Exhibit 10.17


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


Table of Contents


 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
  DEFINITIONS

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.1  “AAA”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.2  “Adverse
  Drug Experience”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.3  “Affiliate”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.4  “Applicable
  Law”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.5  “Approved
  Japanese Affiliate”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.6  “Arbitration
  Request”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.7  “ARYx
  Indemnitees”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.8  “ARYx
  Know-How”

  	
  2

  
	
   

  	
   

  	
   

  
	
  1.9  “ARYx
  Patents”

  	
  3

  
	
   

  	
   

  	
   

  
	
  1.10  “ARYx
  Technology”

  	
  3

  
	
   

  	
   

  	
   

  
	
  1.11  “Assigned
  Inventions”

  	
  3

  
	
   

  	
   

  	
   

  
	
  1.12  “Blocking
  Patents”

  	
  3

  
	
   

  	
   

  	
   

  
	
  1.13  “Change
  of Control”

  	
  3

  
	
   

  	
   

  	
   

  
	
  1.14  “Co-Developed
  Product”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.15  “Co-Development
  Agreement”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.16  “Co-Development
  Notice”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.17  “Co-Development
  Option”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.18  “Combination
  Product”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.19  “Commercialization”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.20  “Commercialization
  Plan”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.21  “Commercially
  Reasonable Efforts”

  	
  4

  
	
   

  	
   

  	
   

  
	
  1.22  “Confidential
  Information”

  	
  5

  
	
   

  	
   

  	
   

  
	
  1.23  “Controlled”

  	
  6

  
	
   

  	
   

  	
   

  
	
  1.24  “Co-Promotion
  Agreement”

  	
  6

  
	
   

  	
   

  	
   

  
	
  1.25  “Co-Promotion
  Notice”

  	
  6

  
	
   

  	
   

  	
   

  
	
  1.26  “Co-Promotion
  Option”

  	
  6

  
				



 


 


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  Page

  
	
   

  	
   

  	
   

  
	
  1.27  “[*]”

  	
  6

  
	
   

  	
   

  	
   

  
	
  1.28  “Development”

  	
  6

  
	
   

  	
   

  	
   

  
	
  1.29  “Development
  Plan”

  	
  7

  
	
   

  	
   

  	
   

  
	
  1.30  “Dollars”

  	
  7

  
	
   

  	
   

  	
   

  
	
  1.31  “Drug
  Approval Application”

  	
  7

  
	
   

  	
   

  	
   

  
	
  1.32  “Effective
  Date”

  	
  7

  
	
   

  	
   

  	
   

  
	
  1.33  “EMEA”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.34  “Execution
  Date”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.35  “Executive
  Officer”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.36  “Exploitation”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.37  “FDA”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.38  “Field”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.39  “First
  Commercial Sale”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.40  “FTE”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.41  “FTE
  Rate”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.42  “GMP”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.43  “Good
  Practices”

  	
  8

  
	
   

  	
   

  	
   

  
	
  1.44  “[*]
  Indication”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.45  “IND”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.46  “Indemnified
  Party”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.47  “Indemnifying
  Party”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.48  “Infringement”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.49  “Japan
  Sublicensee”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.50  “JJSC”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.51  “JSC”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.52  “Know-How”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.53  “Knowledge”

  	
  9

  
	
   

  	
   

  	
   

  
	
  1.54  “Licensed
  Compound”

  	
  10

  
				



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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  Page

  
	
   

  	
   

  	
   

  
	
  1.55  “Licensed
  Product”

  	
  10

  
	
   

  	
   

  	
   

  
	
  1.56  “Losses”

  	
  10

  
	
   

  	
   

  	
   

  
	
  1.57  “Major
  EU Country”

  	
  10

  
	
   

  	
   

  	
   

  
	
  1.58  “Major
  Japanese Pharmaceutical Company”

  	
  10

  
	
   

  	
   

  	
   

  
	
  1.59  “Manufacture”
  and  “Manufacturing”

  	
  10

  
	
   

  	
   

  	
   

  
	
  1.60  “Material”

  	
  11

  
	
   

  	
   

  	
   

  
	
  1.61  “Net
  Sales”

  	
  11

  
	
   

  	
   

  	
   

  
	
  1.62  “New
  Drug Application”

  	
  13

  
	
   

  	
   

  	
   

  
	
  1.63  “Notice”

  	
  13

  
	
   

  	
   

  	
   

  
	
  1.64  “OTC
  Licensed Product”

  	
  13

  
	
   

  	
   

  	
   

  
	
  1.65  “OUSJ
  Territory”

  	
  13

  
	
   

  	
   

  	
   

  
	
  1.66  “P&G
  Fiscal Year”

  	
  13

  
	
   

  	
   

  	
   

  
	
  1.67  “P&G
  Indemnitees”

  	
  13

  
	
   

  	
   

  	
   

  
	
  1.68  “P&G
  Inventions”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.69  “P&G
  Know-How”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.70  “P&G
  Patents”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.71  “P&G
  Technology”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.72  “Party”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.73  “Patent
  Challenge”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.74  “Patents”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.75  “PDEs”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.76  “Person”

  	
  14

  
	
   

  	
   

  	
   

  
	
  1.77  “Phase
  II Trial”

  	
  15

  
	
   

  	
   

  	
   

  
	
  1.78  “Phase
  III Trial”

  	
  15

  
	
   

  	
   

  	
   

  
	
  1.79  “Prescription
  Licensed Product”

  	
  15

  
	
   

  	
   

  	
   

  
	
  1.80  “Pricing
  Approval”

  	
  15

  
	
   

  	
   

  	
   

  
	
  1.81  “[*]
  Milestone Date”

  	
  15

  
	
   

  	
   

  	
   

  
	
  1.82  “Recipient”

  	
  15

  
				



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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  Page

  
	
   

  	
   

  	
   

  
	
  1.83  “Recovery”

  	
  15

  
	
   

  	
   

  	
   

  
	
  1.84  “Regulatory
  Approval”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.85  “Regulatory
  Authority”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.86  “Regulatory
  Submissions”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.87  “[*]
  Milestone Date”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.88  “[*]”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.89  “Sublicense
  Agreement”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.90  “Sublicensee
  Revenue”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.91  “Subsequent
  NCE”

  	
  16

  
	
   

  	
   

  	
   

  
	
  1.92  “Supplemental
  New Drug Application”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.93  “Target
  Audience”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.94  “Territory”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.95  “Third
  Party”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.96  “Trademarks”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.97  “[*]”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.98  “U.S.”

  	
  17

  
	
   

  	
   

  	
   

  
	
  1.99  “Valid
  Claim”

  	
  17

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  LICENSES

  	
  17

  
	
   

  	
   

  	
   

  
	
  2.1  License
  to P&G

  	
  17

  
	
   

  	
   

  	
   

  
	
  2.2  License
  to ARYx

  	
  18

  
	
   

  	
   

  	
   

  
	
  2.3  ARYx
  Reserved Rights

  	
  18

  
	
   

  	
   

  	
   

  
	
  2.4  No
  Non-Permitted Use

  	
  18

  
	
   

  	
   

  	
   

  
	
  2.5  No
  Other Licenses

  	
  18

  
	
   

  	
   

  	
   

  
	
  2.6  Sublicense
  Agreements

  	
  18

  
	
   

  	
   

  	
   

  
	
  2.7  Sublicensing
  in Japan

  	
  19

  
	
   

  	
   

  	
   

  
	
  2.8  Third
  Party Agreements

  	
  20

  
	
   

  	
   

  	
   

  
	
  2.9  Transition

  	
  20

  
	
   

  	
   

  	
   

  
	
  2.10  Subcontracting

  	
  20

  
					



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  GOVERNANCE

  	
  21

  
	
   

  	
   

  	
   

  
	
  3.1  Joint
  Steering Committee

  	
  21

  
	
   

  	
   

  	
   

  
	
  3.2  Meetings
  of the JSC

  	
  21

  
	
   

  	
   

  	
   

  
	
  3.3  Responsibilities
  of the JSC

  	
  22

  
	
   

  	
   

  	
   

  
	
  3.4  Areas
  Outside the JSC’s Authority

  	
  23

  
	
   

  	
   

  	
   

  
	
  3.5  JSC
  Decisions

  	
  23

  
	
   

  	
   

  	
   

  
	
  3.6  Operating
  Principles

  	
  24

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  DEVELOPMENT

  	
  24

  
	
   

  	
   

  	
   

  
	
  4.1  Overview

  	
  24

  
	
   

  	
   

  	
   

  
	
  4.2  Development
  Plan

  	
  25

  
	
   

  	
   

  	
   

  
	
  4.3  Specific
  Clinical Trials

  	
  26

  
	
   

  	
   

  	
   

  
	
  4.4  Materials
  Transfer

  	
  27

  
	
   

  	
   

  	
   

  
	
  4.5  Diligent
  Development

  	
  27

  
	
   

  	
   

  	
   

  
	
  4.6  Development
  Reports

  	
  28

  
	
   

  	
   

  	
   

  
	
  4.7  Standards
  of Conduct

  	
  29

  
	
   

  	
   

  	
   

  
	
  4.8  Development
  Limitations

  	
  29

  
	
   

  	
   

  	
   

  
	
  4.9  Development
  Expenses

  	
  29

  
	
   

  	
   

  	
   

  
	
  4.10  Option
  to Co-Develop

  	
  30

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  REGULATORY

  	
  31

  
	
   

  	
   

  	
   

  
	
  5.1  Regulatory
  Submissions

  	
  31

  
	
   

  	
   

  	
   

  
	
  5.2  Complaints
  and Adverse Event Reporting

  	
  33

  
	
   

  	
   

  	
   

  
	
  5.3  Product
  Withdrawals and Recalls

  	
  34

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
  COMMERCIALIZATION

  	
  35

  
	
   

  	
   

  	
   

  
	
  6.1  General

  	
  35

  
	
   

  	
   

  	
   

  
	
  6.2  Commercialization
  Plan.

  	
  35

  
	
   

  	
   

  	
   

  
	
  6.3  Diligent
  Commercialization

  	
  36

  
	
   

  	
   

  	
   

  
	
  6.4  Commercialization
  Reports

  	
  37

  
	
   

  	
   

  	
   

  
	
  6.5  Standards
  of Conduct

  	
  38

  
					



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


v

















 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  6.6  Sales
  Force Training

  	
  38

  
	
   

  	
   

  	
   

  
	
  6.7  Launch
  of OTC Licensed Products

  	
  38

  
	
   

  	
   

  	
   

  
	
  6.8  Option
  to Co-Promote

  	
  39

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  MANUFACTURE AND SUPPLY

  	
  40

  
	
   

  	
   

  	
   

  
	
  7.1  Manufacturing
  Responsibility

  	
  40

  
	
   

  	
   

  	
   

  
	
  7.2  Transfer
  of Manufacturing Technology

  	
  40

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  PAYMENTS

  	
  41

  
	
   

  	
   

  	
   

  
	
  8.1  Upfront
  Payment

  	
  41

  
	
   

  	
   

  	
   

  
	
  8.2  Development
  Milestones

  	
  41

  
	
   

  	
   

  	
   

  
	
  8.3  [*]
  Milestones

  	
  46

  
	
   

  	
   

  	
   

  
	
  8.4  Commercialization
  Milestones

  	
  46

  
	
   

  	
   

  	
   

  
	
  8.5  Royalties.

  	
  47

  
	
   

  	
   

  	
   

  
	
  8.6  Royalty
  Term

  	
  49

  
	
   

  	
   

  	
   

  
	
  8.7  Royalty
  Adjustments

  	
  50

  
	
   

  	
   

  	
   

  
	
  8.8  Sublicensee
  Revenue

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  PAYMENT; REPORTS; AUDITS

  	
  52

  
	
   

  	
   

  	
   

  
	
  9.1  P&G
  Quarterly Royalty Payments and Reports

  	
  52

  
	
   

  	
   

  	
   

  
	
  9.2  Accounting

  	
  53

  
	
   

  	
   

  	
   

  
	
  9.3  Methods
  of Payments

  	
  54

  
	
   

  	
   

  	
   

  
	
  9.4  Blocked
  Payments

  	
  54

  
	
   

  	
   

  	
   

  
	
  9.5  Taxes

  	
  55

  
	
   

  	
   

  	
   

  
	
  9.6  Late
  Payments

  	
  55

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
  INTELLECTUAL PROPERTY

  	
  55

  
	
   

  	
   

  	
   

  
	
  10.1  Disclosure
  and Ownership

  	
  55

  
	
   

  	
   

  	
   

  
	
  10.2  Patent
  Filings

  	
  56

  
	
   

  	
   

  	
   

  
	
  10.3  Enforcement
  and Defense of Patents

  	
  57

  
	
   

  	
   

  	
   

  
	
  10.4  Defense
  of Infringement Actions.

  	
  60

  
	
   

  	
   

  	
   

  
	
  10.5  Trademarks

  	
  61

  
					



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
  REPRESENTATIONS,
  WARRANTIES, AND COVENANTS

  	
  62

  
	
   

  	
   

  	
   

  
	
  11.1  Mutual
  Representations and Warranties

  	
  62

  
	
   

  	
   

  	
   

  
	
  11.2  ARYx
  Representations and Warranties

  	
  62

  
	
   

  	
   

  	
   

  
	
  11.3  Disclaimer

  	
  64

  
	
   

  	
   

  	
   

  
	
  11.4  Limitation
  of Liability

  	
  64

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
  CONFIDENTIALITY

  	
  65

  
	
   

  	
   

  	
   

  
	
  12.1  Confidentiality

  	
  65

  
	
   

  	
   

  	
   

  
	
  12.2  Exceptions

  	
  66

  
	
   

  	
   

  	
   

  
	
  12.3  Publications

  	
  67

  
	
   

  	
   

  	
   

  
	
  12.4  Publicity

  	
  67

  
	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
  INDEMNIFICATION

  	
  68

  
	
   

  	
   

  	
   

  
	
  13.1  Indemnification
  by ARYx

  	
  68

  
	
   

  	
   

  	
   

  
	
  13.2  Indemnification
  by P&G

  	
  68

  
	
   

  	
   

  	
   

  
	
  13.3  Procedure

  	
  69

  
	
   

  	
   

  	
   

  
	
  13.4  Insurance

  	
  69

  
	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
  TERM AND TERMINATION

  	
  70

  
	
   

  	
   

  	
   

  
	
  14.1  Term

  	
  70

  
	
   

  	
   

  	
   

  
	
  14.2  Termination
  for Breach

  	
  70

  
	
   

  	
   

  	
   

  
	
  14.3  Termination
  by P&G

  	
  70

  
	
   

  	
   

  	
   

  
	
  14.4  Termination
  for Bankruptcy

  	
  70

  
	
   

  	
   

  	
   

  
	
  14.5  Rights
  in Bankruptcy

  	
  71

  
	
   

  	
   

  	
   

  
	
  14.6  Effects
  of Termination or Expiration

  	
  71

  
	
   

  	
   

  	
   

  
	
  14.7  Survival;
  Accrued Rights

  	
  76

  
	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
  DISPUTE RESOLUTIONS;
  GOVERNING LAW

  	
  77

  
	
   

  	
   

  	
   

  
	
  15.1  Disputes

  	
  77

  
	
   

  	
   

  	
   

  
	
  15.2  Arbitration

  	
  77

  
	
   

  	
   

  	
   

  
	
  15.3  Interim
  Relief

  	
  79

  
	
   

  	
   

  	
   

  
	
  15.4  Waiver

  	
  79

  
							



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


vii

















 


	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  15.5  Choice
  of Law

  	
  79

  
	
   

  	
   

  	
   

  
	
  ARTICLE 16

  	
  MISCELLANEOUS

  	
  79

  
	
   

  	
   

  	
   

  
	
  16.1  Assignment

  	
  79

  
	
   

  	
   

  	
   

  
	
  16.2  Force
  Majeure

  	
  80

  
	
   

  	
   

  	
   

  
	
  16.3  Entire
  Agreement

  	
  80

  
	
   

  	
   

  	
   

  
	
  16.4  Severability

  	
  81

  
	
   

  	
   

  	
   

  
	
  16.5  Notices

  	
  81

  
	
   

  	
   

  	
   

  
	
  16.6  Further
  Assurances

  	
  82

  
	
   

  	
   

  	
   

  
	
  16.7  Agency

  	
  82

  
	
   

  	
   

  	
   

  
	
  16.8  No
  Waiver

  	
  82

  
	
   

  	
   

  	
   

  
	
  16.9  No
  Strict Construction

  	
  83

  
	
   

  	
   

  	
   

  
	
  16.10  Construction

  	
  83

  
	
   

  	
   

  	
   

  
	
  16.11  References

  	
  83

  
	
   

  	
   

  	
   

  
	
  16.12  Counterparts

  	
  83

  
				



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


viii

















 


EXECUTION VERSION


 


LICENSE, DEVELOPMENT, AND COMMERCIALIZATION
AGREEMENT


 


This License, Development, and Commercialization Agreement (the “Agreement”) is entered into this 30th day of
June, 2006, (the “Execution Date”)
by and between ARYx Therapeutics, Inc., a Delaware corporation having offices
at 6300 Dumbarton Circle, Fremont, CA 94555 (“ARYx”),
and Procter & Gamble Pharmaceuticals, Inc., an Ohio corporation having
offices at One Procter & Gamble Plaza, Cincinnati, Ohio 45202 (“P&G”).


 


RECITALS


 


WHEREAS,
P&G is engaged in the research, development, manufacture and
commercialization of pharmaceuticals and other health care products;


 


WHEREAS, ARYx
possesses intellectual property relating to a proprietary serotonin type 4
agonist compound known as ATI-7505;


 


WHEREAS, ARYx
desires to maximize the commercial potential of ATI-7505; and


 


WHEREAS,
P&G and ARYx desire to enter into a collaboration under which P&G will
obtain a worldwide exclusive license to develop, manufacture and commercialize
products containing such compound or certain structurally related compounds,
and will have primary responsibility for clinical development, regulatory matters,
manufacturing, marketing and sales of products containing such compounds, and
ARYx will retain options to co-develop such products and an option to
co-promote such products in the United States, all under the terms and
conditions set forth below.


 


NOW THEREFORE, the Parties agree
as follows:


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


 

















 


EXECUTION VERSION


 


ARTICLE 1



DEFINITIONS


 


1.1          “AAA” has
the meaning set forth in Section 15.2(d).


 


1.2          “Adverse Drug
Experience” has the meaning set forth in Section
5.2(b).


 


1.3          “Affiliate” means
any corporation or other business entity controlled by, controlling, or under
common control with another entity, with “control”
meaning (a) direct or indirect beneficial ownership of fifty percent (50%) or
more of the voting stock (or, in the case of a non-corporate entity, of the
equity interests with the power to direct the management and policies) of such
corporation or other business entity, or (b) possession, directly or
indirectly, of the power to direct, or cause the direction of, the management
and policies of such corporation or other business entity, whether through the
ownership of voting securities, by contract, or otherwise.


 


1.4          “Applicable Law” means applicable laws, rules and regulations,
including any applicable rules, regulations, guidelines or other requirements
of the Regulatory Authorities, that may be in effect from time to time.


 


1.5          “Approved Japanese
Affiliate” means an Affiliate of P&G that (a) immediately prior to its
acquisition by P&G, was a Major Japanese Pharmaceutical Company or (b) is a
joint venture between P&G and a Major Japanese Pharmaceutical Company,
wherein such Major Japanese Pharmaceutical Company owns at least [*] percent of
the joint venture.


 


1.6          “Arbitration Request” has
the meaning set forth in Section 15.2(a).


 


1.7          “ARYx Indemnitees” has
the meaning set forth in Section 13.2.


 


1.8          “ARYx Know-How”
means all Know-How (other than any Know-How licensed to ARYx under the [*]
Agreement) that is (a) possessed as of the Effective Date by ARYx or any Person
that is an Affiliate of ARYx on the Effective Date, (b) Controlled by ARYx or
any Person that is an Affiliate of ARYx on the Effective Date, and
(c) reasonably required or useful for the Exploitation of Licensed
Products. For the avoidance of doubt, ARYx Know-How excludes any Know-How
comprising the P&G Inventions.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


2

















 


EXECUTION VERSION


 


1.9          “ARYx Patents” means
any and all Patents (other than any Patents licensed to ARYx under the [*]
Agreement) (a) (i) that constitute or issue from patent applications (1) that
are filed in the U.S. or any foreign jurisdiction prior to the Effective Date
or (2) that claim priority to a patent application filed in the U.S. or any
foreign jurisdiction prior to the Effective Date (but excluding any claims not
entitled to a priority date prior to the Effective Date), (ii) that are
Controlled by ARYx or any Person that is an Affiliate of ARYx on the Effective
Date, and (iii) the practice of which is reasonably required or useful for the
Exploitation of Licensed Products, or (b) that are Blocking Patents. For the avoidance
of doubt, ARYx Patents include the Patents listed in Exhibit A and
exclude any Patents relating to the P&G Inventions.


 


1.10        “ARYx Technology”
means ARYx Know-How and ARYx Patents.


 


1.11        “Assigned Inventions” has
the meaning set forth in Section 10.1(b).


 


1.12        “Blocking Patents”
means any and all Patents (other than Patents described in Section 1.9(a) or
licensed to ARYx under the [*] Agreement) (a) that constitute or issue from
patent applications that are filed in the U.S. or any foreign jurisdiction
during the term of this Agreement, (b) that are Controlled by ARYx or its
Affiliate, and (c) the practice of which [*].


