Document:

Exhibit
10.12

 

November 17, 2003

 

John
Varian

 

Dear
John:

 

ARYx
Therapeutics  is pleased to invite
you to join us as Vice President and Chief Operating Officer. It will be
recommended to the ARYx Board of Directors that you be elected an Officer of
the Company in this position. The ARYx mission of discovering and developing
pharmaceuticals in which safety is a critical measure of efficacy can be
greatly enhanced through people such as yourself.

 

Responsibilities

 

Should
you join us, you will be responsible for the functions of Chief Operating
Officer. Amongst
the duties of this position will be to:

 

•      Work as a key member of the management team, reporting to
the President and CEO and participating in all management decisions to come
before the Management Committee;

 

•      Manage corporate operations, including finance, investor
relations, corporate communications, general administration, commercial
partnerships and corporate development;

 

•      Lead a corporate development program by designing financing
strategies approvable by the CEO and board, and by implementing an adopted
Corporate Strategic Development Plan over a defined time period towards
specific goals, utilizing all available resources, including CEO, senior
management and board as appropriate;

 

•      Establish and implement the financial and business
operations systems and processes that ARYx will require to manage its next
stage of growth;

 

•      Implement, in partnership with the CEO, a corporate
development plan to be approved by the board to maximize value of current and
future product portfolio;

 

•      Work directly with the board on matters as designated by the
CEO.

 

You
will report directly to me as President and CEO. You will be a regular member
of the ARYx Management Committee, and will work at our facilities in Santa
Clara, California. Based upon your performance and the evolving needs of the
Company, your position, duties, and work location may change over the course of
your employment with us.

 

 

Compensation

 

ARYx
is offering to you a compensation package intended to provide both short-term
and long-term income. Your cash compensation will include a base salary of
$260,000 per annum (less payroll deductions and all required withholdings),
paid semi-monthly, In addition, ARYx provides a substantial benefits package
including health, dental and vision care, as well as paid vacation of three
weeks per year. Details about these benefits and benefits plans are included
with this offer letter.

 

In
addition to your base salary, you may be eligible for bonus payments in cash
compensation, additional equity, or a combination of cash and equity, as
determined by the Compensation Committee of the ARYx Board of Directors. While
it is the stated intent of the Board that such a bonus program occur annually,
there is no representation made, either in writing or implied, that such
bonuses are guaranteed. Whether such bonuses are paid will be based upon the
Board’s review of both corporate and individual performance. However, as part
of your initial employment, ARYx will pay to you a cash bonus of $25,000 on
April 1, 2004 should you meet the following milestones:

 

•      Integrate successfully as a member of the management team;

 

•      Finalize a Corporate Strategic Development Plan which
outlines the corporate strategy through the period of break-even for the
Company, detailing how the Company will be financed and how value will be
realized out of products, partnerships and operations;

 

•      Successfully partner with the CEO, other senior management
and current investors to complete the Series D financing for the Company;

 

•      Develop the analytical tool to bring a commercial analysis
to portfolio management and successfully integrate this analysis into the
Portfolio Management Committee.

 

An
additional cash bonus of $25,000 will be paid to you on December 1, 2004 if by
that date you have met these additional milestones:

 

•      Develop and complete the initial elements of a partnering
strategy covering the commercial analysis, market positioning and target
corporate partners for ATI-2042 and ATI-7505 (the two lead ARYx products) to
fully maximize their value to the Company;

 

•      Successfully implement initial elements of approved
Corporate Strategic Development Plan in accordance with the established
timeline, including modeling corporate financing options beyond January 1,
2005;

 

•      Develop and implement management and finance accounting
systems that can allow ARYx to become a publicly traded company, should the
Board opt for such a course;

 

•      Successfully integrate your direct reports into a functional
team, and place a Director of Business Development if you deem it necessary.

 

2

 

As
an additional element of your hire, ARYx will provide a one-time cash bonus of
$30,000 paid entirely at the time of your start date. As with your other cash
compensation, this will be subject to payroll deductions and all required
withholdings.

 

Equity

 

Long-term
income will be tied to the success of the Company. ARYx believes that key
employees should share in the Company’s success, and accordingly, it will be
recommended to the Board of Directors that you be granted an option to purchase
500,000 shares of ARYx common stock (the “Option”) under the terms of the
Company’s stock option plan. The exercise price will be equal to the fair
market value of the Company’s common stock on the date of grant, as determined
by the Board. Your granted options will vest as follows: twenty-five percent
(25%) of the shares will vest on the first anniversary of the commencement date
of your employment, and thereafter the options will vest in equal monthly
installments (1/48th of the shares) over the following thirty-six months. Of
course, this vesting schedule assumes continued qualified service to the
Company.

 

Home
Office

 

It
is mutually understood that you while your time commitment to the Company will
be full time, you will be working out of your home office up to two days each
week until such time that the ARYx corporate offices are relocated to a
location facilitating your daily commute. ARYx agrees to fully equip your home
office to ensure this work arrangement operates efficiently. For purposes of
this agreement, ARYx will provide a telephone line, home computer, fax and
copier machine and high speed internet line, as well as related supplies. In
addition, ARYx will provide the necessary IT support to ensure the success of
this arrangement.

 

Confidentiality

 

ARYx
is committed to the highest ethical standards. In your work for the Company,
you will be expected not to use or disclose any confidential information,
including trade secrets, of any former employer or other person to whom you
have an obligation of confidentiality. Rather, you will be expected to use only
that information which is generally known and used by persons with training and
experience comparable to your own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or
developed by ARYx. In addition, you agree that you will not bring onto ARYx’
premises any unpublished documents or property belonging to any former employer
or other person to whom you have an obligation of confidentiality. During our
discussions about your proposed job duties, you assured us that you would be
able to perform those duties within the guidelines just described.

 

Termination
of Employment

 

You
may terminate your employment with ARYx at any time, with or without Good
Reason (as defined below), simply by notifying us. Likewise, ARYx may terminate
your employment at any time and for any reason whatsoever, with or without
Cause (as defined below), or advance notice. As required by law, this offer is
subject to satisfactory proof of your right to work in the United States.

 

3

 

If
the Company terminates your employment at any time for Cause, or if you resign
from ARYx without Good Reason, your salary shall cease on the date of
termination, and you will not be entitled to severance pay, pay in lieu of
notice or any other such compensation, other than payment of accrued salary and
such other benefits as expressly required by applicable law or the terms of any
applicable Company benefit plans. The Option and any other stock awards you
hold shall cease vesting as of the date of termination and those options which
are already vested shall be exercisable only pursuant to the terms of the ARYx
stock option plans and agreements.

 

However,
if the Company terminates your employment at any time without Cause, or you
resign from ARYx for Good Reason (as long as this resignation occurs within
thirty days after the occurrence of the event that forms the basis of the
resignation), (i) the Company shall make a lump sum severance payment to you in
an amount equal to six (6) months of your then-current base salary, subject to
withholdings and deductions, (ii) if you timely elect COBRA health insurance
coverage, the Company will reimburse your COBRA premiums for a maximum of
either six (6) months following the date your employment terminates or until
you secure health insurance coverage from another source, whichever occurs
sooner, and (iii) the vesting of the Option shall immediately accelerate with
respect to the number of shares that would otherwise vest if you were to remain
employed by ARYx over the six (6) month period following the date of such
termination.

 

Change
of Control

 

In
the event your employment with the Company is involuntarily terminated without
Cause by the Company or its successor, or you resign for Good Reason, and such
termination or resignation occurs within thirteen (13) months following a
Change of Control (as defined below), the vesting of the Option shall be
accelerated such that the Option shall become fully vested. Your receipt of the
accelerated vesting of the Option provided in this paragraph, or the receipt of
the severance pay described above, shall be conditioned on your execution of a
release agreement in the form attached to this letter as Attachment II,
such executed release must be delivered to the Company within twenty-one (21)
days after the termination of your employment with the Company in order for any
of such benefits be provided to you.

 

Definitions

 

For
purposes of this letter agreement:

 

•               “Cause” shall mean that you have committed,
or there has occurred, one or more of the following:  (a) conviction of, a guilty plea with respect
to, or a plea of nolo  contendere to a charge that you have
committed a felony under the laws of the United States or of any state of a
crime involving moral turpitude, including, but not limited to, fraud, theft,
embezzlement or any crime that results in or is intended to result in personal
enrichment at the expense of the Company; (b) material breach of any agreement
entered into between you and the Company that impairs the Company’s interest
therein; (c) willful misconduct, or gross neglect by you of your duties, if
such conduct is not cured within seven (7) days of your receipt of written
notice (provided that such conduct can reasonably be cured); (d) an
unauthorized use or disclosure of the Company’s confidential information or
trade secrets; or (e) engagement in any activity that constitutes a material
conflict of interest with the Company. Your death or physical or mental 

 

4

 

disability
shall also constitute Cause for termination under this letter agreement. Cause
to terminate your employment based on your physical or mental disability shall
exist if any illness, disability or other incapacity renders you physically or
mentally unable to regularly perform your duties hereunder for a period in
excess of sixty (60) consecutive days or more than ninety (90) days in any
consecutive twelve (12) month period. The Board of Directors shall make a good
faith determination of whether you are physically or mentally unable to
regularly perform your duties, subject to its review and consideration of any
physical and/or mental health information provided to it by you.

