EXHIBIT 10.31

 

ARYX THERAPEUTICS, INC.

 

EXECUTIVE SEVERANCE BENEFIT PLAN

 

Section 1.                                         INTRODUCTION.

 

The ARYx Therapeutics, Inc. Executive Severance Benefit Plan (the “Plan”) is
hereby established effective May 20, 2009.  The purpose of the Plan is to
provide for the payment of severance benefits to certain executive employees of
ARYx Therapeutics, Inc. (the “Company”) upon the termination of their employment
under specified circumstances.  This Plan shall supersede any executive
severance benefit agreement, plan, policy or practice previously maintained or
entered into by the Company for or with any Eligible Employee (as defined in
Section 2(a)(1) below).  This Plan document is also the Summary Plan Description
for the Plan.

 

Section 2.                                         ELIGIBILITY FOR BENEFITS.

 

(a)                                General Rules.  Subject to the requirements
set forth herein, the Company will grant severance benefits under the Plan to
Eligible Employees.

 

(1)                                 Definition of “Eligible Employee.”  For
purposes of this Plan, Eligible Employees shall be those employees of the
Company who are approved for participation in the Plan by the Company’s Board of
Directors (the “Board”) as listed in APPENDIX A hereto and who sign and return a
Participation Agreement in the form attached hereto as APPENDIX B within thirty
(30) days following his or her notification of selection for participation in
the Plan.  The determination of whether an employee is an Eligible Employee
shall be made by the Board, in its sole discretion, and such determination shall
be binding and conclusive on all persons.  If an employee who is deemed an
Eligible Employee by the Board has an individually negotiated employment
agreement with the Company relating to severance benefits that is in effect on
his or her termination date, the provisions of that agreement relating to
severance benefits shall be superseded by the terms of this Plan; provided,
however, that all other remaining provisions of that agreement shall remain in
effect.

 

(2)                                 Release of Claims.  To be eligible to
receive benefits under the Plan, an Eligible Employee must execute a general
waiver and release in substantially the form attached hereto as EXHIBIT A,
EXHIBIT B or EXHIBIT C, as appropriate, within the time provided therein, and
such release must become effective in accordance with its terms, but in all
cases the release must become effective within 60 days following the date of the
Eligible Employee’s “separation from service” (as defined under Treasury
Regulation Section 1.409A-1(h)).  The Company, in its sole discretion, may
modify the form of the required release to comply with applicable law and shall
determine the form of the required release, which may be incorporated into a
termination agreement or other agreement with the Eligible Employee.  Such
release shall include non-competition and non-solicitation provisions as deemed
appropriate by the Company in its sole discretion, in accordance with applicable
law.

 

(3)                                 Return of Property.  To be eligible to
receive benefits under the Plan, an Eligible Employee must return all Company
property which he or she has had in his or her possession at any time, including
but not limited to any materials which contain or embody any proprietary or
confidential information of the Company and any computers, mobile telephones or
other physical property.

 

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(b)                                Exceptions to Benefit Entitlement.  An
employee, including an employee who otherwise is an Eligible Employee, will not
receive benefits under the Plan if the employee is terminated for Cause (as
defined herein), if the employee resigns without Good Reason (as defined
herein), or if the employee’s employment is terminated as a result of the
employee’s death or disability, in each case as determined by the Company
pursuant to Sections 3(c)(1) and 3(c)(2) below.

 

Section 3.                                         AMOUNT OF BENEFIT.

 

(a)                                Termination without Cause or Resignation for
Good Reason.  If at any time the Company terminates an Eligible Employee’s
employment without Cause (as defined herein), or the Eligible Employee resigns
for Good Reason (as defined herein), and such termination constitutes a
“separation from service” (as defined above), the Company shall provide the
Eligible Employee with the following severance benefits:

 

(1)                                 A cash severance benefit in an amount equal
to six (6) months of the Eligible Employee’s Base Salary (as defined herein),
subject to withholdings and deductions, which aggregate amount shall be paid in
a single lump sum payment.  On the first regular payroll date following the
effective date of the Eligible Employee’s release of claims, the Company will
pay the Eligible Employee this cash severance benefit;

 