 


1.13        “Change of Control” means
(a) a consolidation or merger of a Party with or into any other entity or
person, or any other corporate reorganization, in which the capital stock of
such Party immediately prior to such consolidation, merger or reorganization,
represents less than fifty percent (50%) of the voting power of the surviving
entity (or, if the surviving entity is a wholly owned subsidiary, its parent)
immediately after such consolidation, merger or reorganization; or (b) any
transaction or series of related transactions in which more than fifty percent
(50%) of a Party’s voting power is transferred to a single entity or person (or
affiliates thereof) (excluding transfers of Company stock to an underwriter in
connection with a public offering); or (c) the consummation of a sale of all or
substantially all of the assets of a Party in any transaction or series of
related transactions (other than a sale of all or substantially all of the
assets of such Party to an entity, more than fifty percent (50%) of the
combined voting power of the voting securities of which are owned by
stockholders of such Party in substantially the same


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


3

















 


EXECUTION VERSION


 


proportions as their
ownership of such Party immediately prior to such sale). Notwithstanding the
foregoing, a Change of Control shall not be deemed to occur (i) on account of
the acquisition of securities of a Party by any institutional investor, or
affiliate thereof, that acquires the Party’s securities in a transaction or
series of related transactions that are primarily a private financing
transaction for the Party or (ii) a sale of assets, merger or other transaction
effected exclusively for the purpose of changing domicile of the Party.


 


1.14        “Co-Developed Product” means
a Licensed Product with respect to which ARYx has exercised its Co-Development
Option.


 


1.15        “Co-Development Agreement”
has the meaning set forth in Section 4.10(c).


 


1.16        “Co-Development Notice” has
the meaning set forth in Section 4.10(a).


 


1.17        “Co-Development Option” has
the meaning set forth in Section 4.10(b).


 


1.18        “Combination Product”
means any product that contains (a) one or more Licensed Compounds and (b) one
or more active pharmaceutical ingredients that are not Licensed Compounds and
that have a therapeutic effect independent of the therapeutic effect of the
Licensed Compound(s) in such Combination Product. For clarity, a product shall
not be considered to be a Combination Product merely because it consists of a
combination of a Licensed Compound with a delivery vehicle or an agent that
modifies the liberation, absorption, distribution, metabolism, or excretion of
such Licensed Compound.


 


1.19        “Commercialization” means
the marketing, promotion, sale or distribution of Licensed Product in the
Territory. “Commercialize” has a correlative
meaning.


 


1.20        “Commercialization Plan”
has the meaning set forth in Section 6.2(a).


 


1.21        “Commercially Reasonable
Efforts” means with respect to the research, development or
commercialization of a product, compound or process, efforts and resources that
represent consistent success models in the research-based multinational
pharmaceutical industry for a product, compound, or process at a similar stage
of research, development or commercialization, and having similar market
potential, but no less than the efforts and resources typically used by the
applicable Party for an internally-developed product, compound, or process at a
similar stage of research, development or


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


4

















 


EXECUTION VERSION


 


commercialization, and
having similar market potential. Commercially Reasonable Efforts shall be
determined by taking into account the characteristics of the product, compound,
or process, the technical risk and stage of research, development, or
commercialization of the product, compound, or process, the cost-effectiveness
of efforts or resources applied towards such product, compound, or process, the
competitiveness of alternative Third Party products, compounds or processes
that are in the relevant marketplace or for which data from [*] have been
publicly presented or published, the proprietary position of the product,
compound, or process, the regulatory and business environment, the likelihood
of regulatory approval and product reimbursement, the profitability of the
product, compound, or process, the relative potential for product liability
exposure, and all other relevant factors. Commercially Reasonable Efforts shall
be determined on a product, compound, or process, indication, and market basis,
and it is anticipated that the level of efforts and resources will change over
time reflecting changes in the status of the product, compound, or process,
indication, or the market involved. Commercially Reasonable Efforts requires
that the applicable Party (a) promptly assign responsibility for the work
required under this Agreement to specific employee(s) or contractors who are
held accountable for progress with respect thereto and monitor such progress on
an on-going basis, (b) set and consistently seek to achieve specific and
meaningful objectives for carrying out such work, and (c) consistently make and
implement decisions and allocate resources designed to advance progress with
respect to such objectives.


 


1.22        “Confidential Information” of a Party means all information
provided by or on behalf of such Party to another Party either in connection
with the discussions and negotiations pertaining to this Agreement prior to the
Effective Date or during the term of this Agreement or in the course of
performing this Agreement, including data; knowledge; practices; processes;
ideas; research plans; engineering designs and drawings; research data;
manufacturing processes and techniques; scientific, manufacturing, marketing
and business plans; and financial and personnel matters of the disclosing Party
or relating to its present or future products, sales, suppliers, customers,
employees, investors or business. Notwithstanding the foregoing, (a) the


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


 


5

















 


EXECUTION VERSION


 


terms of this Agreement
and the ARYx Know-How shall be deemed the Confidential Information of both
Parties, and (b) any Assigned Inventions shall be deemed the Confidential Information
of P&G and not the Confidential Information of ARYx.


 


1.23        “Controlled” means,
with respect to any intellectual property right, that the Party owns or has a
license to such intellectual property right and has the ability to grant to the
other Party a license, sublicense, or access (as appropriate) to, such
intellectual property right as provided for herein without violating the terms
of any written agreement or other binding arrangements with any Third Party
existing at the time such Party would be first required hereunder to grant the
other Party such license, sublicense, or access.


 


1.24        “Co-Promotion Agreement” has
the meaning set forth in Section 6.8(a).


 


1.25        “Co-Promotion Notice” has
the meaning set forth in Section 6.8(b).


 


1.26        “Co-Promotion Option” has
the meaning set forth in Section 6.8(a).


 


1.27        “[*]” has the meaning
set forth in Section 4.3(a).


 


1.28        “Development” means
all activities that relate to (a) obtaining, maintaining or expanding
Regulatory Approval or Pricing Approval of Licensed Product or (b) developing
the ability to Manufacture clinical and commercial quantities of Licensed
Product. Development includes (i) research, preclinical testing, toxicology,
formulation, Manufacturing-related technology development, product characterization,
analytical development, validation and transfer, and clinical studies of
Licensed Product; (ii) preparation, submission, review, and development of data
or information for the purpose of submission to a governmental authority to
obtain, maintain or expand Regulatory Approval or Pricing Approval of Licensed
Product, and outside counsel regulatory legal services related thereto; (iii)
Manufacturing process development, transfer and scale-up, and validation,
including for preclinical and non-clinical studies, clinical studies and
commercial supply; (iv) bulk production and fill/finish work associated with
the supply of Licensed Product for preclinical and non-clinical studies and
clinical studies, pivotal stability, and related quality assurance technical
support activities; (v)


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


6

















 


EXECUTION VERSION


 


post-Regulatory Approval
product support for Licensed Product (including Manufacturing and quality
assurance technical support, and laboratory and clinical efforts directed
toward the further understanding of the safety, efficacy, patient preference,
or provider preference of Licensed Product); and (vi) Licensed Product-related
medical affairs (including regulatory support necessary for product
maintenance). “Develop” has a correlative meaning.


 


1.29        “Development Plan” has
the meaning set forth in Section 4.2.


 


1.30        “Dollars” or “$” means
the legal tender of the U.S.


 


1.31        “Drug Approval
Application” means (a) in the U.S., a New Drug Application a Supplemental
New Drug Application for a Licensed Product, and (b) in the rest of the
Territory, an equivalent application for regulatory approval required before
commercial sale or use of a Licensed Product in a regulatory jurisdiction.


 


1.32        “Effective Date” means
the second (2nd) business day immediately following the earliest to
occur of:


 


(a)           the date upon which
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and including such Act’s enabling regulations (collectively “HSR”) expires or terminates early, provided that no
judicial or administrative proceeding opposing consummation of all or any part
of this Agreement is commenced during such waiting period;


 


(b)           the date of
completion of any judicial or administrative proceeding opposing consummation of
all or any part of this Agreement without (i) the issuance of an injunction
(whether temporary, preliminary or permanent) prohibiting consummation of the
transactions contemplated by this Agreement or any material portion thereof and
(ii) the imposition of requirements or conditions which are not reasonably
satisfactory to the Parties; and


 


(c)           the date of removal
of any and all injunctions (whether temporary, preliminary or permanent)
prohibiting consummation of the transactions contemplated by this Agreement or
any material portion thereof shall be in effect.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


7

















 


EXECUTION VERSION


 


1.33        “EMEA” means the
European Medicines Agency.


 


1.34        “Execution Date” has
the meaning set forth in the preamble hereto.


 


1.35        “Executive Officer” means, in the case of ARYx, the Chief
Executive Officer of ARYx, and in the case of P&G, the President of
P&G.


 


1.36        “Exploitation” means
the making, having made, importation, use, sale, offering for sale or
disposition of a product or process, including the research, Development,
registration, modification, enhancement, improvement, Manufacturing, storage,
formulation, optimization, export, transport, or Commercialization of a product
or process. When used as a verb, “Exploit” means
to engage in any of the foregoing activities.


 


1.37        “FDA” means the U.S.
Food and Drug Administration or any successor agency thereto.


 


1.38        “Field” means all
human and animal prophylactic and therapeutic uses.


 


1.39        “First Commercial Sale” means,
with respect to a country in the Territory, the first sale to a Third Party of
a Licensed Product in such country by P&G or its Affiliate or sublicensee
after the granting of Regulatory Approval with respect to such country.


 


1.40        “FTE” means the
equivalent of the work of one (1) employee full time for one (1) calendar year
(consisting of at least a total of eighteen hundred (1800) hours per calendar
year). Any person who works more than eighteen hundred (1800) hours per
calendar year shall be treated as a single FTE, and any person who works less
than eighteen hundred (1800) hours per calendar year shall be treated as a
partial FTE based upon the actual number of hours worked divided by eighteen
hundred (1800).


 


1.41        “FTE Rate” means [*] per FTE per year.


 


1.42        “GMP” has the meaning
set forth in Section 1.43.


 


1.43        “Good Practices” means
compliance with the applicable standards contained in


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


8

















 


EXECUTION VERSION


 


then-current “Good
Laboratory Practices,” “Good Manufacturing Practices” (“GMP”)
or “Good Clinical Practices,” in each case as promulgated by the FDA and all
analogous guidelines promulgated by the EMEA or the International Conference on
Harmonization of Technical Requirements for Registration of Pharmaceuticals for
Human Use.


 


1.44        “[*] Indication” means treatment of (a) an [*] indication or (b)
a symptom thereof, provided that the label indication that is approved or,
prior to approval of the relevant Drug Approval Application, the label
indication that is being sought, specifically refers to such symptom as being associated
with an [*] indication.


 


1.45        “IND” means an
investigational new drug application in the U.S. or any equivalent Regulatory
Submission in the Territory.


 


1.46        “Indemnified Party” has
the meaning set forth in Section 13.3.


 


1.47        “Indemnifying Party” has
the meaning set forth in Section 13.3.


 


1.48        “Infringement” has the
meaning set forth in Section 10.3(a).


 


1.49        “Japan Sublicensee” means
any sublicensee of P&G with respect to Japan.


 


1.50        “JJSC” has the meaning
set forth in Section 2.7(b).


 


1.51        “JSC” has the meaning set forth in Section 3.1.


 


1.52        “Know-How” means
inventions, discoveries, trade secrets, information, experience, data,
formulas, procedures, processes, methods and results, including physical,
chemical, biological, toxicological, pharmacological, clinical, and veterinary
data, dosage regimens, control assays and product specifications, in each case
whether or not confidential or proprietary, but excluding any Patents.


 


1.53        “Knowledge” means the collective good faith understanding of
each of the  vice presidents,
senior vice presidents, president and chief executive officer of a Party of the
facts and information then in their possession without any duty to conduct any
specific investigation with


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


9

















 


EXECUTION VERSION


 


respect to such facts and
information.


 


1.54        “Licensed Compound”
means (a) the ARYx compound known as ATI-7505; or (b) any other compound
included in a chemical genus claimed generally or specifically in U.S. Patent
[*], as of or after the Execution Date.


 


1.55        “Licensed Product”
means any product that contains a Licensed Compound, and including all
formulations and modes of administration thereof. For the purpose of this
Agreement, two Licensed Products shall be considered the same Licensed Product
if and only if each active pharmaceutical ingredient in one such Licensed
Product (or an acid form, base form, metabolite, prodrug, ester, salt form,
crystalline polymorph, hydrate, solvate or optical isomer of such active
pharmaceutical ingredient) is also present in the other such Licensed Product
in more than trace amounts. Similarly, two Licensed Products shall be
considered different Licensed Products if and only if, for at least one active
pharmaceutical ingredient in one such Licensed Product, the other Licensed
Product does not contain (other than in trace amounts) such active
pharmaceutical ingredient or any acid form, base form, metabolite, prodrug,
ester, salt form, crystalline polymorph, hydrate, solvate or optical isomer of
such active pharmaceutical ingredient. For clarity, one active pharmaceutical
ingredient shall not be considered to be a metabolite or a prodrug of another
active pharmaceutical ingredient merely because such active pharmaceutical
ingredients generate the same intended metabolite [*] when administered to a
patient or as a break-down product. For further clarity, for the purpose of
this Section 1.55, [*]


 


1.56        “Losses” has the
meaning set forth in Section 13.1.


 


1.57        “Major EU Country” means
the United Kingdom, France, Germany, Italy, or Spain.


 


1.58        “Major Japanese
Pharmaceutical Company” means a research-based pharmaceutical company that,
based on annual pharmaceutical sales in Japan in the previous year, is one of
the [*] pharmaceutical companies in Japan.


 


1.59        “Manufacture” and “Manufacturing”
means all activities related to the


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


10

















 


EXECUTION VERSION


 


production, manufacture,
processing, filling, finishing, packaging, labeling, inspection, receiving,
holding and shipping of the Licensed Compound, the Licensed Product, or any raw
materials or packaging materials with respect thereto, or any intermediate of
any of the foregoing, including process and cost optimization, process
qualification and validation, commercial manufacture, stability and release
testing, quality assurance and quality control.


 


1.60        “Material” has the
meaning set forth in Section 4.4.


 


1.61        “Net Sales” means, for
any period, the gross invoice price of Licensed Product sold or otherwise
disposed of (other than for use as clinical supplies or free samples) for
consideration by P&G or its Affiliates to Third Parties other than
sublicensees, reduced by the following amounts (calculated in accordance with
generally accepted accounting principles consistently applied by P&G and
its Affiliates across its product lines), if not previously deducted from the
amount invoiced: (a) amounts actually allowed as trade, volume or quantity
discounts, including early pay cash discounts; (b) amounts repaid or credited
by reason of defects, recalls, accrued or actual returns, rebates and
allowances of goods or because of retroactive price reductions specifically
identifiable to the Licensed Product; (c) rebates and administrative fees paid
to medical health care organizations in line with approved contract terms; (d)
rebates resulting from government (or agency thereof) mandated rebate programs
or chargeback programs; (e) rebates paid to wholesalers for inventory
management programs or distribution management agreements, in accordance with
P&G practice reasonably consistently applied; (f) discounts pursuant to
indigent patient programs and patient discount programs to include coupons and
vouchers to the extent included in Net Sales; (g) retroactive and temporary
price reductions that are actually allowed or granted; (h) sales commissions
paid to Third Party distributors or selling agents (which shall not include
sales organizations, whether contract or internal to P&G); (i) sales or
excise taxes, custom duties, and other governmental charges (including payments
made to United Kingdom government departments under the UK Pharmaceutical
Pricing Regulatory Scheme (PPRS) or similar programs, and government taxes,
charges or penalties, such as French Social Security rebates, which payments
need not be calculated in accordance with generally accepted accounting
principles) imposed directly on and actually paid by P&G or its Affiliates;
and (j) transportation costs, including insurance and


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


11

















 


EXECUTION VERSION


 


shipping, freight, and
handling charges, to the extent billed separately to customers.


 


When calculating the Net Sales, the amount of such
sales in foreign currencies shall be converted into Dollars using the standard
methodologies employed by P&G for consolidation purposes. P&G shall
provide reasonable documentation of the calculation and reconciliation of the
conversion figures on a country-by-country basis as part of its report of Net
Sales for the period covered under the report.


 


If P&G or its Affiliates receive non-cash
consideration for Licensed Product sold or otherwise transferred to an
independent Third Party, Net Sales for such sale or transfer will be determined
based on the average of the gross invoice prices charged to other independent
Third Parties in respect of cash sales during the applicable reporting period.


 


With respect to sales of a Combination Product, the invoice price of
such Combination Product shall be set by P&G in good faith, and Net Sales
of the Combination Product shall be determined using the following formulae:


 


(1)           If
the Licensed Compound and the other active pharmaceutical ingredient(s)
contained in the Combination Product are marketed separately, the Net Sales for
purposes of calculating royalty payments will be the result obtained by
multiplying the Net Sales of the Combination Product by the fraction A/A+B,
where A is the invoiced price of the Licensed Compound in the Combination
Product, and B is the sum of the then-lowest invoiced price in the country for
each of the other active pharmaceutical ingredients in the Combination Product.
Notwithstanding the foregoing, if, with respect to any of the other active
pharmaceutical ingredients in the Combination Product, there is [*] of an [*]
that [*] the [*] of such other active pharmaceutical ingredient, the [*] of
such other active pharmaceutical ingredient [*], or the [*] of such other
active pharmaceutical ingredient that is included in the Combination Product,
then the Net Sales for purposes of calculating royalty payments will be
determined [*].


 


(2)           If
the Combination Product includes other active pharmaceutical ingredients which
are not sold separately (but the Licensed Compound contained in the


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


12

















 


EXECUTION VERSION


 


Combination Product is available separately), the Net Sales for
purposes of calculating royalty payments will be the result of multiplying the
Net Sales of the Combination Product by the fraction A/C, where A is as defined
above and C is the invoiced price of the Combination Product.


 


(3)           If
neither the Licensed Compound nor the other active pharmaceutical products
contained in the Combination Product are sold separately, or if only the
Licensed Compound is not sold separately, P&G shall in good faith propose
(after discussion with ARYx) the percentage of the revenue from such Combination
Product that is attributable to the Licensed Compound and shall notify ARYx in
writing of such proposal not less than 90 days prior to commencing sales of
such Combination Product. Unless P&G receives written objection from ARYx
to such proposal within 90 days following ARYx ‘s receipt of such proposal,
then such percentage of the revenues attributed to the Combination Product
shall be the Net Sales for the purposes of computing royalties under this
Agreement. In the event that ARYx objects to P&G’s proposal, ARYx and
P&G shall negotiate in good faith to reach a mutually acceptable
determination within 90 days. If no resolution is reached within such period,
then either Party may refer the dispute to arbitration pursuant to Section
15.2.


 


1.62        “New Drug Application” means
a New Drug Application as defined in the U.S. Federal Food, Drug and Cosmetic
Act, as amended, and regulations promulgated thereunder, or any successor
application or procedure required to market or sell a drug in the United
States.


 


1.63        “Notice” has the
meaning set forth in Section 16.5.


 


1.64        “OTC Licensed Product”
means a Licensed Product that can be legally purchased in the country of sale
without a prescription.


 


1.65        “OUSJ Territory” means
all countries in Territory other than the U.S. and Japan.


 


1.66        “P&G Fiscal Year”
means the period from July 1 of a given calendar year to June 30 of the
succeeding calendar year.


 


1.67        “P&G Indemnitees” has
the meaning set forth in Section 13.1.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


1.68        “P&G Inventions”
means all inventions (whether or not patentable) that arise from activities
conducted by or at the request of either Party under this Agreement.


 


1.69        “P&G Know-How”
means all Know-How that is (a) possessed as of the Effective Date by P&G or
its Affiliates or that is developed or acquired pursuant to activities
conducted by or at the request of either Party under this Agreement (including
Know-How licensed from Third Parties in furtherance of such activities), (b)
Controlled by P&G or its Affiliates, and (c) reasonably required or useful
for the Exploitation of Licensed Products.


 


1.70        “P&G Patents”
means any and all Patents that (a) that constitute or issue from patent
applications (i) that are filed in the U.S. or any foreign jurisdiction prior
to the Effective Date or during the term of this Agreement or (ii) that claim
priority to a patent application filed in the U.S. or any foreign jurisdiction
prior to the Effective Date or during the term of this Agreement (but excluding
any claims not entitled to a priority date prior to the end of the term of this
Agreement) (b) are Controlled by P&G or its Affiliates, and (c) are
reasonably required or useful for the Exploitation of Licensed Products.


 


1.71        “P&G Technology”
means P&G Know-How and P&G Patents.


 


1.72        “Party” means ARYx or
P&G individually, and “Parties” means
ARYx and P&G collectively.


 


1.73        “Patent Challenge” has
the meaning set forth in Section 10.3(a).


 


1.74        “Patents” means (a)
all patents and patent applications (including provisional applications), (b)
any substitutions, divisions, continuations, continuations-in-part, reissues,
renewals, registrations, confirmations, re-examinations, extensions,
supplementary protection certificates and the like of the foregoing, and (c)
any foreign or international equivalents of any of the foregoing.


 


1.75        “PDEs” have the
meaning set forth in Section 6.8(c).


 


1.76        “Person” means an
individual, sole proprietorship, partnership, limited


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


partnership, limited liability
partnership, corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association, joint venture or other
similar entity or organization, including a government or political
subdivision, department or agency of a government.


 


1.77        “Phase II Trial” means that portion of the clinical
development program that provides for the well-controlled clinical trials of a
Licensed Product in human patient population to determine the safe and
effective dose range in the proposed therapeutic indication, as more fully
defined in 21 C.F.R. § 312.21(b), or its successor regulation, or the
equivalent in any foreign country.


 


1.78        “Phase III Trial” means any clinical study of any
Licensed Product that is initiated after the end of the Phase II
meeting with the FDA for such Licensed Product, and that is designated to
deliver the required statistical endpoints, to gather additional information
about effectiveness and safety necessary to evaluate the overall benefit-risk
profile of the drug, to satisfy regulatory requirements for drug approval, and
to provide an adequate basis for acceptable drug labeling, as more fully
defined in 21 C.F.R. § 312.21(c), or its successor regulation, or the
equivalent in any foreign country.


 


1.79        “Prescription Licensed
Product” means a Licensed Product that is not an OTC Licensed Product.