 

•               “Good Reason” shall mean any one of the
following events which occurs on or after the commencement of your employment
without your consent:  (i) any reduction
of your then current annual base salary, except to the extent that the annual
base salary of all other officers of the Company is similarly reduced; (ii) any
material reduction in your benefits, except to the extent that such benefits of
all other officers of the Company are similarly reduced; (iii) any material
diminution of your duties, responsibilities, or authority, excluding for this
purpose an isolated or inadvertent action not taken in bad faith which is
remedied by the Company immediately after notice thereof is given by you; or
(iv) any requirement that you relocate to a work site that would increase your
one-way commute distance to more than sixty (60) miles from the Company’s current headquarters; or (v) any
material breach by the Company of its obligations under letter agreement that
is not remedied by Company within thirty (30) days of written notice of such
breach from you. You must tender your resignation to the Company or its
successor within thirty (30) days after the occurrence of the event that forms
the basis for your resignation for Good Reason.

 

•               “Change of Control” shall mean the
occurrence of any of the following: (i) a sale, lease, or other disposition of
all or substantially all of the
assets of the Company; (ii) a merger or consolidation in which the Company is
not the surviving corporation; (iii) a reverse merger involving the Company in
which the Company is the surviving corporation but the shares of common stock
of the Company (the “Common Stock”)
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; (iv) an acquisition by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), or
any comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or an affiliate of the Company)
of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act, or comparable successor rules) of securities of the Company
representing at least fifty percent (50%) of the combined voting power entitled
to vote in the election of directors; or, (v) in the event that the individuals
who, as of the date hereof, are members of the Board (the “Incumbent Board”), cease for any reason to
constitute at least fifty percent (50%) of the Company’s Board of Directors.
(If the election, or nomination for election by the Company’s shareholders, of
any new member of the Company’s Board of Directors is approved by a vote of at
least fifty percent (50%) of the Incumbent Board, such new member of the Board
of Directors shall be considered as a member of the Incumbent Board.)  Notwithstanding the foregoing, for the
purposes of this letter agreement and with respect to any and all clauses of
this paragraph, an initial public offering of the securities of the Company (an
“IPO”) or any transactions or
events constituting part of an IPO, or any transaction or series of
transactions principally for bona fide equity 

 

5

 

financing
purposes in which cash is received by the Company or indebtedness of the
Company is cancelled or converted or a combination thereof shall not be deemed
to constitute or in any way effect a Change of Control.

 

General
Provisions

 

ARYx
requires all of its employees to comply with its Employee Proprietary
Information and Inventions Agreement, as attached, that prohibits unauthorized
use or disclosure of ARYx proprietary information. This letter, together with
an executed Employee Proprietary Information and Inventions Agreement and an
executed Release Agreement, forms the complete and exclusive statement of your
employment agreement with the Company. The employment terms in this letter
supersede any other agreements or promises made to you by anyone, whether oral
or written. This letter agreement cannot be changed except in a writing signed
by you and a duly authorized officer of the Company.

 

 

On
behalf of ARYx, I hope you find this employment offer agreeable, and will
indicate your acceptance by signing, dating and returning a copy of this letter
and the attachments to David Nagler at the ARYx address below. I would
appreciate a reply on or before November 17, 2003. If you accept our offer,
please plan on starting on December 1, 2003.

 

ARYx
has set a bold course for itself. We intend to serve patients through safety
and efficacy, employees through meaningful work and very competitive
compensation, and shareholders through high standards and beneficial financial
returns. We look forward to your joining us on this course.

 

Sincerely

 

	
  /s/ Peter G. Milner

  	
   

  
	
   

  
	
  Peter Milner M.D.

  
	
  President and Chief Executive Officer

  
	
  ARYx Therapeutics, Inc.

  

 

Accepted:

 

	
  /s/ John Varian

  	
   

  	
  18-Nov-2003

  	
   

  
	
  Name

  	
  Date

  

 

Attachment
I:  Employee Proprietary Information and
Inventions Agreement

 

Attachment
II: Release Agreement

 

6

 

ARYX
THERAPEUTICS

 

EMPLOYEE PROPRIETARY INFORMATION

AND INVENTIONS AGREEMENT

 

In consideration of my employment or continued employment by
ARYX THERAPEUTICS (the “Company”), and the compensation now and
hereafter paid to me, I hereby agree as follows:

 

1.             NONDISCLOSURE

 

1.1          Recognition
of Company’s Rights; Nondisclosure. At all times during my employment and thereafter, I will
hold in strictest confidence and will not disclose, use, lecture upon or
publish any of the Company’s Proprietary Information (defined below), except as
such disclosure, use or publication may be required in connection with my work
for the Company, or unless an officer of the Company expressly authorizes such
in writing. I will obtain Company’s written approval before publishing or
submitting for publication any material (written, verbal, or otherwise) that
relates to my work at Company and/or incorporates any Proprietary Information. I
hereby assign to the Company any rights I may have or acquire in such
Proprietary Information and recognize that all Proprietary Information shall be
the sole property of the Company and its assigns.

 

1.2          Proprietary
Information. The
term “Proprietary Information”
shall mean any and all confidential and/or proprietary knowledge, data or
information of the Company. By way of illustration but not limitation, “Proprietary Information” includes (a)
information relating to products, processes, know-how, designs, drawings,
clinical data, test data, formulas, methods, samples, media and/or cell lines,
developmental or experimental work, improvements, discoveries, plans for
research, new products, manufacturing, marketing and selling, business plans,
budgets and unpublished financial statements, licenses, prices and costs,
suppliers and customers, and information regarding the skills and compensation
of other employees of the Company. (hereinafter collectively referred to as “Inventions”); and (b) information
regarding plans for research, development, new products, marketing and selling,
business plans, budgets and unpublished financial statements, licenses, prices
and costs, suppliers and customers; and (c) information regarding the skills
and compensation of other employees of the Company. Notwithstanding the
foregoing, it is understood that, at all such times, I am free to use
information which is generally known in the trade or industry, which is not
gained as result of a breach of this Agreement, and my own skill, knowledge,
know-how and experience to whatever extent and in whichever way I wish.

 

1.3          Third Party
Information. I
understand, in addition, that the Company has received and in the future will
receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty
on the Company’s part to maintain the confidentiality of such information and
to use it only for certain limited purposes. During the term of my employment
and thereafter, I will hold Third Party Information in the strictest confidence
and will not disclose to anyone (other than Company personnel who need to know
such information in connection with their work for the Company) or use, except
in connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.

 

1.4          No Improper
Use of Information of Prior Employers and Others. During my employment by the
Company I will not improperly use or disclose any confidential information or
trade secrets, if any, of any former employer or any other person to whom I
have an obligation of confidentiality, and I will not bring onto the premises
of the Company any unpublished documents or any property belonging to any
former employer or any other person to whom I have an obligation of
confidentiality unless consented to in writing by that former employer or
person. I will use in the performance of my duties only information which is
generally known and used by persons with training and experience comparable to
my own, which is common knowledge in the industry or otherwise legally in the public
domain, or which is otherwise provided or developed by the Company.

 

2.             ASSIGNMENT
OF INVENTIONS.

 

2.1          Proprietary
Rights. The
term “Proprietary Rights” shall
mean all trade secret, patent, copyright, mask work and other intellectual
property rights throughout the world.

 

2.2          Prior
Inventions. Inventions,
if any, patented or unpatented, which I made prior to the 

 

1

 

commencement
of my employment with the Company are excluded from the scope of this Agreement.
To preclude any possible uncertainty, I have set forth on Exhibit B (Previous Inventions)
attached hereto a complete list of all Inventions that I have, alone or jointly
with others, conceived, developed or reduced to practice or caused to be conceived,
developed or reduced to practice prior to the commencement of my employment
with the Company, that I consider to be my property or the property of third
parties and that I wish to have excluded from the scope of this Agreement
(collectively referred to as “Prior
Inventions”). If disclosure of any such Prior Invention would cause
me to violate any prior confidentiality agreement, I understand that I am not
to list such Prior Inventions in Exhibit B
but am only to disclose a cursory name for each such invention, a listing of
the party(ies) to whom it belongs and the fact that full disclosure as to such
inventions has not been made for that reason. A space is provided on Exhibit B for such purpose. If no such
disclosure is attached, I represent that there are no Prior Inventions. If, in
the course of my employment with the Company, I incorporate a Prior Invention
into a Company product, process or machine, the Company is hereby granted and
shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide
license (with rights to sublicense through multiple tiers of sublicensees) to
make, have made, modify, use and sell such Prior Invention. Notwithstanding the
foregoing, I agree that I will not incorporate, or permit to be incorporated,
Prior Inventions in any Company Inventions without the Company’s prior written
consent.

