Exhibit 10.25

 

AMENDMENT NO. 1

 

TO EMPLOYMENT AGREEMENT

 

THIS AMENDMENT NO. 1 (this “Amendment”) to the Employment Agreement by and
between Paul Goddard (“Executive”) and ARYX THERAPEUTICS, INC., a Delaware
corporation  (the “Company”) dated September 1, 2005 (the “Prior Agreement”), is
entered into and effective as of December 19, 2008 (the “Effective Date”).
Capitalized terms not herein defined shall have the meanings ascribed to them in
the Prior Agreement.

 

WHEREAS, the Company and the Executive previously entered into the Prior
Agreement; and

 

WHEREAS, the Company and the Executive wish to amend the Prior Agreement by
entering into this Amendment to comply with the parties’ intent that the Prior
Agreement be interpreted, construed and administered in a manner that satisfies
Section 409A of the Internal Revenue Code of 1986, as amended from time to time,
among other things.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants contained
herein, the Company and the Executive, intending to be legally bound, hereby
amend the Prior Agreement effective as of the Effective Date and agree as
follows:

 

SECTION 1.                            AMENDMENT TO THE PRIOR AGREEMENT

 

Effective as of the Effective Date, the following sections of the Prior
Agreement are hereby amended and restated in their entirety to read as follows:

 

1.                                       Section 5.1(c) shall read:

 

Termination Without Cause.  If the Company terminates Executive’s employment at
any time without Cause (and other than as a result of death) and such
termination is a “separation from service” under Treasury Regulation
Section 1.409A-1(h), Executive shall be eligible for the following severance
benefits (the “Severance Benefits”):  (i) the Company shall make a lump sum
severance payment to Executive in an amount equal to six (6) months of
Executive’s then-current base salary, subject to withholdings and deductions,
payable within ten (10) days after the effective date of the release executed in
satisfaction of the requirements set forth in Section 7 of this Agreement, and
(ii) if Executive timely elects COBRA health insurance coverage, the Company
will reimburse Executive’s COBRA premiums for a maximum of either six (6) months
following the date his employment terminates or until he becomes eligible for
health insurance coverage from another source, whichever occurs sooner but in no
event after Executive ceases to be eligible for COBRA (provided that Executive
must promptly inform the Company, in writing, if he becomes eligible for health
insurance coverage from another source within six (6) months after the
termination).  Executive shall not be entitled to the Severance Benefits unless
and until the release requirements set forth in Section 7 of this Agreement are
satisfied.

 

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2.                                       Section 5.2(c) shall read:

 

Executive’s Resignation for Good Reason.  Executive may resign his employment
for Good Reason (as defined below) so long as Executive provides the Company
with written notice specifying the occurrence of the event which forms the basis
for his resignation for Good Reason within ninety (90) days following its
initial existence and provides the Company forty-five (45) days to cure such
condition, and the Executive’s resignation is effective within thirty (30) days
following the end of such cure period if the condition is not cured.  In the
event that Executive resigns his employment for Good Reason and such termination
is a “separation from service” under Treasury Regulation Section 1.409A-1(h),
Executive will be eligible to receive the Severance Benefits, provided that, the
release requirements set forth in Section 7 of this Agreement are satisfied.

 

3.                                       Section 5.2(d) shall read:

 

Definition of Good Reason.  For purposes of this Agreement, “Good Reason” shall
mean any one of the following events which occurs on or after the commencement
of Executive’s employment without Executive’s consent:  (i) any material
reduction of Executive’s then current annual base salary, except to the extent
that the annual base salary of all other officers of the Company is similarly
reduced; (ii) any material diminution of the Executive’s duties,
responsibilities, or authority; (iii) any requirement that the Executive
relocate to a work site that would increase the Executive’s one-way commute
distance by more than thirty-five (35) miles; or (iv) any material breach by the
Company of its obligations under this Agreement.

 

4.                                       Section 5.4 shall read:

 

Application of Internal Revenue Code Section 409A.  It is intended that each
installment of the Severance Benefits is a separate “payment” for purposes
Section 1.409A-2(b)(2)(i) of the Treasury Regulations.  For the avoidance of
doubt, it is intended that payments of the Severance Benefits satisfy, to the
greatest extent possible, the exemptions from the application of Section 409A of
the Code and the Treasury Regulations and other guidance thereunder and any
state law of similar effect (collectively “Section 409A”) provided under
Sections 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9) of the Treasury
Regulations.  However, if the Plan Administrator determines that the Severance
Benefits constitute “deferred compensation” under Section 409A and the Eligible
Employee is, on his or her separation from service, a “specified employee” of
the Company (as such term is defined in Section 409A(a)(2)(B)(i) of the Code)
then, solely to the extent necessary to avoid the incurrence of the adverse
personal tax consequences under Section 409A, the timing of the payment of the
Severance Benefits shall be delayed so that on the earlier to occur of: (i) the
date that is six months and one day after the Eligible Employee’s separation
from service and (ii) the date of the Eligible Employee’s death (such applicable
date, the “Specified Employee Initial Payment Date”), the Company shall (A) pay
to the Eligible Employee a lump sum amount equal to the sum of the Severance
Benefits that the Eligible Employee would otherwise have received through the
Specified Employee Initial Payment Date if the commencement of the payment of
the Severance Benefits had not been so delayed pursuant to this
Section 6(b)(i) and (B) commence paying the balance of the Severance Benefits in
accordance with the applicable payment schedules set forth in this Plan.