 


1.80        “Pricing Approval” means,
with respect to a particular regulatory jurisdiction, any approval with respect
to pricing or reimbursement of Licensed Product from any applicable Regulatory
Authority that is required to be obtained in order to market Licensed Product
in such regulatory jurisdiction or that is required to market Licensed Product
in such regulatory jurisdiction in a commercially reasonable manner.


 


1.81        “[*] Milestone Date” means
the date of [*] of the [*].


 


1.82        “Recipient” has the
meaning set forth in Section 12.2.


 


1.83        “Recovery” has the
meaning set forth in Section 10.3(d).


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


1.84        “Regulatory Approval”
means, with respect to a particular regulatory jurisdiction, the approval of a
Drug Approval Application by the applicable Regulatory Authority in such
regulatory jurisdiction and such other regulatory approvals, other than Pricing
Approvals, as are required in order to market the Licensed Product in such
regulatory jurisdiction.


 


1.85        “Regulatory
Authority” means
any supra-national, federal, national, regional, state, provincial or local
regulatory agencies, departments, bureaus, commissions, councils or other
government entities regulating or otherwise exercising authority with respect
to the Exploitation of the Licensed Product.


 


1.86        “Regulatory Submissions”
means all applications, filings, dossiers and the like submitted to a
Regulatory Authority in the Territory for the purpose of obtaining Regulatory
Approval from that Regulatory Authority in the Territory, including INDs and
Drug Approval Applications.


 


1.87        “[*] Milestone Date” means
the latest to occur of (a) the date on which P&G receives from ARYx those
results and analyses from the [*] that are described in the [*] as of the
Effective Date, (b) the date on which P&G receives from ARYx those
additional analyses described in Exhibit B, and (c) the date on which
P&G receives from ARYx the [*] with [*] sufficient to allow P&G to
analyze the data contained therein.


 


1.88        “[*]” means the [*]
study being conducted by or on behalf of ARYx as of the Effective Date (i.e.,
[*]).


 


1.89        “Sublicense Agreement”
has the meaning set forth in Section 2.6.


 


1.90        “Sublicensee Revenue” has
the meaning set forth in Section 8.8.


 


1.91        “Subsequent NCE” means
a Licensed Product other than a Licensed Product for which an IND  was first filed in the U.S. or a Major EU Country prior to
the date of the earliest First Commercial Sale.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


1.92        “Supplemental New Drug
Application” means a Supplemental New Drug Application, as defined in the
United States Federal Food, Drug and Cosmetic Act, as amended, and applicable
regulations promulgated thereunder.


 


1.93        “Target Audience” means
[*].


 


1.94        “Territory” means the entire world.


 


1.95        “Third Party” means
any person or entity other than a Party or its Affiliates.


 


1.96        “Trademarks” shall
have the meaning set forth in Section 10.5.


 


1.97        “[*]” means that
certain [*] by and between [*], dated [*].


 


1.98        “U.S.” means the
United States of America.


 


1.99        “Valid Claim” means,
with respect to a particular country, (a) any claim of an issued and unexpired
Patent in such country that (i) has not been held permanently revoked,
unenforceable or invalid by a decision of a court or governmental agency of
competent jurisdiction, which decision is unappealable or unappealed within the
time allowed for appeal and (ii) has not been abandoned, disclaimed, denied or
admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise in such country; or (b) a claim of a pending Patent application,
which claim (i) has not been abandoned or finally disallowed without the
possibility of appeal and (ii) has not been pending for more than [*] from the
date on which such claim was first filed.


 


ARTICLE 2



LICENSES


 


2.1          License to P&G. Subject
to the terms and conditions of this Agreement, ARYx hereby grants to P&G
and its Affiliates, under the ARYx Technology, an exclusive (even as to ARYx
and its Affiliates) royalty-bearing license (with the right to sublicense
through multiple tiers of sublicensees) to Exploit Licensed Products in the
Field in the Territory;  provided,


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


however, that
P&G and its Affiliates may grant sublicenses only with the prior written
consent of ARYx, which consent shall not be unreasonably withheld. Exhibit C
contains a list of countries with respect to which, as of the Execution Date,
P&G is considering granting one or more sublicenses under the license
granted in this Section 2.1. Such list is provided for informational purposes
only and shall not be binding on either Party for any purpose.


 


2.2          License to ARYx. Subject
to the terms and conditions of this Agreement, P&G hereby grants to ARYx,
under the P&G Technology, a non-exclusive, royalty-free license solely to
the extent necessary to conduct those Development responsibilities assigned to
ARYx under the Development Plan. ARYx may grant sublicenses under such license
solely to subcontractors retained by ARYx in accordance with Section 2.10.


 


2.3          ARYx Reserved Rights. Notwithstanding
anything in this Agreement to the contrary, ARYx reserves the limited right
under the ARYx Technology to conduct those Development responsibilities
assigned to it under the Development Plan.


 


2.4          No Non-Permitted Use. Each
Party hereby covenants that it will not, nor will it cause or permit any of its
Affiliate or sublicensees to knowingly use or practice, directly or indirectly,
any ARYx Technology (in the case of P&G) or P&G Technology (in the case
of ARYx) for any purposes other than those expressly permitted by this
Agreement.


 


2.5          No Other Licenses. Neither Party grants to the other Party any
rights or licenses in or to any intellectual property, whether by implication,
estoppel, or otherwise, other than the license rights that are expressly
granted under this Agreement.


 


2.6          Sublicense Agreements. P&G
shall, in each agreement under which it grants a sublicense under the license
set forth in Section 2.1 (each, a “Sublicense Agreement”),
require the sublicensee, at P&G’s election, to assign to P&G if such
sublicense terminates, or grant to P&G in that event a freely sublicensable
exclusive license under, (a) all Regulatory Submissions and Regulatory
Approvals held or possessed by such sublicensee and (b) all Patents and
Know-How Controlled by such sublicensee relating to the Licensed Product or its
use, Manufacture, sale, or importation. Each Sublicense Agreement shall also
include (i) diligence obligations no


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


less stringent than those
set forth in Sections 4.5 and 6.3; (ii) a direct indemnity by the sublicensee
in favor of ARYx similar in scope to that set forth in Section 13.2; and (iii)
a provision making ARYx an express third party beneficiary of such Sublicense
Agreement. At the election of P&G, each Sublicense Agreement may also
include a provision that terminates such Sublicense Agreement upon the
termination of the license set forth in Section 2.1.


 


2.7          Sublicensing in Japan.


 


(a)           P&G shall be
permitted to Exploit each Licensed Product in Japan under its own control
(i.e., by itself or an Affiliate or through a Third Party contractor that is
not a sublicensee under the license granted in Section 2.1) solely if (i) no
later than [*] after [*] with respect to such Licensed Product, P&G
delivers written notice to ARYx that it plans to Exploit such Licensed Product
in Japan under its own control and (ii) (1) P&G will conduct such
Exploitation through an Approved Japanese Affiliate or (2) P&G provides
ARYx with evidence that demonstrates, to ARYx’s reasonable satisfaction,
P&G’s capability to Exploit Licensed Products in Japan under its own
control. If the criteria in subsections (i) and (ii) are both satisfied, then
no JJSC shall be formed pursuant to Section 2.7(b) with respect to such
Licensed Product.


 


(b)           In the event that
P&G does not notify ARYx pursuant to Section 2.7(a)(i) that it intends to
Exploit a Licensed Product in Japan or if P&G is unable to satisfy the
requirements set forth in Section 2.7(a)(ii), the Parties shall form a Joint
Japanese Sublicensee Committee (“JJSC”) with
respect to the Exploitation in Japan of such Licensed Product. The JJSC shall
be responsible for managing the search for and selection of the Japan
Sublicensee with respect to such Licensed Product and for overseeing any
negotiations with such Japan Sublicensee. Any Japan Sublicensee and any
Sublicense Agreement with any Japan Sublicensee shall be subject to the prior
approval of the JJSC. The JJSC shall be a subcommittee of the JSC and shall
decide all matters by consensus, with each Party having one collective vote,
and any disputes that cannot be resolved by the JJSC in a reasonable time period
shall be submitted to the JSC for resolution in accordance with Section 3.5.
For clarity, P&G shall have the sole right and responsibility to enter into
a Sublicense Agreement with any Japan Sublicensee once such


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


Sublicense Agreement and
Japan Sublicensee are approved by the JJSC.


 


2.8          Third Party Agreements. P&G
shall be solely responsible for obtaining, at its sole expense, any licenses
from Third Parties that P&G determines, in its sole discretion, are
required in order to lawfully Exploit Licensed Products in the Field in the
Territory. P&G shall use Commercially Reasonable Efforts to ensure that (a)
each Third Party clinical trial, contract manufacturing, or service agreement
entered into by P&G or its Affiliates with respect to the Licensed Products
contains provision(s) permitting such Third Party contract to be assigned in
accordance with Section 14.6(b)(v) and (b) any Third Party Know-How or Patents
that are licensed by P&G from a Third Party and that would be P&G
Technology if Controlled by P&G will be sublicensable to ARYx under the
license granted by P&G to ARYx pursuant to Section 14.6(b)(i).


 


2.9          Transition. ARYx
shall use Commercially Reasonable Efforts to perform promptly, to the
reasonable satisfaction of P&G, the activities set forth on Exhibit D,
at the sole expense of ARYx.  


 


2.10        Subcontracting. Either
Party may delegate to any of its Affiliates, or subcontract, the performance of
its respective activities hereunder without the consent of the other
Party. With respect to any such subcontracting arrangement, the subcontracting
Party shall oversee the performance by its subcontractors of such activities,
in a manner that would be reasonably expected to result in their timely and
successful completion. Each Party shall remain responsible for the performance
of its delegated or subcontracted activities in accordance with this
Agreement.  ARYx shall use Commercially Reasonable Efforts to cause any
Person performing any Development activities on ARYx’s behalf to assign any
P&G Inventions to ARYx, and P&G shall use Commercially Reasonable
Efforts to cause any Person performing any Development activities on P&G’s
behalf to assign any P&G Inventions to P&G. ARYx shall obtain P&G’s
written consent prior to entering into a subcontracting agreement under which
any Person performing any Development activities on ARYx’s behalf is not
obligated to assign to ARYx those P&G Inventions resulting from such
activities.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


ARTICLE 3



GOVERNANCE


 


3.1          Joint Steering Committee. Within twenty (20)  days after the Effective Date, ARYx and
P&G shall form a joint steering committee (“JSC”)  consisting of three  (3)  representatives from ARYx and three (3)
representatives from P&G. Each Party may replace its JSC representatives at
any time upon prior written notice to the other Party. Each Party shall designate one of its representatives as a co-chair of
the JSC, and such co-chairs shall serve as the primary points of contact
between the Parties with respect to matters relating to this Agreement and to
resolve issues or disagreements between the Parties, as needed. JSC membership
shall evolve from over time as the project progresses so that each Party’s
combined membership represents the key functions (such as Development or
Commercialization) that are the current focus of work on Licensed Products.
Notwithstanding the foregoing, JSC decisions will be made pursuant to Section
3.5.


 


3.2          Meetings of the JSC. The JSC shall meet at least four (4)
times every calendar year, alternating between ARYx’s facilities and P&G’s
facilities, or such other location mutually agreed by the Parties, on such
dates and at such times as agreed to by P&G and ARYx. JSC members may attend
meetings in person or, as long as each attendee is able to hear the others, by
telephone or by video conference; provided, however, that at least two (2) JSC
members from each Party must be present in person at one JSC meeting per
calendar quarter and, subject to the last two (2) sentences of this Section
3.2, at least one (1) representative of each Party must participate in any
other meeting of the JSC for such meeting to be effective. No JSC member shall
be permitted to send a designee in his or her place to a JSC meeting. The
co-chairs of the JSC shall be responsible for agreeing on an agenda for each
such meeting. Each Party may permit such visitors to attend meetings of the JSC
as the JSC determines. Each Party shall be responsible for its own expenses for
participating in the JSC and any subcommittee thereof. The Parties acknowledge
and agree that ARYx has the right, but not the obligation, to participate in
the JSC with respect to Commercialization activities, and ARYx may waive its
right to participate in any decision relating to Commercialization activities
at any time. Any such waiver


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


shall be governed by the
terms of Section 16.8.


 


3.3          Responsibilities of the JSC. The JSC shall have the
responsibility and authority to:


 


(a)           Oversee the
Development, Regulatory Approval, and Commercialization of Licensed Products in
the Field in the Territory;


 


(b)           Review and approve
the overall strategy for Development in the Field in the Territory, including
the clinical trials contemplated by Section 4.3;


 


(c)           Review and approve
any proposed amendments or updates to the Development Plan;


 


(d)           Monitor the
Development of Licensed Product in the Field in the Territory in light of the
Development Plan;


 


(e)           Discuss the
requirements for Regulatory Approval in applicable countries in the Territory
and oversee regulatory matters with respect to Licensed Product in the
Territory;


 


(f)            Review the
Commercialization Plan and any proposed amendments or updates thereto;


 


(g)           Monitor the commercialization
of Licensed Product in the Territory in light of the Commercialization Plan;


 


(h)           Establish
subcommittees, oversee the activities of all subcommittees so established, and
address disputes or disagreements arising in all such subcommittees;


 


(i)            Regularly monitor
the overall health of the relationship between the Parties and recommend
corrective actions as needed;


 


(j)            Establish a
subcommittee to coordinate the initial transfers of various information,
documents and materials with respect to the Licensed Product from ARYx to
P&G


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


hereunder;


 


(k)           Oversee the
activities of the JJSC;


 


(l)            Oversee decisions
by the Parties regarding the prosecution, maintenance, enforcement and defense
of the ARYx Patents hereunder and any other intellectual property matters
arising hereunder;


 


(m)          subject to Section
3.4, address disputes or disagreements between the Parties with respect to
scientific, technical or business issues concerning the Development or
Commercialization of Licensed Products; and


 


(n)           Perform such other
functions as the Parties may agree in writing.


 


3.4          Areas Outside the JSC’s Authority. The JSC shall have no
authority other than that expressly set forth in Section 3.3 and, specifically,
shall have no authority (a) to amend or interpret this Agreement, (b) to
determine whether or not a Party has met its diligence or other obligations
under the Agreement, (c) to determine whether or not a breach of this Agreement
has occurred, or (d) to address any disputes or disagreements between the
Parties with respect to any payment owed or alleged to be owed by one Party to
the other Party.


 


3.5          JSC Decisions.


 


(a)           Consensus; Good Faith; Action Without Meeting. The JSC shall
decide all matters by consensus, with each Party having one collective vote.
Consistent with Section 3.6, the members of the JSC shall act in good faith to
cooperate with one another and to reach agreement with respect to issues to be
decided by the JSC. Action that may be taken at a meeting of the JSC also may
be taken without a meeting if a written consent setting forth the action so
taken is signed by the co-chairs of the JSC.


 


(b)           Failure to Reach
Consensus. In the event that the members of the JSC cannot come to
consensus within fifteen (15) days with respect to any matter over which the
JSC has authority and responsibility, the JSC shall submit the respective
positions of the Parties with


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


respect to such matter
for discussion in good faith by the Parties’ respective Executive Officers. If
such individuals are not able to mutually agree upon the resolution to such
matter within fifteen (15) days after the JSC’s submission to them, then the
Executive Officer of P&G shall have the right to decide such matter; provided, however, that no decision by the Executive Officer
of P&G will relieve P&G of its diligence obligations under Sections 4.5
and 6.3; and provided, further, that any
dispute with respect to the design of the [*] shall be submitted to [*] (or
another mutually agreed, independent Third Party expert) in the event that the
Executive Officers are unable to resolve such dispute within such period, and
such person’s resolution of such dispute shall be binding on each of the
Parties.


 


3.6          Operating Principles. The
Parties hereby acknowledge and agree that the deliberations and decision-making
of the JSC and any subcommittee thereof shall be in accordance with the
following operating principles:


 


(a)           Subject to
subsection (c) below, time is of the essence in addressing the market for the
Licensed Product.


 


(b)           Subject to
subsection (c) below, the Parties mutual objective is to maximize the
commercial success of the Licensed Product, consistent with sound and ethical
business and scientific practices.


 


(c)           The JSC, and any
subcommittee thereof, shall use commercially reasonable judgment in making its
decisions, taking into account applicable costs, delays, technical risks,
potential liabilities, and other relevant factors.


 


ARTICLE 4



DEVELOPMENT


 


4.1          Overview. Subject to
Sections 4.3(c), 4.3(d), and 4.10, P&G shall be primarily responsible for
the Development of Licensed Product in the Field in the Territory. Each Party
shall use Commercially Reasonable Efforts to perform all Development activities
assigned to it


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


in the Development Plan
and shall perform such Development activities in accordance with the
Development Plan. P&G shall bear all costs associated with Development of
Licensed Product in the Field in the Territory, as set forth in more detail in
Section 4.9, except as otherwise provided expressly herein or in any
Co-Development Agreement. For the avoidance of doubt, ARYx shall have no
obligation to perform any Development activities (other than the activities
required by Section 2.9 or, with its prior written consent, activities set
forth in the initial Development Plan or any updates thereto).


 


4.2          Development Plan.


 


(a)           Scope. The
Development of each Licensed Product under this Agreement shall be governed by
a worldwide development plan (each, a “Development Plan”).
Each Development Plan, as updated from time to time pursuant to Section 4.2(c),
shall (i) list key activities and dates for Development of the applicable
Licensed Product in key markets in the Territory from the date of such
Development Plan through Regulatory Approval and First Commercial Sale of such
Licensed Product in the intended indication(s) in such key markets and (ii)
describe in detail the proposed overall program of Development for the
applicable Licensed Product in the Territory for a rolling [*] period,
including preclinical studies, toxicology, formulation, process development,
clinical studies, regulatory plans and other elements of obtaining Regulatory
Approval(s) in each applicable country, as well as timelines for key Regulatory
Authority meetings, Drug Approval Applications and Regulatory Approvals.  Each Development Plan shall include
a summary of estimated Development expenses of the program expected to be
incurred during the Development process through obtaining Regulatory Approval
for each proposed indication and route of delivery, only to the extent such
expenses are to be incurred initially by ARYx (e.g., expenses incurred by ARYx
and reimbursed by P&G pursuant to Section 4.9). In the event of any
inconsistency between the Development Plan and this Agreement, the terms of
this Agreement shall prevail.


 


(b)           Initial Development
Plan. Promptly after the Effective Date, P&G shall prepare an initial
Development Plan in consultation with ARYx, and, no later than [*] after the
Effective Date, P&G shall submit such Development Plan to the JSC for
review and approval.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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Such initial Development
Plan shall describe key activities and dates for Development of Licensed
Products in the Territory from the date of such Development Plan through
Regulatory Approval and First Commercial Sale of such Licensed Product in key
markets.


 


(c)           Updates to the Development Plans. Prior to the commencement of
each P&G Fiscal Year and at such other times as P&G deems appropriate,
P&G shall update the existing Development Plan for each Licensed Product to
cover the upcoming [*], to take into account completion or cessation of
Development activities or commencement of new Development activities not
contemplated by the then-current Development Plan. Such proposed Development
Plan shall be submitted to the JSC no later than [*] prior to the commencement
of the applicable P&G Fiscal Year, for review and approval.


 


4.3          Specific Clinical
Trials.


 


(a)           [*]. No later than [*] after the Effective Date, the JSC shall determine the
[*] to be [*] to the [*] and the [*] for a [*] using the approach [*] entitled
[*] in order to [*] a [*] in [*]  (the
“[*]”). 
The Parties acknowledge that (i) it may be necessary to conduct
additional [*] prior to the selection of [*] in the [*], (ii) after
results from such [*] are available, it will be necessary
to obtain agreement from the [*] with respect to the dose selection
for the [*], and (iii) as a result, the [*] of the [*] of the [*] approved by
the JSC by the deadline specified above may not include complete information
regarding [*] (in which case, such [*] shall include a description of how the
appropriate [*] will be determined).


 


(b)           [*]. If P&G [*]
the [*] [*] pursuant to [*], then P&G shall (i) [*] a [*] (other than the
[*]) in a [*] selected by the JSC with [*] within [*] after the [*], or (ii) if
such [*] and [*] is already underway at the time of [*], P&G shall [*] such
[*] within a reasonable period. It is understood that the [*] in subsection (i)
is contingent on the availability of [*] and the availability of [*], and is
subject to P&G’s [*] this Agreement pursuant to [*].


 


(c)           [*]. P&G
recognizes ARYx’s interest in the completion of an [*]
of [*] for [*] during the [*] after the Effective Date. The JSC shall consider
such [*] and its [*] relative to [*] and [*] of other [*], and shall make a
decision whether or not to [*] such [*], not later than


 


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[*] after the later to
occur of (i) the [*] and (ii) the achievement of a [*] or [*], or the
subsequent completion of a [*] for [*] in the event of the achievement of a [*]
or [*].


 


(d)           Other Clinical Trials From
time to time, ARYx may propose to the JSC that additional clinical trials be
conducted for development of indications relevant to those physicians in the
Target Audience. The JSC shall determine whether such trials are a sound
investment and a sound technical and liability risk and whether they should
receive priority over other possible Licensed Product investments. If a trial
proposed by ARYx under this Section 4.3(d) is approved by the JSC, the JSC
shall determine whether such trials should be managed by P&G or ARYx.


 


4.4          Materials Transfer. ARYx
shall transfer to P&G, at a mutually agreed time and in a mutually agreed
manner, such quantities of ATI-7505 active pharmaceutical ingredient and
ATI-7505 drug product then in inventory, and such other materials on hand
related to ATI-7505 described in Exhibit E, in each case to the extent
Controlled by ARYx (collectively, “Material”).
Notwithstanding the foregoing, the Materials set forth under the heading [*]
shall only be transferred to P&G upon P&G’s request. P&G shall pay
for all transferred Material in accordance with Section 4.9 and Exhibit E.