 

2.3          Assignment
of Inventions. Subject
to Sections 2.4, and 2.6, I hereby assign and agree to assign in the future
(when any such Inventions or Proprietary Rights are first reduced to practice
or first fixed in a tangible medium, as applicable) to the Company all my
right, title and interest in and to any and all Inventions (and all Proprietary
Rights with respect thereto) whether or not patentable or registrable under
copyright or similar statutes, made or conceived or reduced to practice or
learned by me, either alone or jointly with others, during the period of my
employment with the Company. Inventions assigned to the Company, or to a third
party as directed by the Company pursuant to this Section 2, are
hereinafter referred to as “Company
Inventions.”

 

2.4          Nonassignable
Inventions. This
Agreement does not apply to an Invention which qualifies fully as a
nonassignable Invention under Section 2870 of the California Labor Code
(hereinafter “Section 2870”).
I have reviewed the notification on Exhibit
A (Limited Exclusion Notification) and agree that my signature
acknowledges receipt of the notification.

 

2.5          Obligation
to Keep Company Informed. During
the period of my employment and for six (6) months after termination of my
employment with the Company, I will promptly disclose to the Company fully and
in writing all Inventions authored, conceived or reduced to practice by me,
either alone or jointly with others. In addition, I will promptly disclose to
the Company all patent applications filed by me or on my behalf within a year
after termination of employment. At the time of each such disclosure, I will
advise the Company in writing of any Inventions that I believe fully qualify
for protection under Section 2870; and I will at that time provide to the
Company in writing all evidence necessary to substantiate that belief. The
Company will keep in confidence and will not use for any purpose or disclose to
third parties without my consent any confidential information disclosed in
writing to the Company pursuant to this Agreement relating to Inventions that
qualify fully for protection under the provisions of Section 2870. I will
preserve the confidentiality of any Invention that does not fully qualify for
protection under Section 2870.

 

2.6          Government
or Third Party. I
also agree to assign all my right, title and interest in and to any particular
Company Invention to a third party, including without limitation the United
States, as directed by the Company.

 

2.7          Works for
Hire. I
acknowledge that all original works of authorship which are made by me (solely
or jointly with others) within the scope of my employment and which are
protectable by copyright are “works made for hire,” pursuant to United States
Copyright Act (17 U.S.C., Section 101).

 

2.8          Enforcement
of Proprietary Rights. I
will assist the Company in every proper way to obtain, and from time to time
enforce, United States and foreign Proprietary Rights relating to Company
Inventions in any and all countries. To that end I will execute, verify and
deliver such documents and perform such other acts (including appearances as a
witness) as the Company may reasonably request for use in applying for,
obtaining, perfecting, evidencing, sustaining and enforcing such Proprietary
Rights and the assignment thereof. In addition, I will execute, verify and
deliver assignments of such Proprietary Rights to the Company or its designee. My
obligation to assist the Company with respect to Proprietary Rights relating to
such Company Inventions in any 

 

2

 

and all
countries shall continue beyond the termination of my employment, but the
Company shall compensate me at a reasonable rate after my termination for the
time actually spent by me at the Company’s request on such assistance.

 

In the event
the Company is unable for any reason, after reasonable effort, to secure my
signature on any document needed in connection with the actions specified in
the preceding paragraph, I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents as my agent and attorney in fact,
which appointment is coupled with an interest, to act for and in my behalf to
execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph with the same
legal force and effect as if executed by me. I hereby waive and quitclaim to
the Company any and all claims, of any nature whatsoever, which I now or may
hereafter have for infringement of any Proprietary Rights assigned hereunder to
the Company.

 

3.             RECORDS. I agree to keep and maintain
adequate and current records (in the form of notes, sketches, drawings and in
any other form that may be required by the Company) of all Proprietary
Information developed by me and all Inventions made by me during the period of
my employment at the Company, which records shall be available to and remain
the sole property of the Company at all times.

 

4.             ADDITIONAL
ACTIVITIES. I
agree that during the period of my employment by the Company I will not,
without the Company’s express written consent, engage in any employment or
business activity which is competitive with, or would otherwise conflict with,
my employment by the Company. I agree further that for the period of my
employment by the Company and for one (l) year after the date of termination of
my employment by the Company I will not, either directly or through others,
solicit or attempt to solicit any employee, independent contractor or
consultant of the company to terminate his or her relationship with the Company
in order to become an employee, consultant or independent contractor to or for
any other person or entity.

 

5.             NO
CONFLICTING OBLIGATION. I
represent that my performance of all the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to keep in
confidence information acquired by me in confidence or in trust prior to my
employment by the Company. I have not entered into, and I agree I will not
enter into, any agreement either written or oral in conflict herewith.

 

6.             RETURN OF
COMPANY DOCUMENTS. When
I leave the employ of the Company, I will deliver to the Company any and all
drawings, notes, memoranda, specifications, devices, formulas, and documents,
together with all copies thereof, and any other material containing or
disclosing any Company Inventions, Third Party Information or Proprietary
Information of the Company. I further agree that any property situated on the
Company’s premises and owned by the Company, including disks and other storage
media, filing cabinets or other work areas, is subject to inspection by Company
personnel at any time with or without notice. Prior to leaving, I will cooperate
with the Company in completing and signing the Company’s termination statement.

 

7.             LEGAL AND
EQUITABLE REMEDIES. Because
my services are personal and unique and because I may have access to and become
acquainted with the Proprietary Information of the Company, the Company shall
have the right to enforce this Agreement and any of its provisions by
injunction, specific performance or other equitable relief, without bond and
without prejudice to any other rights and remedies that the Company may have
for a breach of this Agreement.

 

8.             NOTICES. Any notices required or
permitted hereunder shall be given to the appropriate party at the address
specified below or at such other address as the party shall specify in writing.
Such notice shall be deemed given upon personal delivery to the appropriate
address or if sent by certified or registered mail, three (3) days after the
date of mailing.

 

9.             NOTIFICATION
OF NEW EMPLOYER. In
the event that I leave the employ of the Company, I hereby consent to the
notification of my new employer of my rights and obligations under this
Agreement.

 

10.          GENERAL
PROVISIONS.

 

10.1        Governing
Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according
to the laws of the State of California, as such laws are applied to agreements
entered into and to be performed entirely within California between California
residents. I hereby expressly consent to the personal jurisdiction of the state
and federal courts located in Santa Clara County, California for any lawsuit
filed there against me by Company arising from or related to this Agreement.

 

3

 

10.2        Severability.
In case any
one or more of the provisions contained in this Agreement shall, for any reason,
be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein. If
moreover, any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.

 

10.3        Successors
and Assigns. This
Agreement will be binding upon my heirs, executors, administrators and other
legal representatives and will be for the benefit of the Company, its
successors, and its assigns.

 

10.4        Survival. The provisions of this
Agreement shall survive the termination of my employment and the assignment of
this Agreement by the Company to any successor in interest or other assignee.

 

10.5        Employment. I agree and understand that
nothing in this Agreement shall confer any right with respect to continuation
of employment by the Company, nor shall it interfere in any way with my right
or the Company’s right to terminate my employment at any time, with or without
cause.

 

10.6        Waiver. No waiver by the Company of
any breach of this Agreement shall be a waiver of any preceding or succeeding
breach. No waiver by the Company of any right under this Agreement shall be
construed as a waiver of any other right. The Company shall not be required to
give notice to enforce strict adherence to all terms of this Agreement.

 

10.7        Entire
Agreement. The
obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any
time during which I was previously employed, or am in the future employed, by
the Company as a consultant if no other agreement governs nondisclosure and
assignment of inventions during such period. This Agreement is the final,
complete and exclusive agreement of the parties with respect to the subject
matter hereof and supersedes and merges all prior discussions between us. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing and signed by the
party to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.

 

This Agreement shall be effective as of the first day of my
employment with the Company, namely:  December
1, 2003.

 

I HAVE READ THIS AGREEMENT CAREFULLY AND
UNDERSTAND ITS TERMS. I HAVE COMPLETELY FILLED OUT EXHIBIT B TO THIS
AGREEMENT.