(2)                                 Acceleration of the vesting of the unvested
shares of common stock held by the Eligible Employee that were issued pursuant
to his or her compensatory equity awards and the unvested shares of common stock
subject to unexercised stock options then held by the Eligible Employee such
that the shares that would have vested under such awards had the Eligible
Employee remained employed by the Company for six (6) months following the
termination of the Eligible Employee’s employment shall vest and, in the case of
options, become immediately exercisable (or, if no shares would vest during such
time under an award due to a cliff vesting provision, then the number of shares
vesting and becoming exercisable pursuant to this paragraph shall equal the
product of (i) the total number of shares subject to the award and (ii) a
fraction, the numerator of which is six (6) and the denominator of which is the
total number of months in the vesting schedule), with such vesting occurring as
of the date of the Eligible Employee’s termination (such acceleration of
vesting, the “6 Month Acceleration”); and

 

(3)                                 Provided that the Eligible Employee is
eligible to continue coverage under a health, dental, or vision plan sponsored
by the Company under the Consolidated Omnibus Budget Reconciliation Act of 1985
(“COBRA”) at the time of the Eligible Employee’s termination and timely elects
such continuation of coverage under COBRA, the Company will pay COBRA premiums
on behalf of the Eligible Employee for a period of up to six (6) months
following the Eligible Employee’s termination of employment (but in no event
longer that the date on which the Eligible Employee ceases to be eligible for
COBRA).  Upon the conclusion of such period of insurance premium payments made
by the Company, the Eligible Employee will be responsible for the entire payment
of premiums required under COBRA for the duration of the COBRA period.  No
provision of this Plan will affect the continuation coverage

 

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rules under COBRA, except that the Company’s payment of any applicable insurance
premiums will be credited as payment by the Eligible Employee for purposes of
the Eligible Employee’s payment required under COBRA.  Therefore, the period
during which an Eligible Employee may elect to continue the Company’s health,
dental, or vision plan coverage at his or her own expense under COBRA, the
length of time during which COBRA coverage will be made available to the
Eligible Employee, and all other rights and obligations of the Eligible Employee
under COBRA (except the obligation to pay insurance premiums that the Company
pays in accordance with the foregoing) will be applied in the same manner that
such rules would apply in the absence of this Plan.  For purposes of this
Section 3(a)(3), (i) references to COBRA shall be deemed to refer also to
analogous provisions of state law and (ii) any applicable insurance premiums
that are paid by the Company shall not include any amounts payable by the
Eligible Employee under an Internal Revenue Code Section 125 health care
reimbursement plan, which amounts, if any, are the sole responsibility of the
Eligible Employee.

 

(b)                                Termination without Cause or Resignation for
Good Reason Following a Change of Control.  If the Company terminates an
Eligible Employee’s employment without Cause, or the Eligible Employee resigns
for Good Reason, at any time during the period commencing on the effective date
of a Change of Control (as defined herein) and ending thirteen (13) months
following the effective date of the Change of Control, and provided such
termination constitutes a separation from service, then the Eligible Employee
shall be entitled to the benefits set forth in Section 3(a); provided, however,
that in lieu of the 6 Month Acceleration, the vesting (and, in the case of
options, exercisability) of each then-unvested equity award held by the Eligible
Employee shall be fully accelerated, such that 100% of the shares shall be
vested and exercisable effective as of the date of the Eligible Employee’s
termination of employment.

 

(c)                                Definitions.

 

(1)                                 For purposes of this Plan, “Cause” shall
mean that the Eligible Employee 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 Eligible Employee 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 Eligible Employee and the Company that impairs the Company’s
interest therein; (c) willful misconduct, or gross neglect by such Eligible
Employee of his or her duties, if such conduct is not cured within seven
(7) days of the Eligible Employee’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. 
The Eligible Employee’s death or physical or mental disability shall also
constitute Cause for termination hereunder.  Cause to terminate employment based
on the Eligible Employee’s physical or mental disability shall exist if any
illness, disability or other incapacity renders the Eligible Employee physically
or mentally unable to regularly perform his or her 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 the Eligible Employee is physically or mentally
unable to regularly perform his or her duties, subject to its review and
consideration of any physical and/or mental health information provided to it by
the Eligible Employee.

 

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(2)                                 For purposes of this Plan, “Good Reason”
shall mean the Eligible Employee’s resignation from all positions he or she
then-holds with the Company if any one of the following events occurs on or
after the commencement of the Eligible Employee’s employment without his or her
consent:  (A) (I) any material reduction of the Eligible Employee’s then current
annual base salary, except to the extent that the annual base salary of all
other officers of the Company is similarly reduced; (II) any material diminution
of the Eligible Employee’s duties, responsibilities or authority; (III) any
requirement that the Eligible Employee relocate to a work site that would
increase his or her one-way commute distance by more than thirty-five (35)
miles; or (IV) any material breach by the Company of its obligations under the
employment agreement between the Company and the Eligible Employee, (B) the
Eligible Employee provides written notice to the Company’s Chief Executive
Officer within the 90-day period immediately following such material change or
reduction, (C) such material change or reduction is not remedied by the Company
within forty-five (45) days following the Company’s receipt of such written
notice, and (D) the Eligible Employee’s resignation is effective not later than
thirty (30) days after the expiration of such cure period.