 


4.5          Diligent Development. P&G shall use Commercially
Reasonable Efforts to Develop and Commercialize Licensed Products in each
country in the Territory for [*], and each additional indication for which
there is reasonable basis for efficacy.   
Without limiting the generality of the foregoing:


 


(a)           [*].  Subject
to the availability of necessary clinical supplies, the availability of
enabling toxicology data and reports, and timely agreement by the FDA and the
EMEA with respect to the applicable protocol (other than any lack of
availability or delay caused by P&G’s failure to use Commercially
Reasonable Efforts), P&G agrees to commence the [*] no later than [*]
after the Effective Date; provided, however, that
in the event additional Phase I studies are required to be conducted prior to
commencement of the [*] in order to select and justify the doses for such
study, P&G shall have the right to delay the commencement of the [*]


 


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until the conclusion of
such Phase I studies, provided that P&G uses Commercially Reasonable
Efforts to complete such Phase I studies. The Parties anticipate that the need
for such Phase I studies would delay the commencement of the [*] by
approximately [*].


 


(b)           [*].  Subject
to the availability of necessary clinical supplies, the availability
of enabling toxicology data and reports, and timely agreement by the FDA
and the EMEA with respect to the applicable protocol (other than any lack of
availability or delay caused by P&G’s failure to use Commercially
Reasonable Efforts), P&G shall commence a [*] of a Licensed Product for a
gastrointestinal indication no later than [*] after the Effective Date.


 


(c)           [*]. Subject to
the availability of necessary clinical supplies (other than any lack
of availability caused by P&G’s failure to use Commercially Reasonable
Efforts), for each Licensed Product being Developed for a particular
indication, P&G shall commence a [*] for such Licensed Product in such
indication not later than [*] after the
[*] in which the [*] substantially the same in cost and structure as the
[*] proposed by P&G.


 


Any material failure by
P&G to comply with the obligations set forth in this Section 4.5 shall be
deemed to be a breach of a material obligation under this Agreement, for which
ARYx may exercise its termination rights under Article 14 or any other
available remedies at law or in equity.


 


4.6          Development Reports. Each
Party shall present to the JSC at each JSC meeting a written report that
summarizes, in reasonable detail, all Development activities performed by such
Party and its Affiliates, sublicensees, and Third Party contractors since the
last such report by such Party, and compares such performance with the goals and
timelines set forth in the Development Plan. For the purpose of this Section
4.6, a hard copy or an electronic copy of a presentation, slides or exhibits
shall be deemed to be a “written report.” 
In the event the costs and expenses with respect to any Development
activity described in any such report are reimbursable, in whole or in part, by
the non-reporting Party, the reporting Party shall include in such report an
analysis of the costs and expenses incurred in connection with such activity in
light of the amounts budgeted for such activity in the Development Plan. Each
Party shall also


 


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promptly provide the JSC
or the other Party with any additional information regarding its Development of
the Licensed Product reasonably requested thereby.


 


4.7          Standards of Conduct. Each Party shall perform, and shall
ensure that its Affiliates, sublicensees, and Third Party contractors perform,
the Development activities for which it is responsible under the Development
Plan in accordance with Good Practices and Applicable Law.


 


4.8          Development Limitations. Neither Party may conduct or have
conducted on its behalf, or enable any Third Party to conduct (other than
investigator-initiated trials which would be approved through P&G’s grant
review team), any clinical activities on, or with respect to, any Licensed
Product that are not approved under the Development Plan or by the JSC (or, in
the event of a dispute, pursuant to Section 3.5(b) or Section 15.2, as the case
may be).


 


4.9          Development Expenses. ARYx
shall be responsible for all costs and expenses incurred by or on behalf of
ARYx prior to the Effective Date, except for those costs and expenses set forth
in Exhibit E that are listed as payable by P&G, which will be
reimbursed by P&G. To the extent that P&G and ARYx agree that ARYx will
perform Development activities after the Effective Date (other than those
listed in Exhibit D, the costs and expenses of which activities shall be
borne by ARYx), P&G shall be responsible for all pre-agreed costs and
expenses incurred by or on behalf of ARYx in connection with such Development
activities to the extent such expenses meet all of the following criteria:  (a) such activities are set forth in the
Development Plan as modified from time to time pursuant to Section 4.2(c) and
are listed in the budget set forth therein as expenses to be incurred by ARYx;
(b) the total costs and expenses incurred by ARYx for each such activity does
not exceed the corresponding budgeted amount for such activity by more than [*]
or are approved by the JSC; and (c) the costs and expenses for ARYx personnel
and administrative time are calculated based on the FTE Rate (or such other FTE
rate mutually agreed by the Parties in writing), without any markup, where the
FTE Rate is intended to cover the fully-loaded costs and expenses of ARYx with
respect to such FTEs, including any salary, benefits, retirement, occupancy,
travel, office supply, systems communications, depreciation and any other
overhead expenses incurred in connection with such


 


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FTEs. In no event shall
ARYx be obligated to perform any Development activities (other than those
listed in Exhibit D) that would cause it to incur expenses that will not
be reimbursed by P&G. Reimbursement of ARYx by P&G pursuant to this
Section 4.9 shall be made only with respect to amounts actually incurred by
ARYx. Unless the Parties agree otherwise, any payments due to ARYx pursuant to
this Section 4.9 shall be made on a quarterly basis, based on written invoices
submitted by ARYx to P&G, and shall be due [*] days after P&G’s receipt
of the applicable invoice. As between
the Parties, except as otherwise provided pursuant to a Co-Development
Agreement, P&G shall be responsible for all costs and expenses
incurred by or on behalf of P&G, its Affiliates, or its sublicensees in
connection with Development of Licensed Products.


 


4.10        Option to Co-Develop.


 


(a)           No later than [*]
after [*] of the first [*] for each different Licensed Product, P&G shall
provide written notice to ARYx of such [*] of a [*], which notice shall be
accompanied by an updated Development Plan for such Licensed Product and an
estimated budget with respect to the Development activities set forth therein
(the “Co-Development Notice”). For the
purpose of this Section 4.10, “Commencement of a Phase
III Trial” means first dosing of the first patient in a Phase III
Trial.


 


(b)           ARYx shall have the
option with respect to each Licensed Product with respect to which ARYx has
received a Co-Development Notice (each, a “Co-Development Option”)
to co-develop such Licensed Product pursuant to a Co-Development Agreement (as
defined below), which option shall be exercisable by written notice to P&G
for [*] after ARYx’s receipt of the Co-Development Notice. In the event that
ARYx does not exercise its Co-Development Option with respect to a Licensed
Product within such period, ARYx shall have no further rights under this
Section 4.10 with respect to such Licensed Product.


 


(c)           Following exercise
of the Co-Development Option, P&G and ARYx shall enter into good faith
negotiations and use commercially reasonable efforts to agree on a definitive
co-development agreement (a “Co-Development Agreement”)
with respect to the


 


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relevant Licensed
Product. The Co-Development Agreement for such Co-Developed Product, which may
take the form of a stand-alone agreement or an amendment to this Agreement,
shall outline the overall framework for the Parties’ co-development effort in
the U.S., including roles and responsibilities of the Parties and the mechanism
for sharing of the costs with respect to the applicable Co-Developed Product
and for sharing of the profit generated by the applicable Co-Developed Product
in the U.S. The Co-Development Agreement shall include the terms set forth on Exhibit
F (along with additional terms and conditions customary in the industry for
an agreement of this type). If, despite good faith efforts, the Parties are
unable to reach agreement on a mutually acceptable Co-Development Agreement for
a particular Licensed Product, then ARYx’s co-development right with respect to
such Licensed Product shall lapse and neither Party shall have the right to
have the terms of a Co-Development Agreement, to the extent not set forth in Exhibit
F, decided by arbitration pursuant to Section 15.2. For clarity, the terms
and conditions of this Agreement (other than as set forth in Exhibit F)
do not apply to any Co-Developed Product unless and until the terms of this
Agreement are amended or superseded by a mutually executed Co-Development
Agreement.


 


(d)           ARYx’s
Co-Development Option shall terminate as to all Licensed Products upon any
Change of Control of ARYx or upon the assignment of this Agreement by ARYx to
an entity of which ARYx owns, directly or indirectly, fifty percent (50%) or
less of the voting securities or the equity interests having the power to
direct the management and policies of such entity. For clarity, a Change of
Control of ARYx shall not affect any co-development rights possessed by ARYx as
a result of exercising a Co-Development Option prior the closing of the Change
of Control transaction.


 


ARTICLE 5



REGULATORY


 


5.1          Regulatory Submissions.


 


(a)           As between the
Parties, P&G shall have sole responsibility for preparing


 


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and filing all Regulatory
Submissions in the Field in the Territory, including preparing all reports
required in connection with the submission of any Drug Approval Application in
the Territory, and shall use Commercially Reasonable Efforts to obtain
Regulatory Approvals in the Territory and, where applicable, Pricing Approvals.
All Regulatory Submissions for Licensed Products in the Field in the Territory
shall be filed in the name of P&G or one of its Affiliates or sublicensees,
and, as between the Parties, P&G shall be responsible for all
communications and other dealings with the regulatory agencies relating to the
Licensed Products in the Field in the Territory. ARYx shall transfer to P&G
ownership of ARYx’s Regulatory Submissions and Regulatory Approvals for
Licensed Products in the Field in the Territory as of the Effective Date
(including any INDs for Licensed Products in the Field Controlled by ARYx as of
the Effective Date) on a date mutually agreed by the Parties, which date shall
be as soon as reasonably practicable after the later to occur of the following
dates:


 


(i)        the [*] day after the
Effective Date; and


 


(ii)       the [*] after the
fulfillment by ARYx of the applicable [*] with respect to the [*] (but not
later than the [*] after the last patient has completed all assessments
required by the protocol for the [*]).


 


The Parties shall work together in good faith
to ensure that P&G receives the regulatory documents referenced in the
final section of Exhibit D at least [*] prior to the transfer of ownership of
Regulatory Submissions and Regulatory Approvals for Licensed Products in the
Field in the Territory pursuant to this Section 5.1(a). As between the Parties,
P&G shall be the legal and beneficial owner of all Regulatory Submissions
and Regulatory Approvals for Licensed Products in the Field in the Territory,
in each case that are assigned by ARYx to P&G hereunder or developed or
obtained, as applicable, by or on behalf of P&G, its Affiliates or
sublicensees.


 


(b)           The JSC shall
develop and implement procedures for drafting and review of any Drug Approval
Application with respect to the U.S., the European Union or any Major EU
Country for a Licensed Product in the Field, which shall provide ARYx not less
than [*] to provide substantive comments. P&G shall consider ARYx’s
comments on each such Drug


 


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Approval Application in
good faith; provided, however, that P&G shall have the right to make all
final decisions relating to the content of each such Drug Approval Application.


 


(c)           P&G shall
promptly notify ARYx of all Regulatory Submissions that it submits, and, at
ARYx’s request, shall promptly provide ARYx with a copy (which may be wholly or
partly in electronic form) of such Regulatory Submissions. P&G will provide
ARYx with reasonable advance notice of any scheduled meeting with any
Regulatory Authority relating to Development or any Drug Approval Application
in the Territory, and ARYx shall have a limited right to have one ARYx employee
or contractor attend (without a speaking role unless otherwise agreed by the
Parties in advance) any such meeting, to the extent permitted by Applicable
Law. P&G also shall promptly furnish ARYx with summaries of all material
correspondence or material meetings with any Regulatory Authority relating to
Development, Regulatory Submissions or a Regulatory Approval in the Territory,
and P&G shall, at ARYx’s request, promptly furnish ARYx with copies of such
correspondence or copies of minutes of such meetings.


 


(d)           Following approval
of a Drug Approval Application for a Licensed Product, P&G shall retain
primary responsibility for dealings with the applicable Regulatory Authority
with respect to such Licensed Product, including filing all supplements and
other documents with such Regulatory Authority with respect to such Drug
Approval Application.


 


5.2          Complaints and Adverse
Event Reporting.


 


(a)           Complaints. Each
Party shall maintain a record of any and all complaints it receives with
respect to the Licensed Product as required by Applicable Law. ARYx shall
notify P&G in reasonable detail of any complaint received by it relating to
any Licensed Product within forty-eight (48) hours after receiving the complaint,
and in any event in sufficient time to allow P&G to comply with any and all
regulatory and other requirements imposed upon it in any jurisdiction in which
the Licensed Product is being marketed.


 


(b)           Adverse Event Reporting. Without
limitation of Section 5.2(a), P&G shall inform ARYx, in writing and with
reasonable specificity, of the types of information that


 


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P&G requires in order
for P&G to comply with its pharmacovigilance responsibilities under
Applicable Law, including any written notice of Adverse Drug Experiences
received by ARYx from pre-clinical or clinical laboratory, animal toxicology
and pharmacology studies, clinical trials and commercial experiences with the
Licensed Product, and ARYx shall provide P&G with all such information in
ARYx’s possession and Control from time to time. “Adverse
Drug Experience” means (i) any finding from tests in laboratory
animals or in vitro that suggests a significant risk for human subjects
including reports of mutagenicity, teratogenicity or carcinogenicity and (ii)
any undesirable, untoward or noxious event or experience associated with the
clinical, commercial or other use, or occurring following administration, of
the Licensed Product in humans, occurring at any dose, whether expected and
whether considered related to or caused by the Licensed Product, including such
an event or experience as occurs in the course of the use of the Licensed
Product in professional practice, in a clinical trial, from overdose, whether accidental
or intentional, from abuse, from withdrawal or from a failure of expected
pharmacological or biological therapeutic action of the Licensed Product, and
including those events or experiences that are required to be reported to the
FDA under 21 C.F.R. Sections 312.32 or 314.80, or to foreign Regulatory
Authorities under corresponding Applicable Law outside the United States.


 


5.3          Product Withdrawals and Recalls. In the event that any
regulatory agency (a) threatens in writing or initiates any action to
remove any Licensed Product from the market in any country in the Territory or
(b) requires P&G, its Affiliates, or its sublicensees to distribute a “Dear
Doctor” letter or its equivalent regarding use of a Licensed Product in the
Field, P&G shall notify ARYx of such event within one (1) business day
after P&G becomes aware of the action, threat or requirement (as
applicable). P&G shall notify, and shall use Commercially Reasonable
Efforts to consult with, ARYx prior to initiating a recall or withdrawal of a
Licensed Product in the U.S., Japan, or a Major EU Country; provided, however,
that the final decision as to whether to recall or withdraw a Licensed Product
in the Field in the Territory shall be made by P&G in its sole discretion.
P&G shall be responsible for conducting any recalls or taking such other
necessary remedial action with respect to the Licensed Product in the Field in
the Territory. P&G shall bear all costs and expenses with respect to any
such recall or remedial action.


 


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ARTICLE 6



COMMERCIALIZATION


 


6.1          General. Subject to the remainder of this Article 6,
P&G shall have sole responsibility and decision-making authority for
Commercialization activities, all of which shall be carried out in accordance
with the Commercialization Plan. P&G shall be responsible for all costs and
expenses associated with the Commercialization activities, except as provided
in Section 6.8.


 


6.2          Commercialization Plan.


 


(a)           The Parties
acknowledge and agree that a long-term commercialization plan is necessary to
guide Development of the Licensed Product in the Field toward the applicable
product profile and to achieve optimal labels and positioning for the Licensed
Product. No later than [*] after the [*] and further subject to Section 6.2(b),
P&G shall deliver to the JSC for its review and comment a draft written
commercialization plan setting forth all anticipated Commercialization
activities to be performed with respect to Licensed Products in the [*] by or
on behalf of P&G (including market studies, launch plans, detailing and
promotion), as well as projected timelines for such activities (the “Commercialization Plan”). P&G shall consider in good
faith all reasonable comments received from the JSC with respect thereto and
shall submit any revisions to such plan to the JSC for review.


 


(b)           It is understood
that the initial Commercialization Plan delivered pursuant to Section 6.2(a)
will likely include only a summary and timeline of the anticipated marketing
activities with respect to the indications and countries in and for which
Regulatory Approval is being sought. After approval of the initial Commercial
Plan, P&G shall provide updates to the JSC at each JSC meeting regarding
P&G’s then-current plans for Commercialization of Licensed Products in the
U.S., Japan, and each Major EU Country. Moreover, within sixty (60) days of
database lock for the first Phase III Trial, P&G shall deliver to the JSC a
more detailed version of the Commercialization Plan. Such Commercialization
Plan (and each update thereto) shall


 


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include (i) an outline of
key activities and dates for Commercialization of Licensed Products in the
Territory over the subsequent [*] and (ii) a more detailed description of the
proposed Commercialization activities to be performed with respect to Licensed
Products in the [*] for a rolling [*] period, which detailed description shall
include at least the following items: (A) a description of P&G’s
anticipated marketing activities (both pre- and post-launch), including the
plans to use key opinion leaders and focus groups; (B) sales projections, [*];
(C) any requirements for additional marketing studies; (D) competitive analysis
including specific actions to mitigate competitive threats; and (E) planned
promotional material and sales/detailing protocols (with the understanding
that, prior to the applicable Regulatory Approval, such material will be in
concept form only based on the target product profile). Without limiting the generality
of the foregoing, no later than the filing of Drug Approval Application for a
particular Licensed Product United States or a Major EU Country, P&G shall
provide the JSC with an updated Commercialization Plan that specifically
addresses the marketing of such Licensed Product in such country.


 


(c)           P&G shall
update the Commercialization Plan on an annual basis as follows:  P&G shall provide the JSC with a draft
update to the Commercialization Plan for the upcoming [*] no later than [*] of
each year. P&G shall consider in good faith all reasonable comments
received from the JSC with respect thereto and shall submit any revisions to
such update to the JSC for review. P&G may, at its election, update the
Commercialization Plan between annual updates by following the same procedure.


 


(d)           In the event of any
inconsistency between the Commercialization Plan and this Agreement, the terms
of this Agreement shall prevail.


 


6.3          Diligent
Commercialization. P&G shall use Commercially Reasonable Efforts to
Commercialize Licensed Products in each country in the Territory for each
indication for which it receives Regulatory Approval. Without limiting the
generality of the foregoing, P&G shall satisfy each of the following
requirements, in each case subject to the availability of necessary supplies of
Licensed Product (other than any lack of availability caused by P&G’s
failure to use Commercially Reasonable Efforts):


 


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(a)           In the U.S. and
each other country in the Territory in which there is no Pricing Approval for a
particular Licensed Product, P&G shall undertake the commercial launch of
each Licensed Product promptly after, and in any case not later than [*] after,
the first date on which Regulatory Approval is granted with respect to such
Licensed Product in such country; and


 


(b)           In each other
country in the Territory, P&G shall undertake the commercial launch of each
Licensed Product promptly after, and in any case not later than [*] after, the
first date as of which both Regulatory Approval and Pricing Approval have been
granted with respect to such country; provided, however, that P&G shall not
be obligated pursuant to this Section 6.3(b) to undertake a commercial launch
in any country in which such launch is not commercially reasonable, considering
either conditions in such country or the effect such launch might have on the
commercial prospects of such Licensed Product in other countries.


 


Any material failure by
P&G to comply with the obligations set forth in this Section 6.3 shall be
deemed to be a breach of a material obligation under this Agreement, for which
ARYx may exercise its termination rights under Article 14 or any other
available remedies at law or in equity.


 


6.4          Commercialization
Reports. Commencing after the JSC’s review of the initial detailed
Commercialization Plan submitted by P&G pursuant to the third sentence of
Section 6.2(b), P&G shall present to the JSC at each JSC meeting a written
report that summarizes, in reasonable detail, all Commercialization activities
performed by P&G and its Affiliates, sublicensees, and Third Party
contractors since the last such report by P&G, and compares such
performance with the goals and timelines set forth in the Commercialization
Plan. For the purpose of this Section 6.4, a hard copy or an electronic copy of
a presentation, slides or exhibits shall be deemed to be a “written
report.”  P&G shall also promptly
provide the JSC or ARYx with any additional information regarding Commercialization
of the Licensed Product reasonably requested thereby.


 


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6.5          Standards of Conduct. P&G
shall perform, or shall ensure that its Affiliates, sublicensees and Third
Party contractors perform, all Commercialization activities in a good
scientific and ethical business manner and in compliance with Applicable Law.


 


6.6          Sales Force Training. P&G
shall develop and conduct training programs specifically relating to the
Licensed Products for its relevant sales representatives. P&G agrees to
utilize such training programs on an ongoing basis to assure a consistent,
focused promotional strategy.


 


6.7          Launch of OTC Licensed
Products. Except to the extent that the FDA or EMEA (as appropriate)
requires P&G to do so, P&G shall not promote, market, or sell a particular
OTC Licensed Product in the U.S. or a Major EU Country earlier than the first
to occur of (a) the date of actual launch in the applicable country of a
generic product containing the same Licensed Compound as such OTC Licensed
Product (or an acid form, base form, metabolite, prodrug, ester, salt form,
crystalline polymorph, hydrate, or solvate of such Licensed Compound, or an
optical isomer of such Licensed Compound solely in the event that such optical
isomer is approved by the applicable Regulatory Authority as a generic version
of such Licensed Compound); (b) the date [*] before the expected launch in the
applicable country of a generic product containing the same Licensed Compound
as such OTC Licensed Product (or an acid form, base form, metabolite, prodrug,
ester, salt form, crystalline polymorph, hydrate, or solvate of such Licensed
Compound, or an optical isomer of such Licensed Compound solely in the event
that the applicable Regulatory Authority has been asked to approve such optical
isomer as a generic version of such Licensed Compound); (c) the date [*] before
expiration of the last-to-expire ARYx Patent in such country covering such OTC
Licensed Product or the manufacture, use, or sale of a such OTC Licensed
Product; and (d) a final, unappealable decision by a court or governmental
agency of competent jurisdiction within the applicable country that permanently
invalidates, revokes or renders unenforceable the last ARYx Patent in such
country covering such OTC Licensed Product or the manufacture, use, or sale of
such OTC Licensed Product. P&G shall keep ARYx reasonably apprised of any
efforts by the FDA or EMEA to require such earlier promotion, marketing or
selling of a particular OTC Licensed Product in the U.S. or a Major EU Country
and shall provide ARYx with copies of all written communications between


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


P&G (or P&G’s
counsel or representative) and the FDA or EMEA regarding such matter. P&G
shall keep ARYx reasonably apprised of any efforts by P&G to launch any OTC
Licensed Product in the U.S. or a Major EU Country and shall notify ARYx in
writing of any Regulatory Submissions in connection therewith.