 

	
  Dated:

  	
  18-Nov-2003

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ John
  Varian

  	
   

  
	
  (Signature)

  	
   

  
	
   

  	
   

  	
   

  
	
  John
  Varian

  	
   

  
	
  (Printed Name)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ACCEPTED AND AGREED TO:

  	
   

  
	
   

  	
   

  	
   

  
	
  ARYX THERAPEUTICS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ David
  Nagler

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  VP CORP
  AFFAIRS

  	
   

  
	
   

  	
   

  	
   

  
	
  2255
  Martin Ave #F

  	
   

  
	
  (Address)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
  12/2/03

  	
   

  

 

4

 

EXHIBIT A

 

LIMITED EXCLUSION NOTIFICATION

 

THIS IS TO NOTIFY you in accordance with
Section 2872 of the California Labor Code that the foregoing Agreement between
you and the Company does not require you to assign or offer to assign to the
Company any invention that you developed entirely on your own time without
using the Company’s equipment, supplies, facilities or trade secret information
except for those inventions that either:

 

1.             Relate at the time of
conception or reduction to practice of the invention to the Company’s business,
or actual or demonstrably anticipated research or development of the Company;

 

2.             Result from any work
performed by you for the Company.

 

To the extent a provision in the foregoing Agreement
purports to require you to assign an invention otherwise excluded from the
preceding paragraph, the provision is against the public policy of this state
and is unenforceable.

 

This limited exclusion does not apply to any patent or
invention covered by a contract between the Company and the United States or
any of its agencies requiring full title to such patent or invention to be in
the United States.

 

I ACKNOWLEDGE RECEIPT of a copy of this
notification.

 

	
   

  	
  By:

  	
  /s/ John Varian

  	
   

  
	
   

  	
  (PRINTED NAME OF EMPLOYEE)

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  18-Nov-2003

  	
   

  
						

 

	
  WITNESSED BY:

  
	
   

  
	
   

  	
   

  
	
  (PRINTED NAME OF REPRESENTATIVE)

  

 

A-1

EXHIBIT B

 

	
  TO:

  	
   

  	
  ARYx Therapeutics

  	
   

  	
  [None JV]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FROM:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  DATE:

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

SUBJECT:     Previous
Inventions

 

1.             Except as listed in Section 2
below, the following is a complete list of all inventions or improvements
relevant to the subject matter of my employment by ARYx Therapeutics (the “Company”) that have been made or conceived
or first reduced to practice by me alone or jointly with others prior to my
engagement by the Company:

 

o    No
inventions or improvements.

 

o    See
below:

 

 

 

 

o    Additional
sheets attached.

 

2.             Due to a prior
confidentiality agreement, I cannot complete the disclosure under
Section 1 above with respect to inventions or improvements generally
listed below, the proprietary rights and duty of confidentiality with respect
to which I owe to the following party(ies):

 

	
  Invention or Improvement

  	
   

  	
  Party(ies)

  	
   

  	
  Relationship

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

o    Additional
sheets attached.

 

 

EXHIBIT B

 

RELEASE
AGREEMENT

 

I understand
that my employment with ARYX THERAPEUTICS,
INC. (the “Company”)
terminated effective               ,
           (the “Separation Date”). The
Company has agreed that if I choose to sign this Release Agreement (“Release”), the
Company will pay me certain severance benefits (minus the standard withholdings
and deductions) pursuant to the terms of the Employment Agreement (the “Agreement”) entered
into and effective as of November 17, 2003, between myself and the Company, and
any agreements incorporated therein by reference. I understand that I am not
entitled to such severance benefits unless I sign this Release and allow it to
become effective. I understand that, regardless of whether I sign this Release,
the Company will pay me all of my accrued salary and vacation through the
Separation Date, to which I am entitled by law.

 

In
consideration for the severance benefits I am receiving under the Agreement, I
hereby generally and completely release the Company and its officers, directors,
agents, attorneys, employees, stockholders, parents, subsidiaries, and
affiliates from any and all claims, liabilities, demands, causes of action,
attorneys’ fees, damages, or obligations of every kind and nature, whether they
are now known or unknown, arising at any time prior to or on the date I sign
this Release. This general release includes, but is not limited to: (a) all
claims arising out of or in any way related to my employment with the Company
or the termination of that employment; (b) all claims related to my
compensation or benefits from the Company, including salary, bonuses,
commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, or any other ownership interests in the
Company; (c) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing (including, but
not limited to, any claims based on or arising from the Agreement);
(d) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (e) all federal,
state, and local statutory claims, including claims for discrimination,
harassment, retaliation, attorneys’ fees, or other claims arising under the
federal Civil Rights Act of 1964 (as amended), the federal Americans with
Disabilities Act of 1990, the federal Age Discrimination in Employment Act of
1967 (as amended), and the California Fair Employment and Housing Act (as
amended). Notwithstanding the release in the preceding sentence, I am not
releasing any right of indemnification I may have for any liabilities arising
from my actions within the course and scope of my employment with the Company
or within the course and scope of my role as a member of the Board of Directors
of the Company.

 

In releasing
claims unknown to me at present, I am waiving all rights and benefits under
Section 1542 of the California Civil Code, and any law or legal principle of
similar effect in any jurisdiction:  “A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor.”

 

If I am
forty (40) years of age or older as of the Separation Date, I acknowledge that
I am knowingly and voluntarily waiving and releasing any rights I may have
under the federal Age Discrimination in Employment Act of 1967, as amended (“ADEA”). I also
acknowledge that the consideration given for the waiver in the above paragraphs
is in addition to anything of value to which I was already entitled. I have
been advised by this writing, as required by the ADEA that:  (a) my waiver and release do not apply to any
claims that may arise after the date that I sign this Release; (b) I should
consult with an attorney prior to executing this Release (although I may choose
voluntarily not to do so); (c) I have twenty-one (21) days within which to
consider this Release (although I may choose voluntarily to sign this Release
earlier); (d) I have seven (7)

 

 

days
following the date that I sign this Release to revoke the Release by providing
written notice of revocation to the Company’s Chief Executive Officer; and (e)
this Release will not be effective until the eighth day after this Release has
been signed both by me and by the Company (“Effective Date”).

 

	
  Agreed:

  	
   

  
	
   

  	
   

  
	
  JOHN VARIAN

  	
  ARYX THERAPEUTICS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Print
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  Print
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
											

 

2Exhibit 10.13

 

ARYX THERAPEUTICS, INC.

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (“Agreement”) is
entered into as of July 23, 2002, by and between Pascal Druzgala (“Executive”) and ARYX THERAPEUTICS, INC. (the “Company”), a Delaware corporation.

 

WHEREAS,
the Company desires to employ Executive to provide personal services to the
Company, and wishes to provide Executive with certain compensation and benefits
in return for his services;

 

WHEREAS,
Executive wishes to be employed by the Company and to provide personal services
to the Company in return for certain compensation and benefits;

 

NOW,
THEREFORE, in consideration of the mutual promises and
covenants contained herein, it is hereby agreed by and between the parties
hereto as follows:

 

1.             EMPLOYMENT BY THE
COMPANY.

 

1.1          Title and
Responsibilities. Subject to the terms set forth herein, the Company agrees
to employ Executive in the position of Vice President – Research and Chief
Scientific Officer (“CSO”),
and hereby accepts such employment effective July 23, 2002 (the “Effective Date”). During
his employment with the Company, Executive will devote his best efforts and
substantially all of his business time and attention (except for vacation
periods and reasonable periods of illness or other incapacity permitted by the
Company’s general employment policies) to the business of the Company.

 

1.2          Executive Position. Executive
will serve in an executive capacity and shall perform the duties of the CSO as
required by the Board of Directors of the Company (the “Board”). The
Executive shall report directly to the Board.

 

1.3          Company Employment
Policies. The employment relationship between the parties shall be governed
by the general employment policies and procedures of the Company, including
those relating to the protection of confidential information and assignment of
inventions, except that when the terms of this Agreement differ from or are in
conflict with the Company’s general employment policies or procedures, this
Agreement shall control.

 

2.                                      COMPENSATION.

 

2.1          Salary. Executive
shall receive for services to be rendered hereunder a base salary at an
annualized rate of $200,000, payable on a  monthly basis.
Executive will be considered for annual increases in base salary in accordance
with Company policy and subject to review and approval by the Compensation
Committee of the Board (the “Compensation Committee”).

 

2.2          Annual Target Bonus.
Executive shall also be eligible to earn an annual target bonus of up to
$50,000 (the “Bonus”).
The Bonus, if awarded, shall be subject to applicable payroll withholdings and
employment taxes. Payment of any such bonus shall be conditioned on the
successful completion of specific business objectives to be mutually determined
by you and the Board (including, but not limited to, any additional key
management hires and specific business development plans)

 

2.3          Stock Option. The
Board has approved granting to Executive an option to purchase 300,000 shares
of the common stock of the Company (the “Option”), effective upon the closing (the “Closing”) of the
Company’s Series C Preferred Stock financing. The Options shall vest
one-forty-eighth (1/48th) per month of Executive’s service to the
Company commencing on the date of the Closing. The Options shall be governed by
the terms and conditions of the Company’s stock option plan, and a stock option
grant notice and stock option agreement to be issued to you.

 

2.4          Standard Company
Benefits. Executive shall be entitled to all rights and benefits for which
he is eligible under the terms and conditions of the standard Company benefits
and compensation plans which may be in effect from time to time and provided by
the Company to its executives.