 

(3)                                 Change of Control. For purposes of the Plan,
a “Change of Control” shall have the meaning given to the term “Change in
Control” as set forth in the Company’s 2007 Equity Incentive Plan in effect on
the date hereof and as amended and/or restated from time to time.

 

(4)                                 For purposes of calculating Plan benefits,
“Base Salary” shall mean the Eligible Employee’s base pay (excluding incentive
pay, premium pay, commissions, overtime, bonuses and other forms of variable
compensation), at the rate in effect during the last regularly scheduled payroll
period immediately preceding the Eligible Employee’s termination (ignoring any
reduction in Base Salary that is the basis for the Eligible Employee’s
resignation for Good Reason, as applicable).

 

(d)                                Other Employee Benefits.  All other benefits
(such as life insurance, disability coverage, and 401(k) plan coverage)
terminate as of the Eligible Employee’s termination date (except to the extent
that a conversion privilege may be available thereunder).

 

(e)                                Certain Reductions.  The Company shall reduce
an Eligible Employee’s severance benefits, in whole or in part, by any other
severance benefits, pay in lieu of notice, or other similar benefits payable to
the Eligible Employee by the Company that become payable in connection with the
Eligible Employee’s termination of employment pursuant to (i) any applicable
legal requirement, including, without limitation, the Worker Adjustment and
Retraining Notification Act (the “WARN Act”), or (ii) any Company policy or
practice providing for the Eligible Employee to remain on the payroll for a
limited period of time after being given notice of the termination of the
Eligible Employee’s employment.  The benefits provided under this Plan are
intended to satisfy, in whole or in part, any and all statutory obligations that
may arise out of an Eligible Employee’s termination of employment, and the Plan
Administrator shall so construe and implement the terms of the Plan.  In the
Company’s sole discretion, such reductions may be applied on a retroactive
basis, with severance benefits previously paid being recharacterized as payments
pursuant to the Company’s statutory obligation.

 

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Section 4.                                         LIMITATIONS ON PAYMENTS.

 

(a)                                Taxes and Offsets.  All payments under the
Plan will be subject to applicable withholding for federal, state and local
taxes.  If an Eligible Employee is indebted to the Company at his or her
termination date, the Company reserves the right to offset any severance
payments under the Plan by the amount of such indebtedness.  In no event shall
payment of any Plan benefit be made prior to the Eligible Employee’s separation
from service or prior to the effective date of the release described in
Section 2(a)(2).

 

(b)                                Best After Tax.  If any payment or benefit
(including payments and benefits pursuant to this Agreement) that an Eligible
Employee would receive in connection with a Change of Control from the Company
or otherwise (“Payment”) would (i) constitute a “parachute payment” within the
meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”), and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then the Company shall cause to be
determined, before any amounts of the Payment are paid to the Eligible Employee,
which of the following two alternative forms of payment would maximize the
Eligible Employee’s after-tax proceeds: (i) payment in full of the entire amount
of the Payment (a “Full Payment”), or (ii) payment of only a part of the Payment
so that the Eligible Employee receives the largest payment possible without the
imposition of the Excise Tax (a “Reduced Payment”), whichever amount results in
the Participant’s receipt, on an after-tax basis, of the greater amount of the
Payment notwithstanding that all or some portion of the Payment may be subject
to the Excise Tax.  For purposes of determining whether to make a Full Payment
or a Reduced Payment, the Company shall cause to be taken into account all
applicable federal, state and local income and employment taxes and the Excise
Tax (all computed at the highest applicable marginal rate, net of the maximum
reduction in federal income taxes which could be obtained from a deduction of
such state and local taxes).  If a Reduced Payment is made, (i) the Payment
shall be paid only to the extent permitted under the Reduced Payment
alternative, and the Eligible Employee shall have no rights to any additional
payments and/or benefits constituting the Payment, and (ii) reduction in
payments and/or benefits shall occur in the following order: (1) reduction of
cash payments; (2) cancellation of accelerated vesting of equity awards other
than stock options; (3) cancellation of accelerated vesting of stock options;
and (4) reduction of other benefits paid to the Eligible Employee.  In the event
that acceleration of compensation from the Eligible Employee’s equity awards is
to be reduced, such acceleration of vesting shall be canceled in the reverse
order of the date of grant.