 


6.8          Option to Co-Promote.


 


(a)           P&G hereby
grants to ARYx an option (a “Co-Promotion Option”)
to co-promote each Licensed Product in the U.S. to the Target Audience in
accordance with a co-promotion agreement (a “Co-Promotion
Agreement”) to be negotiated in good faith and entered into by the
Parties promptly following ARYx’s exercise of the Co-Promotion Option with
respect to a particular Licensed Product.


 


(b)           P&G shall give
ARYx prompt written notice of the FDA’s first acceptance of filing of an Drug
Approval Application in the U.S. for a particular Licensed Product, and shall
provide with such notice a summary of its marketing plan for the launch and
estimated first year’s commercial sales of such Licensed Product (collectively,
the “Co-Promotion Notice”). Such summary
shall indicate the anticipated date of First Commercial Sale of the applicable
Licensed Product in the U.S. ARYx may exercise its Co-Promotion Option with
respect to a particular Licensed Product by written notice to P&G at any
time after ARYx receives a Co-Promotion Notice with respect thereto; provided,
however, that (i) if ARYx exercises its Co-Promotion Option for a particular
Licensed Product within [*] after its receipt of the Co-Promotion Notice for
such Licensed Product, ARYx’s co-promotion activities with respect to such
Licensed Product shall not commence until the First Commercial Sale of such
Licensed Product and (ii) if ARYx exercises its Co-Promotion Option with
respect to a particular Licensed Product more than [*] after its receipt of the
Co-Promotion Notice for such Licensed Product, ARYx’s co-promotion activities
with respect to such Licensed Product shall not commence until the first day of
the [*] that commences at least [*] after the date of such exercise of the
Co-Promotion Option.


 


(c)           The Co-Promotion
Agreement shall outline the overall framework for the


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


co-promotion effort,
including the roles and responsibilities of the Parties and the number and
percentage of primary detail equivalents (“PDEs”) to the
Target Audience to be provided by ARYx. The Co-Promotion Agreement will include
the terms set forth in Exhibit G (along with additional terms and
conditions customary in the industry for an agreement of this type). If,
despite good faith efforts, the Parties are unable to reach agreement on a
mutually acceptable Co-Promotion Agreement for a particular Licensed Product,
then ARYx’s co-promotion right with respect to such Licensed Product shall
lapse and neither Party shall have the right to have the terms of a
Co-Promotion Agreement, to the extent not set forth in Exhibit G, decided
by arbitration pursuant to Section 15.2. For clarity, the terms and conditions
of this Agreement (other than as set forth in Exhibit G) do not apply to
any co-promoted Licensed Product unless and until the terms of this Agreement
are amended or superseded by a mutually executed Co-Promotion Agreement.


 


ARTICLE 7



MANUFACTURE AND SUPPLY


 


7.1          Manufacturing Responsibility. As between the Parties, P&G
shall have the sole responsibility and decision-making authority with respect
to the Manufacturing of Licensed Products in bulk and finished form for use by
P&G, its Affiliates, and its sublicensees in the Field in the Territory,
and for use by ARYx pursuant to the Development Plan.


 


7.2          Transfer of
Manufacturing Technology.


 


(a)           As soon as
reasonably possible after the Effective Date, at ARYx’s expense, ARYx shall
transfer to P&G or a Third Party manufacturer designated by P&G, or at
P&G’s election, both P&G and such Third Party manufacturer (i) all
information Controlled by ARYx as of the Effective Date reasonably useful or
necessary to enable P&G or such Third Party manufacturer (as appropriate)
to Manufacture the Licensed Product, including such information as is
reasonably useful or necessary to replicate the processes employed by or on
behalf of ARYx as of the Effective Date to Manufacture Licensed Product for use
in the Field and (ii) an up-to-


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


date development history
with respect to the Licensed Product. In addition, upon P&G’s request
within [*] after the Effective Date (which request shall be in P&G’s sole
discretion), ARYx shall use commercially reasonable efforts (which efforts
shall not include the payment of any consideration) to [*].  Upon receipt of such consent, ARYx shall
assign such agreement(s) to P&G and P&G agrees to accept such
assignment(s). In the event that, notwithstanding such commercially reasonable
efforts, ARYx is unable to obtain one or both of such consents, the Parties
shall cooperate in good faith in order to obtain for P&G, for a reasonable
time period, such supplies of materials as P&G shall reasonably require in
connection with its Development activities hereunder.


 


(b)           P&G and its
Third Party manufacturer(s) shall use any information transferred pursuant to
Section 7.2(a) in accordance with the license granted in Section 2.1 and solely
for the licensed use and for no other purpose.


 


(c)           Prior to requesting
the transfer by ARYx of any information to a Third Party manufacturer pursuant
to this Section 7.2, P&G shall cause such Third Party manufacturer to enter
into a confidentiality agreement with ARYx that binds such Third Party
manufacturer to obligations with respect to such information that are
substantially equivalent to those of Article 12 of this Agreement.


 


ARTICLE 8



PAYMENTS


 


8.1          Upfront Payment. P&G
shall pay to ARYx a non-refundable, non-creditable payment of Twenty-Five
Million Dollars ($25,000,000) within [*] after the Effective Date.


 


8.2          Development Milestones. P&G
shall notify ARYx within [*] after the occurrence of an achievement of each
milestone event giving rise to a payment obligation under Sections 8.2(b)
through (f), and P&G shall pay ARYx the indicated amount no later than [*]
after receipt of a written invoice from ARYx with respect any payment
obligation under this Section 8.2.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


(a)           Initial Milestones.


 


(i)        [*] Milestones. P&G
shall make one of the following milestone payments to ARYx based upon the tier
in which the results of the [*] fall (according to the criteria set forth in Exhibit
B), unless P&G timely exercises its right to terminate this Agreement
pursuant to Section 14.3(a):


 


	
  Tier

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  Tier 1

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  Tier 2

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  Tier 3

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  Tier 4

  	
   

  	
  [*]

  



 


For the avoidance of doubt, in no
circumstances shall P&G be obligated to pay more than one milestone with
respect to the [*].


 


(ii)       [*] Milestones. P&G
shall disclose to ARYx, in writing, the data from, and analysis of, the [*] as
soon as reasonably practicable after P&G receives such data and analysis,
and in any event no later than [*] after the [*] Milestone Date with respect to
the raw, analyzable data from the [*] and [*] after the [*] Milestone Date with
respect to the analysis of such data in accordance with the agreed statistical
analysis plan. P&G shall include with such analysis written notification to
ARYx of the milestone event arising from such data and results. P&G shall
make one of the following milestone payments to ARYx based upon the tier in
which the results of the [*] fall (according to the criteria set forth in Exhibit H),
unless P&G timely exercises its right to terminate this Agreement pursuant
to Section 14.3(b):


 


	
  Tier

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  Tier 1

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  Tier 2

  	
   

  	
  [*]

  



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


At the same that P&G
pays a “Tier 1” milestone payment, P&G shall pay an additional, one-time
milestone payment of [*] to ARYx if, in the [*], [*]. Furthermore, P&G
shall pay a one-time milestone payment of [*] upon the first Regulatory
Approval of a Licensed Product in the U.S. if [*].


 


(b)           [*] Indication. P&G
shall make each of the following milestone payments to ARYx with respect to the
first occurrence of the corresponding milestone event with respect to a
Licensed Product (other than a [*]) for [*] indication (which may be the [*]).


 


	
  Event

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


(c)           [*] Indication. P&G
shall make each of the following milestone payments to ARYx with respect to the
first occurrence of the corresponding milestone event with respect to a
Licensed Product (other than a [*]) for a [*] indication (calculated without
counting the [*], if applicable).


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


43

















 


EXECUTION VERSION


 


	
  Event

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


(d)           [*] Indication. P&G
shall make each of the following milestone payments to ARYx with respect to the
first occurrence of the corresponding milestone event with respect to a
Licensed Product (other than a [*]) for a [*] indication (calculated without
counting the [*], if applicable).


 


	
  Event

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


(e)           [*].  P&G shall make each of the following
milestone payments to ARYx with respect to the first occurrence of the
corresponding milestone event with respect to a Licensed Product (other than a
[*]) for the [*]. Notwithstanding the foregoing, in the event that the [*] is
the [*] for which a Licensed Product is Developed, P&G shall make the
applicable milestone payment in Section 8.2(b) in lieu of a payment under this
Section 8.2(e), and shall make payment under this Section 8.2(e) with respect
to the first occurrence of the corresponding milestone event with respect to a
Licensed Product (other than a [*]) for the [*] other than the [*].


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


	
  Event

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


(f)            [*].  P&G shall make each of the following
milestone payments to ARYx with respect to the first occurrence of the
corresponding milestone event with respect to a Licensed Product (other than a
[*]) for a [*] indication:


 


	
  Event

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


(g)           Clarification. For
clarity, each of the milestone payments set forth in Sections 8.2(b) through
(e) shall be made only once, and each of the milestone payments set forth in
Section 8.2(f) shall be made once and only once for each [*] indication. [*].  For further clarity, in the event that
Regulatory Approval is granted for both [*] and [*] based on a single


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


Drug Approval Application
that covers both [*] and [*], [*] and [*] shall be deemed a single indication
for purposes of this Agreement, but in the event that Regulatory Approval
is granted for [*] and [*] based on separate Drug Approval
Applications for [*] and [*], [*] and [*] each shall be deemed a
distinct indication for purposes of this Agreement.


 


(h)           Reductions. The
milestone payments for approval of a Drug Approval Application listed in
Sections 8.2(b) through (f) will be reduced by [*] if the approved label for
the relevant Licensed Product triggering such milestone payment includes [*].


 


8.3          [*] Milestones. For
each [*], P&G shall make each of the milestone payments indicated below to
ARYx with respect to the first occurrence of the corresponding milestone event
with respect to such [*] for a particular indication. For clarity,
developmental milestone payments for [*] will be [*] governed by this Section
8.3 [*].


 


	
  Event

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


P&G shall notify ARYx
within [*] after the occurrence of an achievement of each milestone event
giving rise to a payment obligation under this Section 8.3, and P&G shall
pay ARYx the indicated amount no later than [*] after receipt of a written
invoice from ARYx.


 


8.4          Commercialization
Milestones. P&G shall make each of the milestone payments indicated
below to ARYx after aggregate, cumulative Net Sales of all Prescription


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


Licensed Products
in the Territory first reach the corresponding dollar values. 


 


	
  Aggregate, Cumulative Net Sales (Worldwide)

  	
   

  	
  Payment

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


P&G shall notify ARYx
within [*] after the occurrence of an achievement of each milestone event
giving rise to a payment obligation under this Section 8.4, and P&G shall
pay ARYx the indicated amount no later than [*] after receipt of a written
invoice from ARYx.


 


8.5          Royalties.


 


(a)           Prescription Licensed
Products in U.S. Subject to Sections 8.6, 8.7 and 9.1, for each
Prescription Licensed Product, P&G shall pay to ARYx, in the manner set
forth in Section 9.1, incremental royalties on Net Sales of such Prescription
Licensed Product by P&G and its Affiliates in the U.S. at a royalty rate
determined by total Net Sales in the U.S. of such Prescription Licensed Product
in each calendar year as follows:


 


	
  Calendar Year U.S. Net Sales

  	
   

  	
  Royalty Rate

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


(b)           Prescription Licensed
Products outside U.S. and Japan. Subject to Sections 8.6, 8.7 and 9.1, for
each Prescription Licensed Product, P&G shall pay to ARYx, in the manner
set forth in Section 9.1, incremental royalties on Net Sales of such
Prescription Licensed Product by P&G and its Affiliates in the OUSJ
Territory at a royalty rate determined by total Net Sales in the OUSJ Territory
of such Prescription Licensed Product in each calendar year as follows:


 


	
  Calendar Year Net Sales (ex-U.S., ex-Japan)

  	
   

  	
  Royalty Rate

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


(c)           Prescription Licensed
Products in Japan. Subject to Sections 8.6, 8.7 and 9.1, for each
Prescription Licensed Product, P&G shall pay to ARYx, in the manner set
forth in Section 9.1, incremental royalties on Net Sales of such Prescription
Licensed Product by P&G and its Affiliates in Japan at a royalty rate
determined by total Net Sales in Japan of such Prescription Licensed Product in
each calendar year as follows:


 


	
  Calendar Year Net Sales in Japan

  	
   

  	
  Royalty Rate

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


(d)           OTC Products. For
each OTC Licensed Product for which regulatory exclusivity has not expired,
subject to Sections 8.6, 8.7 and 9.1, P&G shall pay to ARYx, in the manner
set forth in Section 9.1, incremental royalties on aggregate Net Sales of such
OTC Licensed Product in the Territory at a royalty rate determined by total Net
Sales by P&G and its Affiliates in the Territory of such OTC Licensed
Product in each calendar year as follows:


 


	
  Calendar Year Net Sales

  	
   

  	
  Royalty Rate

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  [*]

  	
   

  	
  [*]

  



 


Commencing as of the date
on which a royalty is no longer due pursuant to the first sentence of this
Section 8.5(d) with respect to a particular OTC Licensed Product and country
and continuing for an additional [*], P&G shall pay to ARYx, in the manner
set forth in Section 9.1, royalties equal to [*] of aggregate Net Sales of such
OTC Licensed Product in such country.


 


8.6          Royalty Term. Royalties
due under Sections 8.5(a), 8.5(b), and 8.5(c) will commence upon the First
Commercial Sale of a Licensed Product in a particular country in the Territory,
as applicable, and will expire on a country-by-country basis on the later of
(a) the expiration of the last-to-expire Valid Claim of an ARYx Patent in such
country or Valid Claim in such country claiming an Assigned Invention, where
the applicable Valid Claim claims such Licensed Product or the Manufacture,
use, or sale of such Licensed Product and (b) [*] after the First Commercial
Sale of such Licensed Product in such country. Royalties due under Section
8.5(d) will commence upon the First Commercial Sale of an OTC Licensed Product
in a particular country in the Territory and will continue for the period(s)
set forth in Section 8.5(d). Upon expiration of all royalty obligations with
respect to a particular country and all obligations pursuant to Section 8.8 to
share Sublicensee Revenue with respect to such country, the license granted by
ARYx pursuant to Section 2.1 shall be fully paid-up with respect to such
country and no further payments of any kind shall be due or payable to ARYx in
connection with the Exploitation of Licensed Products in such country;
provided, however, that the Net Sales of Prescription Licensed Products in such
country shall continue to be included in the calculation of


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


49

















 


EXECUTION VERSION


 


aggregate, cumulative Net
Sales of Prescription Licensed Products for the purposes of determining when
the milestone events giving rise to payment obligations pursuant to Section 8.4
have been achieved; further provided that once all royalty obligations with
respect to all countries in the Territory have expired and all payment
obligations pursuant to Section 8.8 with respect to all countries in the
Territory have expired, P&G shall have no further obligation to make
payments pursuant to Section 8.4, except with respect to milestones therein
achieved prior to such date.


 


8.7          Royalty Adjustments.


 


(a)           In any country
where there is no Valid Claim of an ARYx Patent in such country that claims the
applicable Licensed Product or the Manufacture, use, or sale of such Licensed
Product, but there is a Valid Claim in such country of a P&G Patent that
names an employee, consultant or subcontractor of ARYx as an inventor and that
claims an Assigned Invention, which Valid Claim claims such Licensed Product or
the Manufacture, use, or sale of such Licensed Product, P&G shall pay to
ARYx, in the manner set forth in Section 9.1, royalties pursuant to Sections
8.5(a), 8.5(b), or 8.5(c), at rates that are [*] of the rates set forth in such
sections.


 


(b)           In any country
where there is no Valid Claim of an ARYx Patent in such country that claims the
applicable Licensed Product or the Manufacture, use, or sale of such Licensed
Product and where Section 8.7(a) does not apply, P&G shall pay to ARYx, in
the manner set forth in Section 9.1, royalties pursuant to Sections 8.5(a), 8.5(b),
or 8.5(c), at rates that are [*] of the rates set forth in such sections. The
royalty adjustment in Section 8.7(c) shall not apply to any royalties with
respect to the OUSJ Territory that have been reduced pursuant to this Section
8.7(b).


 


(c)           In the event that
the approved label for a Licensed Product provides for a [*], then the royalty
rate under Sections 8.5(a), 8.5(b), or 8.5(c) shall be adjusted according to
the following formula (but only for sales in the country to which such label
applies and only if such formula has the effect of lowering the royalty
rate):  [*].


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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(d)           For clarity, if (i)
the royalty adjustments in this Section 8.7(a), (b), or (c) cause the schedule
of royalty rates in one or more countries in the OUSJ Territory to differ from
the schedule of royalty rates in one or more other countries in the OUSJ
Territory, and (ii) the level of Net Sales in the OUSJ Territory in a
particular calendar quarter causes two or more royalty tiers to be applicable
to such Net Sales, then Net Sales in each country in such quarter shall be
allocated to the applicable royalty tiers on a pro-rata basis. This methodology
is illustrated in Exhibit I, which describes a hypothetical royalty
calculation involving the royalty reduction in Section 8.7(b).


 


8.8          Sublicensee Revenue. Within
[*] after the end of each calendar quarter, P&G shall pay ARYx [*] of all
Sublicensee Revenue received by P&G during such calendar quarter. For the
purpose of this Section 8.8, “Sublicensee Revenue”
means all payments (including upfront payments, license fees, milestone
payments, and royalties) paid to P&G or its Affiliates from a Third Party
in consideration for a grant to or exercise by such Third Party of a license to
Develop or Commercialize any Licensed Product in the Field; provided, however,
that (a) Sublicensee Revenue shall exclude any payments to P&G for services
provided by P&G personnel or for materials (e.g., development services,
marketing services, or product supply or samples) provided by P&G, but only
to the extent such payments represent reimbursement of P&G’s costs
associated with providing such services or materials, as applicable and (b)
P&G shall have the right to deduct from Sublicensee Revenue any amounts,
including royalties and milestone payments, paid by P&G or any of its
Affiliates to any Third Party under any license agreement as a result of the
Exploitation of Licensed Products by P&G’s sublicensees, provided that such
deduction shall not include any amounts for which P&G or the applicable
Affiliate is entitled to be reimbursed. The payment obligations of P&G
under this Section 8.8 with respect to a particular country shall expire upon
the later of (a) the expiration of all payment obligations of the sublicensee(s)
under all Sublicense Agreements that include such country within the geographic
scope of such sublicense(s) (without any reasonable possibility of future
payment obligations under Sublicense Agreements with respect to such country);
and (b) P&G’s full payment to ARYx of ARYx’s percentage share, pursuant to
this Section 8.8, of all amounts paid to P&G by such sublicensee(s) with
respect to payment liabilities to P&G that accrued prior to


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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the expiration referenced
in subsection (a). This Section 8.8 shall not apply to payments received by
P&G or its Affiliates from a Third Party acting solely as a distributor or
within a co-promotion arrangement where such Third Party only assists P&G
in promoting or detailing the Licensed Product.


 


ARTICLE 9



PAYMENT; REPORTS; AUDITS


 


9.1          P&G Quarterly
Royalty Payments and Reports.


 


(a)           From the First
Commercial Sale until the expiration of P&G’s royalty obligations under
Section 8.5, P&G agrees to make written reports to ARYx within [*] after
the end of each calendar quarter covering all sales of the Licensed Product in
the Territory by P&G and its Affiliates for which invoices were sent during
such calendar quarter, each such written report stating for the period in question:


 


(i)        gross sales of
Licensed Product in the U.S. by P&G and its Affiliates during the
applicable calendar quarter;


 


(ii)       solely in the case of
the report for the last fiscal quarter in each P&G Fiscal Year, gross sales
of Licensed Product in each Major EU Country and Japan by P&G and its
Affiliates during such P&G Fiscal Year and an itemized calculation of Net
Sales arising from such gross sales (including those Net Sales previously
reported pursuant to subsection (iv) below without an itemized calculation);


 


(iii)     with respect to the U.S.,
an itemized calculation of Net Sales by P&G and its Affiliates for the
applicable calendar quarter;


 


(iv)      with respect to counties
other than the U.S., Net Sales of Licensed Product by P&G and its
Affiliates during the applicable calendar quarter, on a country-by-country
basis;


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


(v)            cumulative Net Sales for the then-current
calendar year; and


 


(vi)          a calculation of the amount of royalty
payment due on Net Sales of Licensed Products pursuant to Section 8.5.


 


(b)           For so long as P&G receives any
Sublicensee Revenue, P&G agrees to make written reports to ARYx within [*]
after the end of each calendar quarter stating for the period in question the
amount and description of any Sublicensee Revenue received by P&G or its
Affiliates during the applicable calendar quarter, and a calculation of ARYx’s
share of such Sublicensee Revenue pursuant to Section 8.8.


 


(c)           The information contained in each report
under Sections 9.1(a) and (b) shall be considered Confidential Information of
P&G. Concurrent with the delivery of each quarterly report, P&G shall
make the payment due ARYx under Section 8.5 or 8.8 (as appropriate) for the
calendar quarter covered by such report.


 


(d)           In the case of transfers or sales of any
Licensed Product between P&G and an Affiliate of P&G, a royalty shall
be payable only with respect to the sale of such Licensed Product to (i) an
independent Third Party not an Affiliate of the seller or (ii) if the end user
is an Affiliate of the seller, then such end user. In the case of transfers or
sales of any Licensed Product from P&G or its Affiliates to a sublicensee,
no royalty will be owed under Section 8.5, but instead ARYx will be entitled to
a share of any Sublicensee Revenue generated as a result of the sale of such
Licensed Product, pursuant to Section 8.8. In the case of transfers or sales of
any Licensed Product from a sublicensee to P&G or its Affiliates, a royalty
shall be payable with respect to the sale of such Licensed Product by P&G
or its Affiliates to an independent Third Party not an Affiliate of the seller,
unless P&G or one of its Affiliates is the end user of such Licensed
Product, in which case the original transfer or sale of Licensed Product from
the sublicensee shall be included in Net Sales and treated as though it were a
sale or transfer of Licensed Product from P&G to an independent Third
Party.