 

3.                                      CONFIDENTIAL
INFORMATION, RIGHTS AND DUTIES.

 

3.1          Agreement.

 

(a)           Confidential
Information. Executive shall be required as a condition of employment to
sign and abide by the Company’s Employee Proprietary Information and Inventions
Agreement (the “Confidentiality
Agreement”) (attached hereto as Exhibit A).

 

(b)           Exclusive Property.
Executive agrees that all Company-related business procured by the Executive,
and all Company-related business opportunities and plans made known to
Executive, while employed by the Company are and shall remain the permanent and
exclusive property of the Company.

 

4.                                      OUTSIDE
ACTIVITIES.

 

4.1          Activities. Except
with the prior written consent of the Board, Executive will not during his
employment with the Company undertake or engage in any other employment,
occupation or business enterprise, other than ones in which Executive is a
passive investor. Executive may engage in civic and not-for-profit activities
so long as such activities do not materially interfere with the performance of
his duties hereunder. Subject to the limitations of Sections 4.2 and 4.3 of
this Agreement and with the prior written consent of the Board, Executive may
serve as a director of other corporations and may devote a reasonable amount of
his time to other types of business or public activities not expressly
mentioned in this paragraph. The Board may rescind its consent to Executive’s
service as a director of other corporations or participation in other business
or

 

2

 

public activities if the Board, in its sole
discretion, determines that such activities materially compromise or threaten
to materially compromise the Company’s business interests.

 

4.2          Investments and
Interests. Executive agrees not to acquire, assume or participate in,
directly or indirectly, any position, investment or interest known by him to be
adverse or antagonistic to the Company, its business or prospects, financial or
otherwise.

 

4.3          Non-Competition. During
his employment by the Company, except on behalf of the Company, Executive will
not directly or indirectly, whether as an officer, director, stockholder,
partner, proprietor, associate, representative, consultant, or in any capacity
whatsoever engage in, become financially interested in, be employed by or have
any business connection with any other person, corporation, firm, partnership
or other entity whatsoever known by him to compete directly with the Company,
anywhere in the world, in any line of business engaged in (or planned to be
engaged in) by the Company; provided, however, that the Executive may purchase
or otherwise acquire up to (but not more than) one percent (1%) of any class of
securities of any enterprise (but without participating in the activities of
such enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

5.                                      TERMINATION
OF EMPLOYMENT.

 

5.1          Termination With or
Without Cause.

 

(a)           At-Will
Employment. Executive’s relationship with the Company is at-will. The Company
shall have the right to terminate Executive’s employment with the Company at
any time with or without Cause (as defined below), and with or without notice. Executive
may be removed from any position he holds in the manner specified by the Bylaws
of the Company and applicable law.

(i)            Definition of Cause. For
purposes of this Agreement, “Cause” shall mean that Executive has committed, or there
has occurred, one or more of the following: 
(a) conviction of, a guilty plea with respect to, or a plea of nolo  contendere to a
charge that the Executive has committed a felony under the laws of the United
States or of any state of a crime involving moral turpitude, including, but not
limited to, fraud, theft, embezzlement or any crime that results in or is intended
to result in personal enrichment at the expense of the Company; (b) material
breach of any agreement entered into between the Executive and the Company that
impairs the Company’s interest therein; (c) willful misconduct, or gross
neglect by the Executive of Executive’s duties, if such conduct is not cured
within seven (7) days of Executive’s receipt of written notice (provided that
such conduct can reasonably be cured); (d) an unauthorized use or disclosure of
the Company’s confidential information or trade secrets or (e) engagement in
any activity that constitutes a material conflict of interest with the Company.
Executive’s death

 

3

 

or physical or mental disability (as defined below)
shall also constitute Cause for termination under this Agreement.

 

(ii)           Definition of
Disability. For purposes of this Agreement, Cause to terminate Executive’s
employment based on the Executive’s physical or mental disability shall exist
if any illness, disability or other incapacity renders the Executive physically
or mentally unable regularly to perform his duties hereunder for a period in
excess of sixty (60) consecutive days or more than ninety (90) days in any
consecutive twelve (12) month period. The Board shall make a good faith
determination of whether Executive is physically or mentally unable to
regularly perform his duties, subject to its review and consideration of any
physical and/or mental health information provided to it by Executive.

 

(b)           Termination for Cause.
If the Company terminates Executive’s employment at any time for Cause,
Executive’s salary shall cease on the date of termination, and Executive will
not be entitled to severance pay, pay in lieu of notice or any other such
compensation, other than payment of accrued salary and such other benefits as
expressly required in such event by applicable law or the terms of any
applicable Company benefit plans. The Option and any other stock awards held by
Executive shall cease vesting as of the date of termination, subject to Section
5.1(c) hereof, and shall be exercisable thereafter only pursuant to the terms
of the applicable stock option plans and agreements.

 

(c)           Termination Without
Cause. If the Company terminates Executive’s employment at any time without
Cause, (i) the Company shall make a lump sum severance payment to Executive in
an amount equal to six (6) months of Executive’s then-current base salary,
subject to withholdings and deductions, (ii) if you timely elect COBRA health
insurance coverage, the Company will reimburse your COBRA premiums for a
maximum of either six (6) months following the date your employment terminates
or until you secure health insurance coverage from another source, whichever
occurs sooner, and (iii) the vesting of the Option shall immediately accelerate
with respect to the number of shares that would otherwise vest if the Executive
was to remain employed by the Company over the six (6) month period following
the date of such termination. Executive shall not be entitled to this severance
pay and Option acceleration unless and until the release requirements set forth
in Section 8 of this Agreement are satisfied.

 

5.2          Resignation With or
Without Good Reason.

 

(a)           Executive’s Resignation.
Executive may resign from his employment with the Company at any time, with
or without notice, and with or without Good Reason (as defined below).

 

(b)           Executive’s Resignation
Without Good Reason. In the event that Executive resigns his employment
without Good Reason, Executive will not be entitled to severance pay, pay in
lieu of notice or any other such compensation other than payment of accrued
salary and such other benefits as expressly required in such event by

 

4

 

applicable law or the terms of any applicable Company
benefit plans. All stock options and any other stock awards held by Executive
shall cease vesting as of the date Executive’s resignation, other than for Good
Reason, becomes effective and shall be exercisable thereafter only pursuant to
the terms of the applicable stock option plans and agreements.

 

(c)           Executive’s Resignation
for Good Reason. Executive may resign his employment for Good Reason (as
defined below) so long as Executive tenders his resignation to the Company
within thirty (30) days after the occurrence of the event which forms the basis
for his resignation for Good Reason. In the event that Executive resigns his
employment for Good Reason, (i) the Company shall make a lump sum severance
payment to Executive in an amount equal to six (6) months of the Executive’s
then current base salary, subject to applicable withholdings and deductions,
(ii) if you timely elect COBRA health insurance coverage, the Company will
reimburse your COBRA premiums for a maximum of either six (6) months following
the date your employment terminates or until you secure health insurance
coverage from another source, whichever occurs sooner, and (iii) the vesting of
the Option shall immediately accelerate with respect to the number of shares
that would otherwise vest if the Executive was to remain employed by the
Company over the six (6) month period following the date of such termination. Executive
shall not be entitled to any of this severance pay unless and until the release
requirements set forth in Section 8 of this Agreement are satisfied.

 

(d)           Definition of Good
Reason. For purposes of this Agreement, “Good Reason” shall mean any one of the
following events which occurs on or after the commencement of Executive’s
employment without Executive’s consent: 
(i) any reduction of Executive’s then current annual base salary, except
to the extent that the annual base salary of all other officers of the Company
is similarly reduced; (ii) any material reduction in Executive’s benefits,
except to the extent that such benefits of all other officers of the Company
are similarly reduced; (iii) any material diminution of the Executive’s duties,
responsibilities, or authority, excluding for this purpose an isolated or
inadvertent action not taken in bad faith which is remedied by the Company
immediately after notice thereof is given by the Executive; (iv) any
requirement that the Executive relocate to a work site that would increase the
Executive’s one-way commute distance to more than thirty-five (35) miles from
the Company’s current headquarters; or (v) any material breach by the Company
of its obligations under this Agreement that is not remedied by Company within
thirty (30) days of written notice of such breach from Executive.

 

5.3          Cessation of Severance
Benefits. If Executive violates any provision of Sections 3, 7 or 8 of this
Agreement, any severance payments or other benefits being provided to Executive
will cease immediately, and Executive will not be entitled to any further
compensation and benefits from the Company.

