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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