 


9.2          Accounting.  P&G agrees to keep full, clear and accurate records for a period of
at least three (3) years after the relevant payment is owed pursuant to this
Agreement, setting


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


 


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forth the sales and other
disposition of Licensed Product sold or otherwise disposed of in sufficient
detail to enable royalties and compensation payable to ARYx hereunder to be
determined. With respect to any Development and Commercialization costs and
expenses for any Licensed Product incurred by a Party that are subject to
reimbursement by the other Party, such Party agrees to keep full, clear, and
accurate records of such costs and expenses for a period of at least three (3)
years after the date on which such costs and expenses are incurred, or such
longer period required by Applicable Law. Each Party further agrees to permit
its books and records to be examined by an independent accounting firm selected
by the other Party and reasonably acceptable to such first Party to verify, in
the case of P&G, reports provided for in Section 9.1, and in the case of
each Party, any costs and expenses with respect to which records are required
to be kept pursuant to this Section 9.2. Such audit shall not be performed more
frequently than once per calendar year nor more frequently than once with
respect to records covering any specific period of time. Such examination is to
be made at the expense of the auditing Party, except in the event that the
results of the audit reveal an underpayment to the auditing Party, or an
overpayment by the auditing Party, of [*] or more for the period being audited,
in which case reasonable audit fees for such examination shall be paid by the
audited Party. Such independent accounting firm shall be bound by written
commercially reasonable confidentiality and non-use obligations to the Parties
and any information disclosed by the audited Party to such auditor in the
course of an audit pursuant to this Section 9.2 shall be the Confidential
Information of the audited Party.


 


9.3          Methods of Payments. All payments due to either ARYx under this
Agreement shall be paid in Dollars by wire transfer to a bank in the U.S.
designated in writing by ARYx.


 


9.4          Blocked Payments. In the event that, by reason of Applicable
Law in any country, it becomes impossible or illegal for P&G to transfer,
or have transferred on its behalf, royalties or other payments owed hereunder
to ARYx, such royalties or other payments shall be deposited in local currency
in the relevant country in an account in the name and control of ARYx in a
recognized banking institution designated by ARYx, or, if none is designated by
ARYx within a period of thirty (30) days after P&G’s written request
therefor, in a recognized banking institution selected by P&G and
identified in a written notice given to ARYx.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


 


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9.5          Taxes. If a law or regulation of any country of the
Territory requires withholding of taxes of any type, levies or other charges
with respect to the any amounts payable hereunder to ARYx, P&G shall
promptly pay such tax, levy or charge for and on behalf of ARYx to the proper
governmental authority, and shall promptly furnish ARYx with receipt of such payment.
P&G shall have the right to deduct any such tax, levy or charge actually
paid from payment due ARYx or be promptly reimbursed by ARYx if no further
payments are due ARYx. P&G agrees to assist the ARYx in claiming exemption
from such deductions or withholdings under double taxation or similar agreement
or treaty from time to time in force and shall use reasonable efforts to
minimize the amount required to be so withheld or deducted.


 


9.6          Late Payments. Interest shall accrue on delinquent payments
hereunder from the date such payments are due at the lesser of (a) the prime
rate of interest, as published in The Wall Street Journal (Eastern United
States Edition), plus [*] and (b) the maximum rate of interest permissible
under Applicable Law.


 


ARTICLE 10


 


INTELLECTUAL PROPERTY


 


10.1        Disclosure and Ownership.


 


(a)           Disclosure. ARYx shall use diligent efforts to disclose
to P&G all ARYx Know-How promptly following the Effective Date, and in any
event not more than sixty (60) days after the Effective Date (except as set
forth in Exhibit D), and from time to time thereafter during the term of
this Agreement to the extent that ARYx subsequently determines that any ARYx
Know-How has not been disclosed to P&G, which disclosure shall include
delivery to P&G of copies of all data, studies and other written materials
that are included in the ARYx Know-How and were not provided by ARYx to P&G
prior to the Effective Date. Further, ARYx shall disclose promptly to P&G
any P&G Invention made by or on behalf of ARYx during the term of this
Agreement.


 


(b)           Ownership. As between the Parties, subject to the terms
and conditions


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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of this Agreement, ARYx
shall own all ARYx Technology. As between the Parties, subject to the terms and
conditions of this Agreement, P&G shall own all P&G Technology, all
P&G Inventions and intellectual property related thereto.  ARYx hereby
assigns all right, title and interest in and to any P&G Inventions arising
from any activity conducted by or at the request of ARYx (the “Assigned Inventions”) and agrees to
execute any and all documents which P&G reasonably determines are necessary
or convenient to perfect P&G’s ownership of the P&G Inventions, in each
case without additional consideration. ARYx shall cooperate fully with P&G
in the prosecution of any Patents relating to the P&G Inventions, at
P&G’s expense. Subject to the terms and conditions of this Agreement,
P&G hereby grants to ARYx, under the Assigned Inventions and all Patents
claiming such inventions, a non-exclusive, royalty-free, fully paid license
(with the right to grant sublicenses through multiple tiers) solely to the
extent necessary to Exploit such inventions, and all products and processes
related thereto, in each case solely outside the Field.


 


10.2        Patent Filings.


 


(a)           Responsibilities. Subject to this Section 10.2, ARYx shall have
the first right to prepare, file, prosecute and maintain each Patent within the
ARYx Patents in accordance with the direction of the JSC on matters specified
below or a subcommittee thereof to which the JSC has delegated the authority to
oversee such matters, and P&G shall reimburse ARYx for all costs and
expenses incurred by ARYx in connection with such prosecution and maintenance
(including internal ARYx personnel costs, which will be reimbursed at the FTE
Rate). The JSC shall determine (i) the advisability and timing of any
applicable filings for any ARYx Patent and (ii) any foreign filing strategies
with respect thereto. ARYx shall keep P&G informed of the status of each
such ARYx Patent, including providing P&G with copies of any official
actions and submissions with respect to any ARYx Patent. ARYx shall give
reasonable consideration to any suggestions or recommendations of P&G
concerning the preparation, filing, prosecution and maintenance thereof. If,
during the term of this Agreement, ARYx intends not to file or continue
prosecuting or maintaining an ARYx Patent, ARYx shall notify P&G of such
intention at least sixty (60) days prior to any applicable deadline, and
P&G shall thereupon have the right, but not the obligation, to assume
responsibility for the prosecution or maintenance of such ARYx Patent


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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in the name of P&G, for
which P&G shall bear all associated costs and expenses. In the event
P&G elects to prosecute or maintain any ARYx Patent pursuant to the
preceding sentence, ARYx shall promptly transfer and assign its right, title
and interest in and to such ARYx Patent to P&G, whereupon such Patent shall
cease to be an ARYx Patent for purposes of this Agreement.


 


(b)           Cooperation. The Parties agree to cooperate in the
preparation, filing, prosecution and maintenance of all Patents under this
Section 10.2, including obtaining and executing necessary powers of attorney and
assignments by the named inventors, providing relevant technical reports to the
filing Party concerning the invention disclosed in such Patent, obtaining
execution of such other documents which shall be needed in the filing and
prosecution of such Patent, and, as requested, updating each other regarding
the status of such Patent, and shall cooperate with the other Party so far as
reasonably necessary with respect to furnishing all information and data in its
possession reasonably necessary to obtain or maintain such Patents.


 


(c)           Patent Restoration. Without limitation of Section 10.2(b), the
Parties shall cooperate with each other in seeking any patent term restoration
or supplemental protection certificates or their equivalent for the P&G
Patents and the ARYx Patents. In the event that elections with respect to any
of the foregoing are to be made for any P&G Patent or any ARYx Patent,
P&G shall have the first right to make the election. If P&G does not
make any election within thirty (30) days of ARYx’s written request therefor,
ARYx shall have the right to make the election.


 


10.3        Enforcement and Defense of
Patents.


 


(a)           Notice. If either Party becomes aware that a Third
Party is infringing or may be infringing any Patent within the ARYx Patents or
the P&G Patents (an “Infringement”)
or that any Third Party claims that any such ARYx Patent or P&G Patent is
invalid or unenforceable (a “Patent Challenge”),
it will promptly notify the other Party thereof including available evidence of
infringement or the claim of invalidity or unenforceability.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.


 


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(b)           Enforcement and Defense.


 


(i)            P&G shall have the sole right (but not
the obligation) to take appropriate steps to enforce any P&G Patent at its
sole cost. P&G may, in any such instance, take steps including the
initiation, prosecution and control of a suit, proceeding or other legal action
with respect thereto, by counsel of its own choice.


 


(ii)           To the extent any Infringement with respect
to any ARYx Patent involves activity outside the Field, ARYx shall have the
sole right (but not the obligation) to take the appropriate steps to enforce
any such Patent, at its sole cost. ARYx may, in any such instance, take steps
including the initiation, prosecution and control of a suit, proceeding or
other legal action with respect thereto, by counsel of its own choice.


 


(iii)         To the extent any Infringement with respect
to any ARYx Patent involves activity inside the Field, P&G shall have the
first right (but not the obligation), at its sole expense, to take the
appropriate steps to enforce any such Patent including the initiation of a
suit, proceeding or other legal action with respect thereto, by counsel of its
own choice. ARYx shall have the right, at its own expense, to be represented in
any such suit, proceeding, or action by counsel of its own choice.


 


(iv)          If P&G fails to take the appropriate
steps to enforce a Patent within the ARYx Patents within [*] after the date on
which one Party provided notice to the other Party of the applicable
Infringement, then ARYx shall have the right (but not the obligation), at its
sole expense, to take the appropriate steps to enforce such Patent, including
the initiation of a suit, proceeding or other legal action with respect
thereto, by counsel of its own choice. P&G shall have the right, at its own
expense, to be represented in any such suit, proceeding, or action by counsel
of its own choice.


 


(v)            The Party controlling any Infringement suit,
action or proceeding pursuant to this Section 10.3 shall also have the sole
right to control the response to any Patent Challenge asserted by the alleged
infringer(s) as a counterclaim or affirmative defense in such suit, proceeding,
or action. ARYx shall have the sole right to control the response to any Patent
Challenge with respect to any ARYx Patent involving activity outside the Field.
Except


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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as otherwise provided in the
first two sentences of this Section 10.3(b)(v), P&G shall have the first
right (but not the obligation) to control the response to any Patent Challenge
with respect to any P&G Patent or ARYx Patent. In the event P&G does
not elect to control any such Patent Challenge with respect to any ARYx Patent
pursuant to the previous sentence, P&G shall so notify ARYx at least a
reasonable amount of time in advance of all deadlines and ARYx shall have the
right (but not the obligation) to control such Patent Challenge.


 


(c)           Cooperation.


 


(i)            If one Party brings any suit, action or
proceeding under this Section 10.3, the other Party agrees to be joined as
party plaintiff if necessary to prosecute the suit, action or proceeding and to
give the first Party reasonable authority to file and prosecute the suit,
action or proceeding; provided, however, that neither Party will be required to
transfer any right, title or interest in or to any property to the other Party
or any other party to confer standing on a Party hereunder.


 


(ii)           The Party not pursuing the suit, action or
proceeding hereunder will provide reasonable assistance to the other Party,
including by providing access to relevant documents and other evidence and
making its employees available, subject to the other Party’s reimbursement of
any out-of-pocket expenses incurred by the non-enforcing or defending Party in
providing such assistance.


 


(iii)         Neither Party will settle or otherwise
compromise any such suit, action or proceeding in a way that adversely affects
the other Party’s intellectual property rights or its rights or interests with
respect to the Licensed Product without such Party’s prior written consent,
which consent shall not be unreasonably withheld.


 


(d)           Recovery. Except as otherwise agreed to by the Parties
as part of a cost-sharing arrangement, any settlements, damages or other
monetary awards (the “Recovery”)
recovered pursuant to a suit, proceeding, or action brought pursuant to Section
10.3 will be allocated first to the costs and expenses of the Party taking such
action, and second, to the costs and expenses (if any) of the other Party (to
the extent not otherwise reimbursed), and any


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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remaining amounts will be
shared by the Parties as follows: 
P&G shall retain or obtain, as applicable, [*] of such remaining
amounts, and ARYx shall retain or obtain, as applicable, [*] of such remaining
amounts;  provided, however, that P&G shall retain or obtain, as
applicable, [*] of the remaining amounts, and ARYx shall retain or obtain, as
applicable, [*] of the remaining amounts, recovered pursuant to any suit,
proceeding or action that ARYx initiates pursuant to Section 10.3(b)(iv) or
that ARYx controls pursuant to Section 10.3(b)(v); and provided, further, that ARYx shall retain
the full recovery from any suit, proceeding or action it initiates pursuant to
Section 10.3(b)(ii).


 


10.4        Defense of Infringement
Actions.


 


(a)           During the term of this Agreement, each Party
shall bring to the attention of the other Party all information regarding
potential infringement of Third Party intellectual property rights with respect
to the development, manufacture, production, use, importation, offer for sale,
or sale of Licensed Product in the Territory. The Parties shall discuss such
information and decide how to handle such matter.


 


(b)           If P&G or ARYx are named as defendant(s)
in a patent infringement suit filed by a Third Party concerning the
Exploitation of any Licensed Product in the Field, then P&G shall
indemnify, hold harmless and defend ARYx against any such suit in accordance
with Sections 13.2 and 13.3.


 


(c)           Any and all settlements that restrict the
scope or enforceability of the ARYx Know-How or ARYx Patents must be approved
by ARYx, in its sole and absolute discretion, before execution by P&G. ARYx
shall not be required to approve any settlement that does not include as a
condition thereof the full and unconditional release of claims against ARYx.


 


(d)           This Section 10.4 shall not be interpreted as
placing on either Party a duty of inquiry regarding Third Party intellectual
property rights.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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10.5        Trademarks.


 


(a)           P&G shall be responsible for the
selection, registration, maintenance, and defense of all trademarks for use in
connection with the sale or marketing of Licensed Products in the Field in the
Territory (the “Trademarks”), as
well as all expenses associated therewith. All uses of the Trademarks shall be
reviewed by the JSC and shall comply with Applicable Law (including those laws
and regulations particularly applying to the proper use and designation of
trademarks in the applicable countries). P&G shall not, without ARYx’s
prior written consent, use any trademarks or house marks of ARYx (including the
ARYx corporate name), or marks confusingly similar thereto, in connection with
P&G’s Commercialization of Licensed Products under this Agreement. As
between the Parties, P&G shall own all Trademarks. ARYx shall not use any
Trademarks or any other trademarks or house marks of P&G, including P&G’s
corporate name, or trademarks or trade names confusingly similar thereto, in connection
with a Licensed Product, except as authorized in writing by P&G.


 


(b)           Upon the prior review and written consent of
P&G (not to be unreasonably withheld), ARYx may use P&G’s corporate
name and associated logo in ARYx promotional or informational materials in
connection with any permitted discussion of this Agreement or the relationship
of the Parties hereunder. Upon the prior review and written consent of ARYx
(not to be unreasonably withheld), P&G may use ARYx’s corporate name and
associated logo in P&G promotional or informational materials in connection
with any permitted discussion of this Agreement or the relationship of the
Parties hereunder. Neither Party shall be required to obtain the other Party’s
prior review and written consent for any use of the other Party’s corporate
name and associated logo that is in substantially the same form and context as
a use for which it has already received such review and consent. The Parties
shall agree in writing upon procedures for each Party to review the other Party’s
proposed use of its corporate name and associated logo and to provide consent
for such use, which procedures shall be designed to minimize the administrative
burden of obtaining such review and consent for recurring types of use while
providing each Party with a reasonable opportunity to approve the context and
manner in which its corporate name and associated logo is used by the other
Party.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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ARTICLE 11


 


REPRESENTATIONS, WARRANTIES, AND COVENANTS


 


11.1        Mutual Representations and
Warranties.  Each Party hereby represents, warrants and
covenants to the other Party:


 


(a)           Such Party is a corporation or entity duly
organized and validly existing under the laws of the state or other
jurisdiction of its incorporation or formation.


 


(b)           The execution, delivery and performance of
this Agreement by such Party has been duly authorized by all requisite
corporate action.


 


(c)           Such Party has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder, and such performance does not conflict with or constitute a breach
of any agreement of such Party with a Third Party.


 


(d)           Such Party has the right to grant the rights
and licenses described in this Agreement and has not granted any other rights
or licenses inconsistent therewith.


 


(e)           Neither such Party nor any of its Affiliates
has been debarred or is subject to debarment and neither it nor any of its
Affiliates will use in any capacity, in connection with the activities to be
performed by or on behalf of such Party hereunder, any person who has been
debarred pursuant to Section 306 of the Federal Food, Drug, and Cosmetic Act or
who is the subject of a conviction described in such section. Each Party will
inform the other Party in writing immediately if such Party becomes aware that
any such person or entity is so debarred or is the subject of such a
conviction, or if any action, suit, claim, investigation or legal or
administrative proceeding is pending or, to the best of such Party’s knowledge,
is threatened, relating to the debarment or conviction of it, its Affiliates or
any such person or entity.


 


11.2        ARYx Representations and
Warranties.  ARYx hereby represents and warrants to
P&G as follows:


 


(a)           [*].


 


(b)           As of the Execution Date, except as it may
have previously disclosed to


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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P&G in writing, (i) it
[*] any [*] relating in any way to a [*] of any [*] in connection with the
Exploitation or the anticipated Exploitation of ATI-7505, and (ii) to the
Knowledge of ARYx, the anticipated Exploitation of ATI-7505, in the form and
formulation in clinical development by ARYx as of the Effective Date, for [*],
does not [*] any [*] owned by a Third Party, or [*] any [*] owned by a Third
Party.


 


(c)           As of the Execution Date, except as it may
have previously disclosed to P&G in writing, there are no interferences or
oppositions pending or, to ARYx’s Knowledge, threatened against ARYx before any
court or administrative office or agency which relate to the ARYx Patents.


 


(d)           As of the Execution Date, each of the Patent
applications listed in Exhibit A is currently pending and in good
standing, and except as disclosed to P&G, has not been abandoned.


 


(e)           To the Knowledge of ARYx as of the Execution
Date, (i) none of the issued ARYx Patents is invalid or unenforceable, (ii) the
[*] of an [*] provide [*] for a claim directed to the molecule ATI-7505 that
satisfies [*], and (iii) the conception, development and reduction to practice
of the ARYx Technology have not constituted or involved the misappropriation of
trade secrets or other rights or property of any Third Party.


 


(f)            To the Knowledge of ARYx as of the Execution
Date, no Patent listed on Exhibit A, or known by ARYx as of the
Execution Date to be an ARYx Patent, is being infringed by any Third Party.


 


(g)           To the Knowledge of ARYx as of the Execution
Date, all clinical development conducted by or on behalf of ARYx with respect
to the Licensed Compound or the Licensed Products prior to the Execution Date
has been conducted in accordance with those Good Practices that are required by
the FDA with respect to such Development.


 


(h)           To the Knowledge of ARYx as of the Execution
Date, there is no information with respect to the [*] of ATI-7505 or any
product in the Field containing ATI-7505,


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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and there are not any [*]
that ARYx reasonably believes would [*] the [*] of ATI-7505 or any product in
the Field containing ATI-7505.


 


(i)            As of the Execution Date, ARYx has prepared,
maintained and retained all Regulatory Submissions that are required to be
maintained and reported pursuant to and in accordance with those Good Practices
that are required by the FDA with respect thereto and Applicable Law, and, to
the Knowledge of ARYx, all information contained therein is true, complete and
accurate in all material respects. ARYx has not received any written notice
which has, or reasonably should have, led it to believe that any IND filed by
or on behalf of ARYx with respect to a Licensed Product is not currently in
good standing with the FDA or any other Regulatory Authority. To the Knowledge
of ARYx as of the Execution Date, ARYx has filed with the FDA all required
notices, supplemental applications and annual or other reports or documents,
including adverse experience reports, with respect to each IND with respect to
the Licensed Product which are material to the continued Development of the
Licensed Product.


 


(j)            All manufacturing, testing, labeling,
packaging, storing, and shipping operations with respect to any Material
provided by or on behalf of ARYx to P&G pursuant to Section 4.4 has been
performed in accordance with those Good Practices that are required by the FDA
with respect thereto.


 


11.3        Disclaimer.  EXCEPT AS PROVIDED IN SECTION 11.1 AND 11.2, THE TECHNOLOGY AND
INTELLECTUAL PROPERTY RIGHTS PROVIDED BY EACH PARTY ARE PROVIDED “AS IS” AND
EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF
THIRD PARTIES, ARISING FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN
ALL CASES WITH RESPECT THERETO.


 


11.4        Limitation of Liability.  NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY
SPECIAL, INCIDENTAL,


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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CONSEQUENTIAL OR PUNITIVE
DAMAGES IN CONNECTION WITH THIS AGREEMENT, EACH PARTY’S PERFORMANCE OR LACK OF
PERFORMANCE HEREUNDER, OR ANY LICENSE GRANTED HEREUNDER, EXCEPT FOR DAMAGES
ARISING FROM A BREACH OF SECTION 2.4 OR 12.1. THE FOREGOING SHALL NOT LIMIT
EITHER PARTY’S INDEMNIFICATION OBLIGATIONS HEREUNDER.


