties concerning this
Agreement (including, without limitation, the enforcement hereof and the rights
and duties of the parties hereunder), the party prevailing shall be entitled, in
addition to such other relief as may be granted, such party’s attorneys’ fees
and expenses in connection with such litigation, arbitration or other
proceeding.

 

13.                               Waiver.  No failure on the part of any party
to exercise any power, right, privilege or remedy under this Agreement, and no
delay on the part of any party in exercising any power, right,

 

4

--------------------------------------------------------------------------------

 

privilege or remedy under this Agreement, shall operate as a waiver of such
power, right, privilege or remedy; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.  No party shall be
deemed to have waived any claim arising out of this Agreement, or any power,
right, privilege or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set forth in a written
instrument duly executed and delivered on behalf of the waiving party; and any
such waiver shall not be applicable or have any effect except in the specific
instance in which it is given.

 

14.                               Captions.  The captions contained in this
Agreement are for convenience of reference only, shall not be deemed to be a
part of this Agreement and shall not be referred to in connection with the
construction or interpretation of this Agreement.

 

15.                               Entire Agreement.  This Agreement, and the
other agreements referred to herein, set forth the entire understanding of
Stockholder and Parent relating to the subject matter hereof and supersedes all
prior agreements and understandings between any of such parties relating to the
subject matter hereof.  Stockholder understands and agrees that he has had an
opportunity to seek his own counsel in his review of this Agreement.

 

16.                               Amendments.  This Agreement may not be
amended, modified, altered, or supplemented other than by means of a written
instrument duly executed and delivered on behalf of Parent and Stockholder.

 

17.                               Assignment.  This Agreement and all
obligations hereunder are personal to Stockholder and may not be transferred or
assigned by Stockholder at any time.  Parent may assign its rights under this
Agreement to any entity in connection with any merger or sale or transfer of all
or substantially all of Parent’s assets.

 

18.                               Binding Nature.  Subject to Section 17, this
Agreement will be binding upon Stockholder and Stockholder’s representatives,
executors, administrators, estate, heirs, successors and assigns, and will inure
to the benefit of Parent and its successors and assigns.

 

19.                               Counterpart Execution.  This Agreement may be
executed by facsimile and in counterparts, each of which shall be deemed an
original and all of which when taken together shall constitute but one and the
same instrument.

 

5

--------------------------------------------------------------------------------

 

In witness whereof, the undersigned have executed this Non-Competition and
Non-Solicitation Agreement as of the date first above written.

 

 

“STOCKHOLDER”

By:

/s/ Dr. Raj Nihalani

 

 

 

 

Print Name:

Dr. Raj Nihalani

 

 

 

 

Address:

27 Spectrum Pointe Drive, Suite 302

 

 

Lake Forest, CA 92630

 

 

 

 

Telephone:

 

 

Fax:

 

 

 

 

 

 

 

“PARENT”

ENTEROMEDICS INC., a Delaware corporation

 

 

 

 

 

 

 

By:

/s/ Scott Youngstrom

 

 

Name: Scott Youngstrom

 

 

Title: Chief Financial Officer

 

6

--------------------------------------------------------------------------------