 

6.             CHANGE OF CONTROL.

 

6.1          Definition. For
purposes of this Agreement, Change of Control means the occurrence of any of
the following:  (i) a sale, lease, or
other disposition of all or

 

5

 

substantially all of the assets of the Company; (ii) a
merger or consolidation in which the Company is not the surviving corporation;
(iii) a reverse merger involving the Company in which the Company is the
surviving corporation but the shares of common stock of the Company (the “Common Stock”)
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise; (iv) an acquisition by any person, entity or group within the meaning
of Section 13(d) or 14(d) of the Exchange Act or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act,
or comparable successor rules) of securities of the Company representing at
least fifty percent (50%) of the combined voting power entitled to vote in the
election of directors; or, (v) in the event that the individuals who, as of the
Effective Date, are members of the Board (the “Incumbent Board”), cease for any reason
to constitute at least fifty percent (50%) of the Company’s Board of Directors.
(If the election, or nomination for election by the Company’s shareholders, of
any new member of the Company’s Board of Directors is approved by a vote of at
least fifty percent (50%) of the Incumbent Board, such new member of the Board
of Directors shall be considered as a member of the Incumbent Board.)  Notwithstanding the foregoing, for the
purposes of this Agreement and with respect to any and all clauses of this
Section of this Agreement, an initial public offering of the securities of the
Company (an “IPO”)
or any transactions or events constituting part of an IPO, or any transaction
or series of transactions principally for bona fide equity financing purposes
in which cash is received by the Company or indebtedness of the Company is
cancelled or converted or a combination thereof shall not be deemed to
constitute or in any way effect a Change of Control.

 

6.2          Change of
Control Termination. In the event Executive’s employment with the Company
is involuntarily terminated without Cause by the Company or its successor, or
Executive resigns for Good Reason, and such termination or resignation occurs
within thirteen (13) months following a Change of Control, Executive shall be
entitled to:  (a) the benefits set forth
in either 5.1(c) or 5.2(c), as applicable; (b) the vesting of the Standard
Option shall be accelerated such that the Standard Option shall become fully
vested; and (c) to the extent that Executive was serving as the Chief Executive
Officer immediately prior to the Change in Control, the Special Option shall be
accelerated such that the Special Option shall become fully vested. Executive’s
receipt of the severance payment and accelerated vesting of the Options
provided in this Section 6.2 shall be conditioned on Executive’s full
compliance with the release requirements set forth in Section 8 of this
Agreement.

 

7.             NONSOLICITATION. In
the event Executive’s employment with the Company is terminated by the Company
or the Executive, with or without Cause or Good Reason, then for two (2) years
immediately following the termination date, Executive shall not, without first
obtaining the prior written approval of the Company directly or indirectly
solicit, induce, persuade or entice, or attempt to do so, or otherwise cause,
or attempt to cause, any employee or independent contractor of the Company to
terminate his or her

 

6

 

employment or contracting relationship in order to
become an employee, or independent contractor to or for any person or entity.

 

8.             RELEASE. As a
condition of receiving the severance benefits under this Agreement to which
Executive would not otherwise be entitled, Executive shall execute a release in
the form attached hereto as Exhibit B (the “Release”). Unless the
Release is executed by Executive and delivered to the Company within twenty-one
(21) days after the termination of Executive’s employment with the Company,
Executive shall not receive any severance benefits (including severance
payments and Option acceleration) provided for under this Agreement.

 

9.             GENERAL PROVISIONS.

 

9.1          Notices. Any notices
provided hereunder must be in writing and shall be deemed effective upon the
earlier of personal delivery (including, personal delivery by facsimile
transmission), delivery by express delivery service (e.g. Federal Express), or
the third day after mailing by first class mail, to the Company at its primary
office location and to Executive at his address as listed on the Company
payroll (which address may be changed by written notice).

 

9.2          Severability. Whenever
possible, each provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
and such invalid, illegal or unenforceable provision will be reformed,
construed and enforced in such jurisdiction so as to render it valid, legal,
and enforceable consistent with the intent of the parties insofar as possible.

 

9.3          Waiver. If either
party should waive any breach of any provisions of this Agreement, he or it
shall not thereby be deemed to have waived any preceding or succeeding breach
of the same or any other provision of this Agreement.

 

9.4          Entire Agreement. This
Agreement, including all Exhibits hereto, constitutes the entire agreement
between Executive and the Company regarding the subject matter hereof and it
supersedes any prior agreement, promise, representation, written or otherwise,
between Executive and the Company with regard to this subject matter. It is
entered into without reliance on any agreement, or promise, or representation,
other than those expressly contained or incorporated herein, and it cannot be
modified or amended except in a writing signed by Executive and a duly
authorized officer of the Company.

 

9.5          Counterparts. This
Agreement may be executed in separate counterparts, any one of which need not
contain signatures of more than one party, but all of which taken together will
constitute one and the same Agreement. Signatures transmitted via facsimile
shall be deemed the equivalent of originals.

 

7

 

9.6          Headings and
Construction. The headings of the sections hereof are inserted for
convenience only and shall not be deemed to constitute a part hereof or to
affect the meaning thereof. For purposes of construction of this Agreement, any
ambiguities shall not be construed against either party as the drafter.

 

9.7          Successors and Assigns. This
Agreement is intended to bind and inure to the benefit of and be enforceable by
Executive, the Company and their respective successors, assigns, heirs,
executors and administrators, except that Executive may not assign any of his
duties hereunder and he may not assign any of his rights hereunder without the
written consent of the Company.

 

9.8          Attorney Fees. If
either party hereto brings any action to enforce his or its rights hereunder,
the prevailing party in any such action shall be entitled to recover his or its
reasonable attorneys’ fees and costs incurred in connection with such action.

 

9.9          Arbitration. To
provide a mechanism for rapid and economical dispute resolution, Executive and
the Company agree that any and all disputes, claims, or causes of action, in
law or equity, arising from or relating to this Agreement (including the
Release) or its enforcement, performance, breach, or interpretation, or to
Executive’s employment with the Company or the termination of Executive’s
employment with the Company, will be resolved, to the fullest extent permitted
by law, by final, binding, and confidential arbitration held in Santa Clara
County, California and conducted by Judicial Arbitration & Mediation
Services (“JAMS”),
under its then-existing Rules and Procedures. Executive understands and agrees
that under this Section 9.9 of the Agreement, Executive is waiving his right to
a jury trial and his right to file any administrative agency charge with regard
to any such disputes, claims or causes of action, including, but not limited
to, all federal and state statutory and common law claims, claims related to
Executive’s employment with the Company or to the termination of that
employment, claims related to any breach of contract, tort, wrongful
termination, discrimination, wages or benefits, or claims for any form of
equity or compensation. Notwithstanding the provisions of this Section 9.9, any
and all disputes, claims or causes of action, in law or in equity, arising from
or relating to the Confidentiality Agreement will not be subject to mandatory
arbitration, but may be resolved in the courts of the State of California as
set forth in Section 10 of the Confidentiality Agreement. Nothing in this
Section 9.9 of this Agreement is intended to prevent either the Executive or
the Company from obtaining injunctive relief in court to prevent irreparable
harm pending the conclusion of any such arbitration.

 

9.10        Governing Law. All
questions concerning the construction, validity and interpretation of this
Agreement shall be governed by the law of the State of California as applied to
contracts made and to be performed entirely within California.

 

9.11        Exhibits.

 

Exhibit A – Proprietary Information and Inventions
Agreement

 

8

 

IN WITNESS WHEREOF,
the parties have executed this EMPLOYMENT
AGREEMENT effective as of the Effective Date above written.

 

ARYX
THERAPEUTICS, INC.

 

	
  By:

  	
  /s/ Peter G. Milner

  	
   

  
	
   

  	
  Peter G. Milner

  	
   

  
	
   

  	
  President and Chief Executive
  Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PASCAL
  DRUZGALA

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Pascal
  Druzgala

  	
   

  

 

EXHIBIT A

 

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

 

ARYX THERAPEUTICS

 

EMPLOYEE PROPRIETARY INFORMATION

AND INVENTIONS AGREEMENT

 

In consideration
of my employment or continued employment by ARYX
THERAPEUTICS (the “Company”), and
the compensation now and hereafter paid to me, I hereby agree as follows:

 

1.             NONDISCLOSURE

 

1.1          Recognition of Company’s
Rights; Nondisclosure. At all times during my employment and thereafter, I
will hold in strictest confidence and will not disclose, use, lecture upon or
publish any of the Company’s Proprietary Information (defined below), except as
such disclosure, use or publication may be required in connection with my work
for the Company, or unless an officer of the Company expressly authorizes such
in writing. I will obtain Company’s written approval before publishing or
submitting for publication any material (written, verbal, or otherwise) that
relates to my work at Company and/or incorporates any Proprietary Information. I
hereby assign to the Company any rights I may have or acquire in such
Proprietary Information and recognize that all Proprietary Information shall be
the sole property of the Company and its assigns.