 

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5.                                       Section 7 shall read:

 

RELEASE.  As a condition of receiving the severance benefits under this
Agreement to which Executive would not otherwise be entitled, Executive shall
execute a release substantially in the form attached hereto as Exhibit B (the
“Release”) (the Company shall determine the actual form of Release to be
provided by Executive).  Unless the Release is timely executed by Executive and
delivered to the Company and becomes effective within thirty (30) days after the
termination of Executive’s employment with the Company, Executive shall not
receive any of the Severance Benefits provided for under this Agreement.

 

6.                                       Section 8.1 shall read:

 

Better After-Tax.  If any payment or benefit (including payments and benefits
pursuant to this Agreement) Executive would receive in connection with a change
in control of the Company or otherwise (“Payment”) would (a) constitute a
“parachute payment” within the meaning of Section 280G of the Code, and (b) but
for this sentence, be subject to the excise tax imposed by Section 4999 of the
Code (the “Excise Tax”), then the Company shall cause to be determined, before
any amounts of the Payment are paid to Executive, which of the following two
amounts would maximize Executive’s after-tax proceeds: (i) payment in full of
the entire amount of the Payment (a “Full Payment”), or (ii) payment of only a
part of the Payment so that Executive receives the largest payment possible
without the imposition of the Excise Tax (a “Reduced Payment”), whichever amount
results in Executive’s receipt, on an after-tax basis, of the greater amount of
the Payment notwithstanding that all or some portion of the Payment may be
subject to the Excise Tax.  For purposes of determining whether to make a Full
Payment or a Reduced Payment, the Company shall cause to be taken into account
all applicable federal, state and local income and employment taxes and the
Excise Tax (all computed at the highest applicable marginal rate, net of the
maximum reduction in federal income taxes which could be obtained from a
deduction of such state and local taxes).  If a Reduced Payment is made, (i) the
Payment shall be paid only to the extent permitted under the Reduced Payment
alternative, and Executive shall have no rights to any additional payments
and/or benefits constituting the Payment, and (ii) reduction in payments and/or
benefits shall occur in the following order: (1) reduction of cash payments
pursuant to this Agreement; (2) cancellation of accelerated vesting pursuant to
this Agreement of equity awards other than stock options; (3) cancellation of
accelerated vesting pursuant to this Agreement of stock options; and
(4) reduction of other benefits payable to Executive pursuant to this
Agreement.  In the event that acceleration of compensation from Executive’s
equity awards is to be reduced, such acceleration of vesting shall be canceled
in the reverse order of the date of grant.

 

7.                                       Section 8.3 shall read:

 

Modified Gross-Up.  The provisions of this Section 8.3 shall apply only in the
event that stock of the Company is readily tradeable on an established
securities market or otherwise at the time of a Payment.  If it is determined
that: (a) the Payment would result in an Excise Tax, and (b) a Full Payment
would maximize  Executive’s after-tax proceeds, as determined in accordance with
Section 8.1 above, the Company shall pay and Executive shall be entitled to
receive an additional lump sum payment (a “Gross-Up Payment”) from the Company
within thirty (30) days after the year the employee remits the related taxes, in
an amount such that after the payment of all taxes (including, without
limitation, (i) any income or employment taxes, (ii) any interest or penalties
imposed with respect to such taxes, and (iii) any additional

 

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excise tax imposed by Section 4999 of the Code) on the Gross-Up Payment,
Executive shall retain an amount equal to the full Excise Tax.  For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to
have: (x) paid federal income taxes at the highest marginal rate of federal
income and employment taxation for the calendar year in which the Gross-Up
Payment is to be made, and (y) paid applicable state and local income taxes at
the highest rate of taxation for the calendar year in which the Gross-Up Payment
is to be made, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes.  Except as otherwise
provided herein, Executive shall not be entitled to any additional payments or
other indemnity arrangements in connection with the Payment or the Gross-Up
Payment.

 

SECTION 2.                            ADDITIONAL PROVISIONS

 

2.1                               ENTIRE AGREEMENT AND MODIFICATION.  The Prior
Agreement, together with this Amendment, constitute the entire agreement among
the parties with respect to the subject matter thereof and hereof and supersede
any prior understandings, agreements, or representations by or among the
parties, written or oral, to the extent they related in any way to the subject
matter hereof.

 

2.2                               GOVERNING LAW.  This Amendment shall be
governed by, construed and interpreted in accordance with the laws of the State
of California without regard to its choice of law principles.

 

2.3                               COUNTERPARTS.  This Amendment may be executed
in counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

 

2.4                               HEADINGS.  The Section headings contained in
this Amendment are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Amendment.

 

2.5                               SEVERABILITY.  Any term or provision of this
Amendment that is invalid or unenforceable in any situation in any jurisdiction
shall not affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties have executed this Amendment on and effective as
of the Effective Date.

 

 

ARYx THERAPEUTICS, INC.

 

PAUL GODDARD

 

 

 

 

 

 

By:

/s/ John Varian

 

/s/ Paul Goddard

 

John Varian

 

 

 

Chief Operating Officer and Chief

 

 

 

Financial Officer

 

 

 

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