 


ARTICLE 12


 


CONFIDENTIALITY


 


12.1        Confidentiality. Subject to this Article 12, during and
after the term of this Agreement, each Party (i) shall maintain in confidence
all Confidential Information of the other Party; (ii) shall not use such
Confidential Information for any purpose except as permitted by this Agreement
(including licenses granted pursuant to this Agreement); and (iii) shall not
disclose such Confidential Information to anyone other than those of its
Affiliates, sublicensees, prospective sublicensees, employees, consultants,
agents or subcontractors who are bound by written obligations of nondisclosure
and non-use no less stringent than those set forth in this Article 12 and to
whom such disclosure is reasonably necessary or useful in connection with such
Party’s activities as contemplated in this Agreement or the exercise of its
rights hereunder (whether under licenses granted herein or rights retained
hereunder). For clarity, P&G shall have the right to use and disclose
(subject to (iii) in the preceding sentence) the ARYx Know-How in connection
with the exercise of its rights under Section 2.1, and ARYx shall have the
right to use and disclose (subject to (iii) in the preceding sentence) the ARYx
Know-How in connection with the exercise of its retained rights outside the
scope of the exclusive license granted to P&G pursuant to Section 2.1. Each
Party shall ensure that such Party’s Affiliates, sublicensees, prospective
sublicensees, employees, consultants, agents and subcontractors comply with
these obligations. In addition, each Party shall be permitted to disclose the
ARYx Know-How (other than such information which pertains to a method of
manufacturing a Licensed Compound) on a need-to-know basis to investors,
prospective investors, bankers, prospective acquirors, or their respective
employees or agents in connection with any potential financing or acquisition
of such Party. Each Party shall notify the other promptly on discovery of any
unauthorized use or


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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disclosure of the other’s
trade secrets or proprietary information.


 


12.2        Exceptions. The obligations of confidentiality,
non-disclosure, and non-use set forth in Section 12.1 shall not apply to the
extent the receiving Party (the “Recipient”)
can demonstrate that the disclosed information (a) was in the public domain at
the time of disclosure to the Recipient by the other Party, or thereafter
entered the public domain, in each case other than as a result of actions of
the Recipient, its Affiliates, employees, licensees, agents or subcontractors,
in breach of this Agreement; (b) was rightfully known by the Recipient or its
Affiliates (as shown by its written records) prior to the date of disclosure to
the Recipient by the other Party; or (c) was received by the Recipient or its
Affiliates on an unrestricted basis from a Third Party rightfully in possession
of such information and not under a duty of confidentiality to the other Party.
In addition, in the case of information in the ARYx Know-How and the Assigned
Inventions, the obligations of confidentiality, non-disclosure, and non-use set
forth in Section 12.1 shall not apply to ARYx to the extent that ARYx can
demonstrate that such information (i) was in the public domain as of the
Execution Date, (ii) entered the public domain after the Execution Date, other
than as a result of actions of the ARYx, its Affiliates, employees, licensees,
agents or subcontractors, in breach of this Agreement; or (iii) was received by
ARYx or its Affiliates on an unrestricted basis from a Third Party that is
rightfully in possession of such information, that did not receive such
information from ARYx, and that is not under a duty of confidentiality to
P&G. The previous sentence shall not be interpreted as permitting ARYx to
use ARYx Know-How within the scope of the exclusive license granted to P&G
pursuant to Section 2.1 (subject to Section 2.3). Notwithstanding any other
provision of this Agreement, Recipient’s (and in the case of information in the
ARYx Know-How and the Assigned Inventions, ARYx’s) disclosure of Confidential
Information shall not be prohibited if such disclosure:  (i) is in response to a valid order of a
court or other governmental body, provided that Recipient (or ARYx, as the case
may be) provides the other Party with prior written notice of such disclosure
in order to permit the other Party to seek a protective order or other
confidential treatment of such Confidential Information; or (ii) is otherwise
required by Applicable Law.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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12.3        Publications.


 


(a)           ARYx may not publish or present any results
of any scientific or clinical activity initiated after the Effective Date that
directly relates to any Licensed Compound or Licensed Product without the
consent of P&G.


 


(b)           ARYx may publish or present any results of
any scientific or clinical activity initiated prior to the Effective Date that
directly relates to any Licensed Compound or Licensed Product, provided that
ARYx provides P&G with a draft of such proposed presentation or publication
at least [*] prior to the contemplated date for making such presentation or
submitting such publication and, at P&G’s reasonable request, ARYx shall
remove any Confidential Information of P&G (other than clinical results in
the ARYx Know-How) from such publication and shall delay such presentation or
submission for a reasonably period of time (not to exceed [*] to allow for the
filing of a Patent application directed to subject matter disclosed therein.


 


(c)           P&G may publish or present any results of
any scientific or clinical activity initiated after the Effective Date that
directly relates to any Licensed Compound or Licensed Product, provided that
P&G provides ARYx with a draft of such proposed presentation or publication
at least [*] prior to the contemplated date for making such presentation or submitting
such publication and, at ARYx’s reasonable request, P&G shall remove any
Confidential Information of ARYx from such publication and shall delay such
presentation or submission for a reasonably period of time (not to exceed [*])
to allow for the filing of a Patent application directed to subject matter
disclosed therein.


 


12.4        Publicity.  The Parties agree that the public announcement of the execution of this
Agreement shall be through the issuance of a joint press release. The Parties
shall mutually agree upon the content of such press release as soon as possible
after the Execution Date and shall issue such press release at a time to be
mutually agreed by the Parties. Any other publication, news release or other
public announcement by a Party, and any responses prepared by a Party for any
question-and-answer sessions that would constitute public disclosures, in each


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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case relating to this
Agreement or to the performance hereunder (other than any scientific
publication, which shall be governed by Section 12.3) shall first be submitted
to the other Party for review and approval by such other Party, which approval
shall not be unreasonably withheld. In the event that a Party does not notify
the other Party that disapproves any such publication or other material
submitted by such other Party within [*] of receipt by such first Party of such
submission, such first Party shall be deemed to have approved such proposed
publication or other material for release. Notwithstanding the foregoing, any
disclosure which is required by Applicable Law (including any disclosure
required under securities laws in connection with a contemplated public
offering of securities by a Party) as advised by the disclosing Party’s counsel
may be made without the prior consent of the other Party, although the other
Party shall be given prompt notice of any such legally required disclosure and
to the extent practicable an opportunity to comment on the proposed disclosure,
and the disclosing Party shall take account of any timely, reasonable comments
received from such other Party.


 


ARTICLE 13


 


INDEMNIFICATION


 


13.1        Indemnification by ARYx. Unless otherwise provided herein, ARYx agrees
to indemnify, hold harmless and defend P&G, its Affiliates, and their
directors, officers, employees and agents (the “P&G Indemnitees”) from and against any and all Third
Party suits, claims, actions, demands, liabilities, expenses or losses
(including attorneys’ fees, court costs, witness fees, damages, judgments,
fines and amounts paid in settlement) (“Losses”)
to the extent that such Losses arise out of (a) ARYx’s breach of this
Agreement, (b) the negligence or willful misconduct of ARYx or its Affiliates,
or (c) the performance of any Development activities by or on behalf of ARYx
hereunder, except for those Losses as to which P&G has an obligation to
indemnity ARYx pursuant to Section 13.2, as to which Losses each Party will
indemnify the other to the extent of its respective liability.


 


13.2        Indemnification by P&G. Unless otherwise provided herein, P&G
shall indemnify, hold harmless and defend ARYx, its Affiliates, and their
directors, officers,


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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employees and agents (the “ARYx Indemnitees”) from and against any
and all Losses, to the extent that such Losses arise out of (a) P&G’s
breach of this Agreement, (b) the negligence or willful misconduct of P&G
or its Affiliates, or (c) the development, manufacture, distribution, use,
testing, promotion, marketing, or sale or other disposition of a Licensed
Product by or on behalf of P&G or its Affiliates, agents or sublicensees,
except for those Losses as to which ARYx has an obligation to indemnity P&G
pursuant to Section 13.1, as to which Losses each Party will indemnify the other
to the extent of its respective liability.


 


13.3        Procedure. In the event of a claim by a Third Party
against a Party entitled to indemnification under this Agreement (“Indemnified Party”), the Indemnified Party
shall promptly notify the other Party (“Indemnifying
Party”) in writing of the claim and the Indemnifying Party shall
undertake and solely manage and control, at its sole expense, the defense of
the claim and its settlement. The Indemnified Party shall cooperate with the
Indemnifying Party, including, as requested by the Indemnifying Party entering
into a joint defense agreement. The Indemnified Party may, at its option and
expense, be represented in any such action or proceeding by counsel of its
choice. The Indemnifying Party shall not be liable for any litigation costs or
expenses incurred by the Indemnified Party without the Indemnifying Party’s
written consent. The Indemnifying Party shall not settle any such claim unless
such settlement fully and unconditionally releases the Indemnified Party from
all liability relating thereto, unless the Indemnified Party otherwise agrees
in writing.


 


13.4        Insurance. As applicable, each Party, at its own
expense, shall maintain product liability insurance, which in the case of
P&G may be in the form of self-insurance, in an amount consistent with
industry standards for a company of similar standing during the term of this
Agreement. Each Party shall provide fifteen (15) days prior written notice to
any cancellation of its insurance program. Each Party shall designate the other
as an additional insured under their respective applicable insurance policies. Each
Party shall provide to the other Party, upon request of the other Party,
certificates of insurance with respect to any insurance (or self-insurance) required
to be carried by such first Party pursuant to this Section 13.4.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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ARTICLE 14


 


TERM AND TERMINATION


 


14.1        Term. The term of this Agreement shall begin on the
Effective Date and, unless earlier terminated in accordance with the terms of
this Article 14, will expire on the date on which neither Party has nor will
have any additional payment obligations to the other Party under this
Agreement.


 


14.2        Termination for Breach. Subject to the terms and conditions of this
Section 14.2, a Party (the “non-breaching
Party”) shall have the right, in addition to any other rights and
remedies, to terminate this Agreement in the event the other Party (the “breaching Party”) is in breach of any of
its material obligations under this Agreement. The non-breaching Party shall
first provide written notice to the breaching Party, which notice shall
identify with particularity the alleged breach. The breaching Party shall have
a period of [*] after such written notice is provided to cure such breach. If
such breach is not cured within such period, then this Agreement shall
terminate immediately at end of such period on written notice from the
non-breaching Party.


 


14.3        Termination by P&G.


 


(a)           P&G shall have the right to terminate this
Agreement at any time during the [*] period following the [*], which
termination will be effective immediately upon written notice to ARYx within
such period.


 


(b)           P&G shall have the right to terminate
this Agreement at any time during the [*] period following the [*], which
termination will be effective immediately upon written notice to ARYx within
such period.


 


(c)           P&G shall have the right to terminate
this Agreement at any time on [*] prior written notice to ARYx, provided that
the effective date of such termination shall in no event be earlier than [*]
after the Effective Date.


 


14.4        Termination for Bankruptcy. Either Party may terminate this Agreement if,
at


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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any time, the other Party
shall file in any court or agency pursuant to any statute or regulation of any
state, country or jurisdiction, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or for the appointment of a receiver or
trustee of that Party or of its assets, or if the other Party proposes a
written agreement of composition or extension of its debts, or if the other
Party shall be served with an involuntary petition against it, filed in any
insolvency proceeding, and such petition shall not be dismissed within sixty
(60) days after the filing thereof, or if the other Party shall propose or be a
Party to any dissolution or liquidation, or if the other Party shall make an
assignment for the benefit of its creditors.


 


14.5        Rights in Bankruptcy. All rights and licenses granted under or
pursuant to this Agreement by either Party are, and shall otherwise be deemed
to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of
right to “intellectual property” as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the Parties, as licensees of such
rights under this Agreement, shall retain and may fully exercise all of their
rights and elections under the U.S. Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against
either Party under the U.S. Bankruptcy Code, the Party hereto that is not a
Party to such proceeding shall be entitled to a complete duplicate of (or
complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, which, if not already in the
non-subject Party’s possession, shall be promptly delivered to it (a) upon any
such commencement of a bankruptcy proceeding upon the non-subject Party’s
written request therefor, unless the Party subject to such proceeding elects to
continue to perform all of its obligations under this Agreement or (b) if not
delivered under (a) above, following the rejection of this Agreement by or on
behalf of the Party subject to such proceeding upon written request therefor by
the non-subject Party.


 


14.6        Effects of Termination or
Expiration.


 


(a)           Termination for Any Reason. Upon termination of this Agreement for any
reason:


 


(i)            Subject to Sections 14.6(b)(vii) and 14.6(c),
each Party shall


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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promptly return to the other
Party all relevant records and materials in its possession or control
containing or comprising the other Party’s Confidential Information and to
which the Party does not retain rights hereunder. Notwithstanding the
foregoing, ARYx shall not have any obligation to return any ARYx Know-How to
P&G and, in the event of any termination of this Agreement other than for
ARYx’s material breach, the ARYx Know-How shall cease to be the Confidential
Information of P&G and shall revert to being the Confidential Information
of ARYx alone.


 


(ii)           Subject to Sections 14.6(b)(vii) and 14.6(c),
all licenses granted by each Party to the other in Article 2 shall terminate,
and all rights in any and all Licensed Products shall revert to ARYx.


 


(iii)         Subject to Sections 14.6(b)(vii) and 14.6(c),
P&G and its Affiliates shall discontinue making any representation
regarding its status as a licensee of or distributor for ARYx, for all Licensed
Products, and shall cause any sublicensees to do the same. P&G and its
Affiliates shall cease conducting any activities with respect to the marketing,
promotion, sale or distribution of the Licensed Products, and shall cause any
sublicensees to do the same.


 


(iv)          Subject to Section 14.6(c), ARYx shall have
the right to Develop and Commercialize the Licensed Products itself or with one
or more Third Parties, and shall have the right, without obligation to P&G,
to take any such actions in connection with such activities as ARYx (or its
designee), at its discretion, deems appropriate.


 


(b)           Termination for other than
Material Breach of ARYx. Upon
termination of this Agreement for any reason other than in the case of
termination by P&G pursuant to Section 14.2:


 


(i)            P&G shall grant to ARYx a [*] license [*]
under the [*] and [*], to [*]. In the case of a termination by ARYx, (1) such
license shall be [*], and (2) ARYx shall pay P&G an amount equal to [*] of
any [*], in each case ((1) and (2)) during such time as there is a [*] of a [*]
(other than a [*] that (A) [*], (B) does not [*], and (C) [*]) in the [*] that
[*] in


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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such [*]. When there is no
longer any such [*] in the [*] that [*] or if this Section 14.6(b)(i) comes
into effect on account of a [*], such license shall be [*], and ARYx shall [*]
to P&G under Section 14.6(b)(i). In all cases, ARYx shall [*] by P&G
under [*] as a result of ARYx’s [*], provided that ARYx [*] under such [*]
after [*] by P&G of the [*]. For the purpose of this Section 14.6(b)(i),
[*] means [*] by ARYx from [*] relating to the [*], including [*] based on [*]
from the [*]. Notwithstanding the foregoing, (A) [*] shall exclude any [*] to
ARYx for [*] or for [*] provided by ARYx, but only to the extent such [*]
represent [*], as applicable and (B) ARYx shall have the [*] from [*] any [*],
including [*] ARYx or any of its Affiliates to any [*] under any [*] as a
result of the [*] by ARYx’s [*], provided that such [*] shall not include any
[*] for which ARYx or the applicable Affiliate is [*].


 


(ii)           P&G shall assign to ARYx, and will
provide full copies of, all Regulatory Approvals and INDs, NDAs and other
similar regulatory applications owned by P&G, its Affiliates, and its
sublicensees that relate to Licensed Products. P&G shall also take such
actions and execute such other instruments, assignments and documents as may be
necessary to effect the transfer of rights thereunder to ARYx.


 


(iii)         P&G shall provide to ARYx copies of all
material reports and data, including clinical and non-clinical data and
reports, obtained or generated by or on behalf of P&G, its Affiliates, or
its sublicensees pursuant to this Agreement that relate to Licensed Products,
within sixty (60) days of such termination, and ARYx shall have the right to
use any such Information in developing and commercializing Licensed Products,
and to license any Third Parties to do so.


 


(iv)          If P&G used one or more Trademarks with
regard to any Licensed Product in a country, subject to P&G’s rights set
forth in clause (vii) of this Section 14.6(b), P&G shall grant to ARYx an
exclusive (even as to P&G), worldwide, irrevocable license, with the right
to sublicense, to use such Trademark(s) solely in connection with the
Development and Commercialization of such Licensed Product; provided, however, that with respect to
any Trademarks that are housemarks of P&G or any of its Affiliates or
contract manufacturers, such license shall extend solely to selling off
existing inventory of Licensed


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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Product transferred by
P&G to ARYx hereunder. In the case of a termination by ARYx, if ARYx in its
discretion sells Licensed Product (other than inventory purchased by ARYx
pursuant to Section 14.6(b)(vi)) in a particular country under a Trademark
licensed to ARYx pursuant to this Section 14.6(b)(iv) at a time when there is
no Valid Claim of a P&G Patent (other than a P&G Patent that (1) names
an employee, consultant or subcontractor of ARYx as an inventor, (2) does not
name an employee, consultant or subcontractor of P&G as an inventor, and
(3) claims an Assigned Invention) in the relevant country that claims the
applicable Licensed Product, then such license shall be royalty-bearing at a
rate equal to [*] of Net Sales of such Licensed Product sold in such country
under such Trademark. When there is such a Valid Claim in the relevant country
that claims the applicable Licensed Product, such license shall be royalty-free.
If this Section 14.6(b)(iv) comes into effect on account of a termination of
this Agreement by P&G, such license shall be royalty-free and fully
paid-up.


 


(v)            At ARYx’s request, P&G shall promptly
provide to ARYx copies of all clinical trial, contract manufacturing, or
service agreements entered into by P&G or its Affiliates with Third Parties
with respect to the Licensed Products. At ARYx’s request, P&G shall
promptly assign (or cause to be assigned), such agreements to ARYx, to the
extent such assignment is permitted under such agreement. In the event that
such an assignment is not permitted under a particular clinical trial, contract
manufacturing, or service agreement, then P&G shall reasonably cooperate
(at ARYx’s request) to assist ARYx in obtaining similar terms in a direct
agreement between ARYx and the applicable counterparty.


 


(vi)          P&G shall transfer to ARYx, at a price
equal to P&G’s fully-loaded Manufacturing costs for the Licensed Product
(which shall not include any mark-up), all quantities of Licensed Products in
the possession of P&G or its Affiliates (including clinical trial supplies
and Licensed Products intended for commercial sale) that ARYx request that
P&G so transfer.


 


(vii)         Except in the case of termination by ARYx
pursuant to Section 14.2, P&G shall have the right for [*] after the
effective date of such termination to dispose of all Licensed Product then in
its inventory, solely to the extent that ARYx does not elect to


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


74

















 


EXECUTION VERSION


 


purchase such Licensed
Product pursuant to Section 14.6(b)(vi), as though this Agreement had not
terminated. For the avoidance of doubt, Licensee shall continue to make
payments in connection with any such disposal as provided in Article 8.


 


(viii)        Promptly after the effective date of such
termination, P&G shall provide, at ARYx’s expense calculated at the R&D
FTE Rate, (A) if such termination occurs after the First Commercial Sale of the
Licensed Product in the Field in the Territory, [*] assistance of up to a total
of [*] during the period from the effective date of such termination until [*]
thereafter, or (B) if such termination occurs prior to the [*] of the [*] in
the Field in the Territory, [*] assistance of up to a total of [*] during the
period from the effective date of such termination until [*] thereafter, to
provide [*], and a non-exclusive, royalty-free, perpetual license under any
Know-How disclosed by P&G to ARYx in the course of such activities to [*]
Licensed Products.


 


(ix)          Without limitation of any of the foregoing,
the Parties shall cooperate in good faith to achieve an orderly transition with
respect to the Development and Commercialization of Licensed Product, including
setting timelines for the transfer of any data and materials required to be
transferred pursuant to this Section 14.6(b), determining an appropriate strategy
for communicating with investigators and thought leaders regarding the
termination of this Agreement, and ensuring that the Parties comply with
Applicable Law and any applicable industry guidelines regarding the publication
of any unpublished data from any clinical studies conducted hereunder.


 


(c)           Termination for Material
Breach of ARYx. Upon
termination of this Agreement by P&G pursuant to Section 14.2:


 


(i)            in addition to those provisions identified in
Section 14.7, the rights and obligations of the Parties under the following
provisions of this Agreement shall survive, subject to Section
14.6(c)(ii):  Sections 2.1, 2.4 (with
respect to ARYx Technology), 2.6 (except for (i)), 2.7(a), 2.8 (first sentence
only), 4.7, 5.2, 6.5, 6.7, 10.2, 10.3, 10.4, 10.5, 12.3, and 14.3, and Articles
8 and 9;


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


(ii)           in addition to those provisions identified in
Section 14.7 and in Section 14.6(c)(i), if the effective date of such
termination is prior to the [*] of the [*], the rights and obligations of the
Parties under Sections 4.3 and 4.5 shall survive until the [*] of the [*] and
shall thereafter terminate; provided, however, that (1) P&G shall not be
considered to be in breach of Section 4.3 or 4.5 to the extent that P&G is
unable to perform its obligations in Section 4.3 or 4.5 (as appropriate) as a
result of ARYx’s breach of this Agreement; and (2) the effects of any breach of
this Agreement by ARYx shall be a relevant factor in determining the level of
effort by P&G that constitutes Commercially Reasonable Efforts.


 


(iii)         if P&G is awarded, pursuant to an
arbitration conducted in accordance with Section 15.2, [*] damages [*] on
account of the [*] of ARYx that was the basis for P&G’s termination
pursuant to [*] and such award is not [*] as specified in [*], then:


 


(1)           P&G’s payment obligations under [*] shall
be [*] the amounts specified therein; and


 


(2)           the rights and obligations of the Parties
under the following provisions shall [*].