 

1.2          Proprietary Information.
The term “Proprietary Information” shall
mean any and all confidential and/or proprietary knowledge, data or information
of the Company. By way of illustration but not limitation, “Proprietary
Information” includes (a) information relating to products,
processes, know-how, designs, drawings, clinical data, test data, formulas,
methods, samples, media and/or cell lines, developmental or experimental work,
improvements, discoveries, plans for research, new products, manufacturing,
marketing and selling, business plans, budgets and unpublished financial
statements, licenses, prices and costs, suppliers and customers, and
information regarding the skills and compensation of other employees of the
Company. (hereinafter collectively referred to as “Inventions”);
and (b) information regarding plans for research, development, new
products, marketing and selling, business plans, budgets and unpublished
financial statements, licenses, prices and costs, suppliers and customers; and
(c) information regarding the skills and compensation of other employees of the
Company. Notwithstanding the foregoing, it is understood that, at all such
times, I am free to use information which is generally known in the trade or
industry, which is not gained as result of a breach of this Agreement, and my
own skill, knowledge, know-how and experience to whatever extent and in
whichever way I wish.

 

1.3          Third Party Information.
I understand, in addition, that the Company has received and in the future
will receive from third parties confidential or proprietary information (“Third Party Information”) subject to a duty on the Company’s
part to maintain the confidentiality of such information and to use it only for
certain limited purposes. During the term of my employment and thereafter, I
will hold Third Party Information in the strictest confidence and will not
disclose to anyone (other than Company personnel who need to know such
information in connection with their work for the Company) or use, except in
connection with my work for the Company, Third Party Information unless
expressly authorized by an officer of the Company in writing.

 

1.4          No Improper Use of
Information of Prior Employers and Others. During my employment by the
Company I will not improperly use or disclose any confidential information or
trade secrets, if any, of any former employer or any other person to whom I
have an obligation of confidentiality, and I will not bring onto the premises
of the Company any unpublished documents or any property belonging to any
former employer or any other person to whom I have an obligation of
confidentiality unless consented to in writing by that former employer or
person. I will use in the performance of my duties only information which is
generally known and used by persons with training and experience comparable to
my own, which is common knowledge in the industry or otherwise legally in the
public domain, or which is otherwise provided or developed by the Company.

 

2.             ASSIGNMENT OF
INVENTIONS.

 

2.1          Proprietary Rights. The
term “Proprietary Rights” shall mean all
trade secret,

 

1

 

patent, copyright, mask
work and other intellectual property rights throughout the world.

 

2.2          Prior Inventions. Inventions,
if any, patented or unpatented, which I made prior to the commencement of my
employment with the Company are excluded from the scope of this Agreement. To
preclude any possible uncertainty, I have set forth on Exhibit B
(Previous Inventions) attached hereto a complete list of all
Inventions that I have, alone or jointly with others, conceived, developed or
reduced to practice or caused to be conceived, developed or reduced to practice
prior to the commencement of my employment with the Company, that I consider to
be my property or the property of third parties and that I wish to have
excluded from the scope of this Agreement (collectively referred to as “Prior Inventions”). If disclosure of any such Prior
Invention would cause me to violate any prior confidentiality agreement, I
understand that I am not to list such Prior Inventions in Exhibit B
but am only to disclose a cursory name for each such invention, a listing of
the party(ies) to whom it belongs and the fact that full disclosure as to such
inventions has not been made for that reason. A space is provided on Exhibit B for such purpose. If no such disclosure is
attached, I represent that there are no Prior Inventions. If, in the course of
my employment with the Company, I incorporate a Prior Invention into a Company
product, process or machine, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with
rights to sublicense through multiple tiers of sublicensees) to make, have
made, modify, use and sell such Prior Invention. Notwithstanding the foregoing,
I agree that I will not incorporate, or permit to be incorporated, Prior
Inventions in any Company Inventions without the Company’s prior written
consent.

 

2.3          Assignment of Inventions.
Subject to Sections 2.4, and 2.6, I hereby assign and agree to assign in
the future (when any such Inventions or Proprietary Rights are first reduced to
practice or first fixed in a tangible medium, as applicable) to the Company all
my right, title and interest in and to any and all Inventions (and all
Proprietary Rights with respect thereto) whether or not patentable or
registrable under copyright or similar statutes, made or conceived or reduced
to practice or learned by me, either alone or jointly with others, during the
period of my employment with the Company. Inventions assigned to the Company,
or to a third party as directed by the Company pursuant to this Section 2,
are hereinafter referred to as “Company Inventions.”
For the purpose of this agreement, the term “Field” shall be construed to cover
all Inventions relating to the research and development of soft drug technology
pursued now or in the future by the Company, including but not limited to the
synthesis of soft drugs and soft drug analogs.

 

2.4          Nonassignable Inventions.
This Agreement does not apply to an Invention which qualifies fully as a
nonassignable Invention under Section 2870 of the California Labor Code
(hereinafter “Section 2870”). I have
reviewed the notification on Exhibit A
(Limited Exclusion Notification) and agree that my signature acknowledges
receipt of the notification.

 

2.5          Obligation to Keep
Company Informed. During the period of my employment and for six (6) months
after termination of my employment with the Company, I will promptly disclose
to the Company fully and in writing all Inventions authored, conceived or
reduced to practice by me, either alone or jointly with others. In addition, I
will promptly disclose to the Company all patent applications filed by me or on
my behalf within a year after termination of employment. At the time of each
such disclosure, I will advise the Company in writing of any Inventions that I
believe fully qualify for protection under Section 2870; and I will at
that time provide to the Company in writing all evidence necessary to
substantiate that belief. The Company will keep in confidence and will not use
for any purpose or disclose to third parties without my consent any
confidential information disclosed in writing to the Company pursuant to this
Agreement relating to Inventions that qualify fully for protection under the
provisions of Section 2870. I will preserve the confidentiality of any
Invention that does not fully qualify for protection under Section 2870.

 

2.6          Government or Third Party.
I also agree to assign all my right, title and interest in and to any
particular Company Invention to a third party, including without limitation the
United States, as directed by the Company.

 

2.7          Works for Hire. I
acknowledge that all original works of authorship which are made by me (solely
or jointly with others) within the scope of my employment and which are
protectable by copyright are “works made for hire,” pursuant to United States
Copyright Act (17 U.S.C., Section 101).

 

2.8          Enforcement of Proprietary
Rights. I will assist the Company in every proper

 

2

 

end I will execute,
verify and deliver such documents and perform such other acts (including
appearances as a witness) as the Company may reasonably request for use in
applying for, obtaining, perfecting, evidencing, sustaining and enforcing such
Proprietary Rights and the assignment thereof. In addition, I will execute,
verify and deliver assignments of such Proprietary Rights to the Company or its
designee. My obligation to assist the Company with respect to Proprietary
Rights relating to such Company Inventions in any and all countries shall
continue beyond the termination of my employment, but the Company shall
compensate me at a reasonable rate after my termination for the time actually
spent by me at the Company’s request on such assistance.

 

In the event the
Company is unable for any reason, after reasonable effort, to secure my
signature on any document needed in connection with the actions specified in
the preceding paragraph, I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents as my agent and attorney in fact,
which appointment is coupled with an interest, to act for and in my behalf to
execute, verify and file any such documents and to do all other lawfully
permitted acts to further the purposes of the preceding paragraph with the same
legal force and effect as if executed by me. I hereby waive and quitclaim to
the Company any and all claims, of any nature whatsoever, which I now or may
hereafter have for infringement of any Proprietary Rights assigned hereunder to
the Company.

 

3.             RECORDS. I agree
to keep and maintain adequate and current records (in the form of notes,
sketches, drawings and in any other form that may be required by the Company)
of all Proprietary Information developed by me and all Inventions made by me
during the period of my employment at the Company, which records shall be
available to and remain the sole property of the Company at all times.

 

4.             ADDITIONAL ACTIVITIES.
I agree that during the period of my employment by the Company I will not,
without the Company’s express written consent, engage in any employment or
business activity which is competitive with, or would otherwise conflict with,
my employment by the Company. I agree further that for the period of my
employment by the Company and for one (l) year after the date of termination of
my employment by the Company I will not, either directly or through others,
solicit or attempt to solicit any employee, independent contractor or
consultant of the company to terminate his or her relationship with the Company
in order to become an employee, consultant or independent contractor to or for
any other person or entity.

 

5.             NO CONFLICTING
OBLIGATION. I represent that my performance of all the terms of this
Agreement and as an employee of the Company does not and will not breach any
agreement to keep in confidence information acquired by me in confidence or in
trust prior to my employment by the Company. I have not entered into, and I
agree I will not enter into, any agreement either written or oral in conflict
herewith.

 

6.             RETURN OF COMPANY
DOCUMENTS. When I leave the employ of the Company, I will deliver to the
Company any and all drawings, notes, memoranda, specifications, devices,
formulas, and documents, together with all copies thereof, and any other
material containing or disclosing any Company Inventions, Third Party
Information or Proprietary Information of the Company. I further agree that any
property situated on the Company’s premises and owned by the Company, including
disks and other storage media, filing cabinets or other work areas, is subject
to inspection by Company personnel at any time with or without notice. Prior to
leaving, I will cooperate with the Company in completing and signing the
Company’s termination statement.