 


14.7        Survival; Accrued Rights. The rights and obligations of the Parties
under the following provisions of this Agreement shall survive expiration or
any termination of this Agreement: Sections 2.5, 8.2 and 8.3 (in each case with
respect to events occurring prior to the termination effective date), 8.4-8.7
(in each case with respect to sales made prior to the termination effective
date or pursuant to Section 14.6(b)(vii)), 8.8 (with respect to amounts
received by P&G on amounts owed by sublicensees prior to the termination
effective date), 9.1 (with respect to sales made prior to the termination
effective date or pursuant to Section 14.6(b)(vii)), 9.2, 9.6, 10.1(b), 11.4,
12.1, 12.2, 13.1, 13.2, 13.3, 14.5, 14.6, and 14.7, and Articles 15 and 16. In
any event, expiration or termination of this Agreement shall not relieve the
Parties of any liability which accrued hereunder prior to the effective date of
such expiration or termination nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in equity with respect
to any breach of this Agreement, nor prejudice


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


either Party’s right to
obtain performance of any obligation.


 


ARTICLE 15


 


DISPUTE RESOLUTIONS; GOVERNING LAW


 


15.1        Disputes.  Unless otherwise set forth in this Agreement and excluding in
particular any disputes over matters within the authority of the JSC pursuant
to Article 3 (which will be handled exclusively in accordance with Section
3.5(b)), in the event of a dispute arising under this Agreement between the
Parties, the Parties shall refer such dispute to the respective Executive
Officers, and such Executive Officers shall attempt in good faith to resolve
such dispute.


 


15.2        Arbitration.  If the Parties are unable resolve a given dispute pursuant to Section
15.1 within sixty (60) days of referring such dispute to the Executive
Officers, either Party may have the given dispute settled by binding
arbitration in the manner described below:


 


(a)           Arbitration Request. If a Party intends to begin an arbitration to
resolve a dispute arising under this Agreement, such Party shall provide
written notice (the “Arbitration Request”)
to the other Party of such intention and the issues for resolution. From the
date of the Arbitration Request and until such time as the dispute has become
finally settled, the running of the time periods as to which Party must cure a
breach of this Agreement becomes suspended as to any breach that is the subject
matter of the dispute.


 


(b)           Additional Issues.  Within ten (10) business days after the receipt of the Arbitration
Request, the other Party may, by written notice, add additional issues for
resolution, provided that such issues are eligible for arbitration under this
Section 15.2.


 


(c)           No Arbitration of
Patent/Confidentiality Issues.  Unless otherwise agreed by the Parties,
disputes relating to the scope, validity, enforceability or infringement of
patents or the non-disclosure, non-use or maintenance of Confidential
Information shall not be subject to arbitration, and shall be submitted to a
court of competent jurisdiction.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


(d)           Arbitration Procedure.  Discovery shall be under the U.S. Federal Rules of Civil Procedure then
in effect in the District Court for District of Delaware. The Arbitration shall
be held in the continental U.S. under the Commercial Arbitration Rules of the
American Arbitration Association (“AAA”).
The arbitration shall be conducted by three (3) arbitrators who are
knowledgeable in the subject matter at issue in the dispute. One (1) arbitrator
will be selected by ARYx, one (1) arbitrator will be selected by P&G, and
the third arbitrator will be selected by mutual agreement of the two (2)
arbitrators selected by the Parties. Each Party shall submit to such
arbitrators its proposed ruling and remedy for each issue that is the subject
of arbitration. The arbitrators shall, within fifteen (15) days after the
conclusion of the arbitration hearing, issue a written award and statement of
decision describing the essential findings and conclusions on which the award
is based, including the calculation of any damages awarded. Any such award and
decision shall reflect the proposed ruling and remedy of one of the Parties as
to each disputed issue. The arbitrators shall be authorized to award
compensatory damages, but shall not be authorized to award non-economic damages
or punitive damages, or to reform, modify or materially change this Agreement
or any other agreements contemplated hereunder. The arbitrators also shall be
authorized to grant any temporary, preliminary or permanent equitable remedy or
relief the arbitrators deem just and equitable and within the scope of this
Agreement, including an injunction or order for specific performance. The award
of the arbitrators shall be the sole and exclusive remedy of the Parties
(except for any other remedies set forth in this Agreement). The arbitrators
may proceed to an award, notwithstanding the failure of either Party to
participate in the proceedings. Judgment on the award rendered by the arbitrators
may be enforced in any court having competent jurisdiction thereof, subject
only to revocation on grounds of fraud or clear bias on the part of the
arbitrators.


 


(e)           Costs; Satisfaction.  Each Party shall bear its own attorneys’ fees, costs, and disbursements
arising out of the arbitration, and shall pay an equal share of the fees and
costs of the arbitrators; provided, however,
that the arbitrators shall be authorized to determine whether a Party is the
prevailing Party, and if so, to award to that prevailing Party reimbursement
for its reasonable attorneys’ fees, costs and disbursements (including, for
example, expert witness fees and expenses, photocopy charges and travel
expenses), or the fees and costs of the


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


arbitrators. Absent the
filing of an application to correct or vacate the arbitration award as
permitted by Applicable Law, each Party shall fully perform and satisfy the
arbitration award within fifteen (15) days of the service of the award.


 


15.3        Interim Relief.  Notwithstanding any other provision of this Agreement, either Party may
seek interim or provisional relief, including a temporary restraining order,
preliminary injunction or other interim equitable relief, in a court of
competent jurisdiction, concerning any dispute other than a dispute subject to
determination by the Executive Officer of P&G pursuant to Section 3.5(b),
if necessary to protect the interests of such Party. This Section shall be
specifically enforceable.


 


15.4        Waiver.  By agreeing to this binding arbitration provision, the Parties
understand that they are waiving certain rights and protections which may
otherwise be available if a dispute between the Parties were determined by
litigation in court, including the right to seek or obtain certain types of
damages precluded by this provision, the right to a jury trial, certain rights
of appeal, and a right to invoke formal rules of procedure and evidence.


 


15.5        Choice of Law.  The validity, performance, construction, and effect of this Agreement
shall be governed by the laws of the State of Delaware, without regard to
conflicts of law principles that would provide for application of the law of
another jurisdiction.


 


ARTICLE 16


 


MISCELLANEOUS


 


16.1        Assignment.  Either Party may assign this Agreement (a) to any Affiliate of such
Party without the prior written consent of the other Party, provided that such
Party provides the other Party with written notice of such assignment and
remains fully liable for the performance of such Party’s obligations hereunder
by such Affiliate, (b) without the prior written consent of the other Party, to
its successor in interest by way of merger, spin-off, acquisition, or sale of
all or substantially all of its assets to which this Agreement relates, provided
that such Party provides the other Party with written notice of such
assignment; or (c) without the prior written


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


79

















 


EXECUTION VERSION


 


consent of the other Party,
in connection with a Change of Control of such Party, provided that such Party
provides the other Party with written notice of such assignment. Any other
assignment of this Agreement by a Party requires the prior written consent of
the other Party. Any assignment in violation of this Section 16.1 shall be null
and void. This Agreement shall be binding on and shall inure to the benefit of
the permitted successors and assigns of the Parties hereto. Notwithstanding the
foregoing, in the event that a Party assigns this Agreement to its successor in
interest following a by way of merger, acquisition or sale of all or
substantially all of its assets to which this Agreement relates, the
intellectual property rights of such successor in interest, and of any of its
Affiliates as of the time immediately prior to such assignment, as existing
immediately prior to the closing of such transaction, shall be automatically
excluded from the rights licensed to the other Party under this Agreement.


 


16.2        Force Majeure. If either Party shall be delayed, interrupted
in or prevented from the performance of any obligation hereunder by reason of
force majeure including an act of God, fire, flood, earthquake, war (declared
or undeclared), public disaster, act of terrorism, strike or labor differences,
governmental enactment, rule or regulation, or any other cause beyond such
Party’s reasonable control, such Party shall not be liable to the other
therefor; and the time for performance of such obligation shall be extended for
a period equal to the duration of the force majeure which occasioned the delay,
interruption or prevention. The Party invoking such force majeure rights of
this Section 16.2 must notify the other Party in writing within a period of
fifteen (15) days of both the first and last day of the force majeure unless
the force majeure renders such notification impossible in which case
notification will be made as soon as possible. If the delay resulting from the
force majeure exceeds [*], [*].


 


16.3        Entire Agreement. This Agreement constitutes the entire
agreement between the Parties with respect to the subject matter herein and,
effective on the Effective Date, supersedes all previous agreements between the
Parties with respect to the subject matter herein, whether written or oral,
including the Mutual Non-disclosure Agreement entered into by the Parties on
[*].  This Agreement shall not be changed
or modified orally, but only by an instrument in writing signed by both
Parties.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


16.4        Severability. If any provision of this Agreement is
declared invalid by a court of last resort or by any court or other
governmental body from the decision of which an appeal is not taken within the
time provided by law, then and in such event, this Agreement will be deemed to
have been terminated only as to the portion thereof that relates to the
provision invalidated by that decision and only in the relevant jurisdiction,
but this Agreement, in all other respects and all other jurisdictions, will
remain in force; provided, however, that if the provision so invalidated is
essential to the Agreement as a whole, then the Parties shall negotiate in good
faith to amend the terms hereof as nearly as practical to carry out the
original intent of the Parties, and, failing such amendment, either Party may
submit the matter for resolution pursuant to Article 15.


 


16.5        Notices. Any notice, request, demand, waiver, consent,
approval or other communication permitted or required under this Agreement (“Notice”) shall be in writing, shall refer
specifically to this Agreement and shall be deemed given only if delivered by
hand or sent by facsimile transmission (with transmission confirmed) or by
nationally recognized delivery service that maintains records of delivery,
addressed to the Parties at their respective addresses specified in this
Section 16.5 or to such other address as the Party to whom notice is to be
given may have provided to the other Party in accordance with this Section 16.5.
Such Notice shall be deemed to have been given as of the date delivered by hand
or transmitted by facsimile (with transmission confirmed) or on the second
business day (at the place of delivery) after deposit with a nationally
recognized overnight delivery service. Any notice delivered by facsimile shall
be confirmed by a hard copy delivered as soon as practicable thereafter. This
Section 16.5 is not intended to govern the day-to-day business communications
necessary between the Parties in performing their obligations under the terms
of this Agreement.


 


	
   

  	
  If
  to ARYx:

  	
   

  	
  ARYx
  Therapeutics, Inc.

  
	
   

  	
   

  	
  6300
  Dumbarton Circle

  
	
   

  	
   

  	
  Fremont,
  CA 94555

  
	
   

  	
   

  	
  Attention:
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  If
  to P&G:

  	
   

  	
  Procter
  & Gamble Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  2
  P&G Plaza

  



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN
THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES
ACT OF 1933, AS AMENDED.


 


81

















 


EXECUTION
VERSION


 


	
   

  	
   

  	
  Cincinnati,
  OH 45202

  
	
   

  	
   

  	
  Attention:
   President

  
	
   

  	
   

  	
   

  
	
   

  	
  and

  	
   

  	
  Procter
  & Gamble Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  Mason
  Business Center

  
	
   

  	
   

  	
  8700
  Mason-Montgomery Road

  
	
   

  	
   

  	
  Mason,
  OH 45040-9462

  
	
   

  	
   

  	
  Attention:
  Associate General Counsel,

  
	
   

  	
   

  	
  Pharmaceuticals

  
				



 


16.6        Further Assurances.  The Parties agree to reasonably cooperate with each other in connection
with any actions required to be taken as part of their respective obligations
under this Agreement, and shall (a) furnish to each other such further
information; (b) execute and deliver to each other such other documents; and
(c) do such other acts and things (including working collaboratively to correct
any clerical, typographical, or other similar errors in this Agreement), all as
the other Party may reasonably request for the purpose of carrying out the
intent of this Agreement.


 


16.7        Agency.  Neither Party is, nor will be deemed to be an employee, agent or
representative of the other Party for any purpose. Each Party is an independent
contractor, not an employee or partner of the other Party. Neither Party shall
have the authority to speak for, represent or obligate the other Party in any
way without prior written authority from the other Party. Nothing in this
Agreement shall be construed by either Party to establish that the Parties are
in a partnership or joint venture, including for tax
purposes.  If for any reason this Agreement were to be interpreted as
a partnership, although both Parties have explicitly agreed that it is not, for
tax purposes this Agreement shall be construed to recognize that any deduction
or amortization attributable to P&G’s upfront payment and milestones, if
any, are allocable to and deductible solely by P&G.


 


16.8        No Waiver.  Any omission or delay by either Party at any time to enforce any right
or remedy reserved to it, or to require performance of any of the terms,
covenants or provisions hereof, by the other Party, shall not constitute a
waiver of such Party’s rights to the future enforcement of its rights under
this Agreement. Any waiver by a Party of a particular breach or default by the
other Party shall not operate or be construed as a waiver of any


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXECUTION VERSION


 


subsequent breach or default
by the other Party.


 


16.9        No Strict Construction.  This Agreement has been prepared jointly by the Parties and shall not
be strictly construed against either Party.


 


16.10      Construction.  Except where the context otherwise requires, wherever used, the
singular shall include the plural, the plural the singular, the use of any
gender shall be applicable to all genders and the word “or” is used in the
inclusive sense. The captions of this Agreement are for convenience of
reference only and in no way define, describe, extend or limit the scope or
intent of this Agreement or the intent of any provision contained in this
Agreement. The term “including” as used herein shall mean including, without
limiting the generality of any description preceding such term. The language of
this Agreement shall be deemed to be the language mutually chosen by the
Parties and no rule of strict construction shall be applied against either
Party hereto.


 


16.11      References.  Unless otherwise specified, (a) references in this Agreement to any
Article, Section or Exhibit shall mean references to such Article, Section or
Exhibit of this Agreement, (b) references in any section to any clause are
references to such clause of such section and (c) references to any agreement,
instrument or other document in this Agreement refer to such agreement,
instrument or other document as originally executed or, if subsequently varied,
replaced or supplemented from time to time, as so varied, replaced or
supplemented and in effect at the relevant time of reference thereto.


 


16.12      Counterparts.  This Agreement may be executed in counterparts, all of which taken
together shall be regarded as one and the same instrument.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


83

















 


IN WITNESS WHEREOF, the
Parties have executed this License, Development, and Commercialization
Agreement through their duly authorized representatives to be effective as of
the Effective Date.


 


 


	
  ARYX THERAPEUTICS,
  INC.

  	
   

  	
  PROCTER
  & GAMBLE 

  PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Paul
  Goddard

  	
   

  	
  By:

  	
  /s/ Mark A.
  Collar

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  Paul Goddard

  	
   

  	
  Name:

  	
  Mark A.
  Collar

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  CEO

  	
   

  	
  Title:

  	
  President

  
									



 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


84














 


EXHIBIT A


 


ARYX PATENTS


 


[*]


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


A-1

















 


EXHIBIT B


 


CRITERIA FOR [*] TIERS AND REQUIRED [*] ANALYSES


 


[*]


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


B-1

















 


EXHIBIT C


 


POTENTIAL SUBLICENSING COUNTRIES


 


The list of countries set
forth in this Exhibit is for informational purposes only and is not binding for
any purpose.


 


[*]


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


C-1

















 


EXHIBIT D


 


TRANSITIONAL ACTIVITIES BY ARYX


 


Clinical and Toxicology Final Study Reports (Per ARYx’s SOPs)
Needed from ARYx


 


 


	
  REPORT

  	
  TIME NEEDED 

  
	
   

  	
   

  
	
  PRECLINICAL/TOXICOLOGY STUDIES

  
	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  CLINICAL STUDIES

  
	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  
	
   

  	
   

  
	
  [*]

  	
  [*]

  



 


CMC Items Needed from ARYx


 


 


Items
needed within 30 days after the Effective Date unless waived by P&G


 


[*]


 


Items
needed within 90 days after the Effective Date unless waived by P&G


 


[*]


 


Items
needed to be archived and accessible in a manner approved by P&G within 180
days after the Effective Date


 


[*]


 


Regulatory
documents to be delivered to P&G in accordance with Section 5.1(a):


 


[*]


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


D-1

















 


For clarity, to the extent
items listed on this Exhibit D are also referenced in Exhibit E as Materials
available to be transferred to P&G, P&G shall pay a transfer price for
such Materials in accordance with Section 4.4.


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


D-2

















 


EXHIBIT E


 


MATERIALS AVAILABLE TO BE TRANSFERRED AND ASSOCIATED TRANSFER
PRICES


 


[*]


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


E-1

















 


EXHIBIT F


 


CO-DEVELOPMENT AGREEMENT TERMS


 


The capitalized terms used
in this Exhibit and not defined in this Exhibit shall have the meaning set
forth in the Agreement.


 


1.             Each Party shall each bear [*] of any Co-Development
Expenses. “Co-Development Expenses” shall be defined in detail in the
Co-Development Agreement and shall generally mean all prelaunch expenses for
the applicable Co-Developed Product with respect to the current indication and
future indications (a) incurred by [*] in connection with the [*] that [*] the
[*] even if these costs or expenses [*], or (b) by [*] on or after the [*] of
the [*] pursuant to a Development Plan and [*].


 


2.             Co-Development Expenses shall be subject to
reimbursement, as follows. Within [*] after the end of each quarter the Party
that has paid less than its share of the Co-Development Expenses for such calendar
quarter shall make a reconciling payment to the other Party to achieve the
allocation of Co-Development Expenses set forth in Section 1 of this Exhibit.


 


3.             In exchange for co-funding a Co-Developed Product as set
forth above, ARYx shall be entitled to a share
of the Operating Profit/Loss generated by sales of the applicable
Co-Developed Product in the [*] which share shall be some value between [*] and
shall be specified in the Co-Development Agreement. P&G shall be entitled
to the remainder of such Operating Profit/Loss. “Operating Profit/Loss” shall mean Net Sales of the applicable
Co-Developed Product in the [*], less certain Co-Developed Product-related
costs and expenses to be defined in the Co-Development Agreement.


 


4.             Sales of Co-Developed Products shall be excluded from
aggregate sales calculations for the purpose of determining commercialization
milestones under Section 8.4 of the Agreement, and no royalties shall be owed
under Section 8.5 of the Agreement on sales of Co-Developed Products in the
U.S.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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5.             Co-development of Co-Developed Products in the U.S.
shall be overseen by a joint development committee composed of three (3)
representatives from each Party, which will be formed as a subcommittee of the JSC
pursuant to the Agreement. Disputes shall be subject to escalation and
tie-break as set forth in Section 3.5 of the Agreement.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXHIBIT G


 


CO-PROMOTION AGREEMENT TERMS


 


The capitalized terms used
in this Exhibit and not defined in this Exhibit shall have the meaning set
forth in the Co-Promotion Agreement. Capitalized terms not defined herein shall
be defined in the Co-Promotion Agreement.


 


1.             P&G shall compensate ARYx for co-promoting a
Licensed Product through payments based on PDEs to the Target Audience, the
number and percentage of which to be provided by each Party shall be agreed in
the Co-Promotion Agreement. The calculation of PDEs and the per-PDE payments
shall be consistent with P&G’s standard practices with respect to its own
sales force(s) with respect to the Target Audience. A PDE shall consist of a
[*], the definitions of which shall be provided in the Co-Promotion Agreement. The
“Primary Detail Cost” for ARYx’s employee or contract “Representatives” shall
be the average of P&G’s “Primary Detail Cost” as determined by the actual
average cost per P&G representative in the [*] with [*] responsibility for
calling on the Target Audience divided by the average number of “Calls” made by
such representatives in the U.S. during the previous [*] period, [*]. Calculation
of the actual average cost per Representative shall include the [*].


 


Calculation of the actual
average cost per representative shall not include the [*].


 


2.             The Co-Promotion Agreement will include a minimum,
renewable term of ARYx’s participation in co-promotion, initially to be no less
than [*] of effort, minimum levels of participation relative to ARYx’s PDE
commitment (i.e. the number of PDEs) to the Target Audience where no less than
[*] of the PDEs shall be in the [*] position, performance standards, along with
corresponding compliance requirements and penalties, applicable to ARYx’s
detailing of the applicable Licensed Product to the Target Audience. ARYx shall
use P&G approved adverse event reporting (forms and process), sales
materials and samples at levels consistent with those used by P&G sales
representatives calling on similar health care professionals. Any contract
sales force used by ARYx shall be reasonably acceptable to P&G.


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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3.             Any changes to sales coverage on the part of ARYx
requires the consent of P&G at least [*] in advance of the effective date
of such change, which consent shall not be unreasonably withheld; provided,
however, that P&G shall have no obligation to consent to any change that
would [*] the [*] of the Licensed Product.


 


4.             Each Party shall be responsible for training its
relevant sales representatives and managers thereof in the detailing and
promotion of the Licensed Product, at its sole expense; provided, however, that
P&G shall, at its election, (a) allow ARYx’s sales representatives to
attend and participate, at ARYx’s expense (including the cost of training
material) in the training programs described in the Section 6.6 of the
Agreement or (b) permit ARYx to provide Licensed Product training to ARYx’s
sales personnel that is substantially equivalent to such programs as provided
by P&G to its sales personnel, provided that P&G will provide initial
Licensed Product training to ARYx’s training personnel (e.g. train ARYx’s
trainers). The training expenses paid by ARYx will not exceed the amounts
generally charged by P&G for training representatives from external sales
organizations.


 


5.             At ARYx’s reasonable request, P&G will provide
advice based on its experience with contract sales support and services in
creating a selling capability.


 


6.             Each Party shall provide its own internal administrative
and logistical support as is usual and customary in the pharmaceutical
industry, including with respect to the distribution of samples and literature,
administrative support services, management of information and required sales
technology (e.g. territory management systems) and the setting, monitoring and
executing incentive programs, if any, for its sales representatives.


 


7.             P&G shall control all Commercialization decisions,
including pricing, marketing strategy, development of marketing and sales
materials, sampling and sales tactics.


 


8.             Product liability costs and expenses with respect to any
co-promoted Licensed Product shall be shared by the Parties based on their
relative levels of participation, except that if it is determined that a Party
engaged in the promotion or representation of a Licensed Product in violation
of Applicable Law, then that Party shall be solely responsible for any product
liability,


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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cost, or expense related to
such violation.


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXHIBIT H


 


CRITERIA FOR [*] TIERS


 


[*]


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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EXHIBIT I


 


SAMPLE ROYALTY CALCULATION


 


[*]


 


 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.


 


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