 

7.             LEGAL AND EQUITABLE
REMEDIES. Because my services are personal and unique and because I may
have access to and become acquainted with the Proprietary Information of the
Company, the Company shall have the right to enforce this Agreement and any of
its provisions by injunction, specific performance or other equitable relief,
without bond and without prejudice to any other rights and remedies that the
Company may have for a breach of this Agreement.

 

8.             NOTICES. Any
notices required or permitted hereunder shall be given to the appropriate party
at the address specified below or at such other address as the party shall
specify in writing. Such notice shall be deemed given upon personal delivery to
the appropriate address or if sent by certified or registered mail, three (3)
days after the date of mailing.

 

9.             NOTIFICATION OF NEW
EMPLOYER. In the event that I leave the employ of the Company, I hereby consent
to the notification of my new employer of my rights and obligations under this
Agreement.

 

3

 

10.          GENERAL PROVISIONS.

 

10.1        Governing Law; Consent to
Personal Jurisdiction. This Agreement will be governed by and construed
according to the laws of the State of California, as such laws are applied to
agreements entered into and to be performed entirely within California between
California residents. I hereby expressly consent to the personal jurisdiction
of the state and federal courts located in Santa Clara County, California for
any lawsuit filed there against me by Company arising from or related to this
Agreement.

 

10.2        Severability. In case
any one or more of the provisions contained in this Agreement shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect the other
provisions of this Agreement, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein. If
moreover, any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.

 

10.3        Successors and Assigns. This
Agreement will be binding upon my heirs, executors, administrators and other legal
representatives and will be for the benefit of the Company, its successors, and
its assigns.

 

10.4        Survival. The
provisions of this Agreement shall survive the termination of my employment and
the assignment of this Agreement by the Company to any successor in interest or
other assignee.

 

10.5        Employment. I agree
and understand that nothing in this Agreement shall confer any right with
respect to continuation of employment by the Company, nor shall it interfere in
any way with my right or the Company’s right to terminate my employment at any
time, with or without cause.

 

10.6        Waiver. No waiver by
the Company of any breach of this Agreement shall be a waiver of any preceding
or succeeding breach. No waiver by the Company of any right under this
Agreement shall be construed as a waiver of any other right. The Company shall
not be required to give notice to enforce strict adherence to all terms of this
Agreement.

 

10.7        Entire Agreement. The
obligations pursuant to Sections 1 and 2 of this Agreement shall apply to any
time during which I was previously employed, or am in the future employed, by
the Company as a consultant if no other agreement governs nondisclosure and
assignment of inventions during such period. This Agreement is the final,
complete and exclusive agreement of the parties with respect to the subject
matter hereof and supersedes and merges all prior discussions between us. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, will be effective unless in writing and signed by the
party to be charged. Any subsequent change or changes in my duties, salary or
compensation will not affect the validity or scope of this Agreement.

 

This
Agreement shall be effective as of the first day of my employment with the Company,
namely:  01/01, 2000.

 

I HAVE
READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS. I HAVE COMPLETELY
FILLED OUT EXHIBIT B TO THIS AGREEMENT.

 

	
  Dated:

  	
  3/12/2000

  	
   

  
	
   

  
	
   

  
	
  /s/ Pascal Druzgala

  	
   

  
	
  (Signature)

  
	
   

  
	
  PASCAL DRUZGALA

  	
   

  
	
  (Printed
  Name)

  
	
   

  
	
   

  
	
  ACCEPTED
  AND AGREED TO:

  
	
   

  
	
  ARYX
  THERAPEUTICS

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  	
   

  
	
  (Address)

  
	
   

  
	
   

  	
   

  
	
   

  
	
  Dated:

  	
   

  	
   

  
								

 

4

 

EXHIBIT A

 

LIMITED EXCLUSION NOTIFICATION

 

THIS IS
TO NOTIFY you in accordance with Section 2872 of the
California Labor Code that the foregoing Agreement between you and the Company
does not require you to assign or offer to assign to the Company any invention
that you developed entirely on your own time without using the Company’s
equipment, supplies, facilities or trade secret information except for those
inventions that either:

 

1.             Relate at the
time of conception or reduction to practice of the invention to the Company’s
business, or actual or demonstrably anticipated research or development of the
Company;

 

2.             Result from any
work performed by you for the Company.

 

To the
extent a provision in the foregoing Agreement purports to require you to assign
an invention otherwise excluded from the preceding paragraph, the provision is
against the public policy of this state and is unenforceable.

 

This
limited exclusion does not apply to any patent or invention covered by a
contract between the Company and the United States or any of its agencies
requiring full title to such patent or invention to be in the United States.

 

I
ACKNOWLEDGE RECEIPT of a copy of this notification.

 

	
   

  	
  By:

  	
  /s/ Pascal Druzgala

  
	
   

  	
  (PRINTED NAME OF EMPLOYEE)

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  03/12/2000

  
	
  WITNESSED
  BY:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  (PRINTED
  NAME OF REPRESENTATIVE)

  	
   

  	
   

  
				

 

A-1

 

EXHIBIT B

 

	
  TO:

  	
   

  	
  ARYx
  Therapeutics

  
	
   

  	
   

  	
   

  
	
  FROM:

  	
   

  	
  P.
  DRUZGALA

  	
   

  
	
   

  	
   

  	
   

  
	
  DATE:

  	
   

  	
  03/12/2000

  	
   

  
	
   

  	
   

  	
   

  
	
  SUBJECT:

  	
   

  	
  Previous
  Inventions

  

 

1.          Except as listed in Section 2 below,
the following is a complete list of all inventions or improvements relevant to
the subject matter of my employment by ARYx Therapeutics (the “Company”) that have been made or conceived or first reduced
to practice by me alone or jointly with others prior to my engagement by the
Company:

 

	
   

  	
  x

  	
  No inventions or
  improvements.

  
	
   

  	
   

  	
   

  
	
   

  	
  o

  	
  See below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  o

  	
  Additional
  sheets attached.

  

 

2.        Due to a prior confidentiality
agreement, I cannot complete the disclosure under Section 1 above with
respect to inventions or improvements generally listed below, the proprietary
rights and duty of confidentiality with respect to which I owe to the following
party(ies):

 

	
   

  	
  Invention or Improvement

  	
   

  	
  Party(ies)

  	
   

  	
  Relationship

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

o                             Additional
sheets attached.

 

 

EXHIBIT B

 

RELEASE AGREEMENT

 

I understand that my
position with ARYX THERAPEUTICS, INC.
(the “Company”)
terminated effective
           ,
      (the “Separation Date”). The Company has agreed
that if I choose to sign this Release, the Company will pay me certain
severance benefits (minus the standard withholdings and deductions) pursuant to
the terms of the Employment Agreement (the “Agreement”) entered into as of July 23,
2002, between myself and the Company, and any agreements incorporated therein
by reference. I understand that I am not entitled to such severance benefits
unless I sign this Release. I understand that, regardless of whether I sign
this Release, the Company will pay me all of my accrued salary and vacation
through the Separation Date, to which I am entitled by law.

 

In consideration for the
severance benefits I am receiving under the Agreement, I hereby release the
Company and its officers, directors, agents, attorneys, employees,
shareholders, parents, subsidiaries, and affiliates from any and all claims,
liabilities, demands, causes of action, attorneys’ fees, damages, or
obligations of every kind and nature, whether they are now known or unknown,
arising at any time prior to the date I sign this Release. This general release
includes, but is not limited to:  all
federal and state statutory and common law claims, claims related to my
employment or the termination of my employment or related to breach of
contract, tort, wrongful termination, discrimination, wages or benefits, or
claims for any form of equity or compensation. Notwithstanding the release in
the preceding sentence, I am not releasing any right of indemnification I may
have for any liabilities arising from my actions within the course and scope of
my employment with the Company or within the course and scope of my role as a
member of the Board of Directors of the Company.

 

In releasing claims
unknown to me at present, I am waiving all rights and benefits under Section
1542 of the California Civil Code, and any law or legal principle of similar
effect in any jurisdiction:  “A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.”

 

If I am forty (40) years
of age or older as of the Separation Date, I acknowledge that I am knowingly
and voluntarily waiving and releasing any rights I may have under the federal
Age Discrimination in Employment Act of 1967, as amended (“ADEA”). I also
acknowledge that the consideration given for the waiver in the above paragraph
is in addition to anything of value to which I was already entitled. I have
been advised by this writing, as required by the ADEA that:  (a) my waiver and release do not apply to any
claims that may arise after my signing of this Release; (b) I should consult
with an attorney prior to executing this Release; (c) I have twenty-one (21)
days within which to consider this Release (although I may choose to
voluntarily execute this Release earlier); (d) I have seven (7) days following
the execution of this release to revoke the Release; and (e) this Release will
not be effective until the eighth day after this Release has been signed both
by me and by the Company (“Effective
Date”).

 

Agreed:

 

	
  PASCAL
  DRUZGALA

  	
   

  	
  ARYX
  THERAPEUTICS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Print Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
   

  	
  Date:

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