 

The independent professional firm engaged by the Company for general tax audit
purposes as of the day prior to the effective date of the Change of Control
shall make all determinations required to be made under this Section 4(b).  If
the firm so engaged by the Company is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Company shall
appoint a nationally recognized independent professional firm to make the
determinations required hereunder.  The Company shall bear all expenses with
respect to the determinations by such firm required to be made hereunder.

 

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The firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to the Company
and the Eligible Employee within fifteen (15) calendar days after the date on
which the Eligible Employee’s right to a Payment is triggered (if requested at
that time by the Company or the Eligible Employee) or such other time as
requested by the Company or the Eligible Employee.  If the firm determines that
no Excise Tax is payable with respect to a Payment, either before or after the
application of the Reduced Amount, it shall furnish the Company and the Eligible
Employee with a statement reasonably acceptable to the Eligible Employee that no
Excise Tax will be imposed with respect to such Payment.  Any good faith
determinations of the firm made hereunder shall be final, binding and conclusive
upon the Company and the Eligible Employee.

 

(c)                                Code Section 409A.  If the Company (or, if
applicable, the successor entity thereto) determines that the severance payments
and benefits provided under the Plan (the “Plan Payments”) constitute “deferred
compensation” under Code Section 409A (together, with any state law of similar
effect, “Section 409A”) and an Eligible Employee is a “specified employee” of
the Company or any successor entity thereto, as such term is defined in
Section 409A(a)(2)(B)(i) (a “Specified Employee”) on his or her separation from
service, then, solely to the extent necessary to avoid the incurrence of the
adverse personal tax consequences under Section 409A, the timing of the Plan
Payments shall be delayed as follows:  on the earlier to occur of (i) the date
that is six months and one day after the date of his or her separation from
service or (ii) the date of the Eligible Employee’s death (such earlier date,
the “Delayed Initial Payment Date”), the Company (or the successor entity
thereto, as applicable) shall (A) pay to the Eligible Employee a lump sum amount
equal to the sum of the Plan Payments that the Eligible Employee would otherwise
have received through the Delayed Initial Payment Date (including reimbursement
for any premiums paid by the Eligible Employee for health insurance coverage
under COBRA) if the commencement of the payment of the Plan Payments had not
been delayed pursuant to this Section 4(c) and (B) commence paying the balance
of the Plan Payments in accordance with the applicable payment schedules set
forth in Section 3 above.  It is intended that (i) each installment of the Plan
Payments provided under this Plan is a separate “payment” for purposes of
Section 409A, (ii) all of the Plan Payments satisfy, to the greatest extent
possible, the exemptions from the application of Section 409A provided under of
Treasury Regulation 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9), and this
Plan will be construed to the greatest extent possible as consistent with those
provisions.

 

Section 5.                                         REEMPLOYMENT.

 

In the event of an Eligible Employee’s reemployment by the Company during the
period of time in respect of which Plan Payments have been paid, the Company, in
its sole discretion, may require such Eligible Employee to repay to the Company
all or a portion of such Plan Payments as a condition of reemployment.

 

Section 6.                                         RIGHT TO INTERPRET PLAN;
AMENDMENT AND TERMINATION.

 

(a)                                Exclusive Discretion.  The Plan Administrator
(set forth in Section 11(d)) shall have the exclusive discretion and authority
to establish rules, forms, and procedures for the administration of the Plan and
to construe and interpret the Plan and to decide any and all questions of fact,
interpretation, definition, computation or administration arising in connection
with the operation of the Plan, including, but not limited to, the eligibility
to participate in the Plan and amount of benefits paid under the Plan.  The
rules, interpretations, computations and other actions of the Plan Administrator
shall be binding and conclusive on all persons.

 

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(b)                                Amendment or Termination.  The Company
reserves the right to amend or terminate this Plan (including Appendix A) or the
benefits provided hereunder at any time prior to a Change of Control; provided,
however, that no such amendment or termination shall materially adversely impair
the rights of any Eligible Employee under the Plan without his or her written
consent.

 

Section 7.                                         NO IMPLIED EMPLOYMENT
CONTRACT.

 

The Plan shall not be deemed to (i) give any employee or other person any right
to be retained in the employ of the Company or (ii) interfere with the right of
the Company to discharge any employee or other person at any time, with or
without cause, which right is hereby reserved.

 

Section 8.                                         LEGAL CONSTRUCTION.

 

This Plan is intended to be governed by and shall be construed in accordance
with the Employee Retirement Income Security Act of 1974 (“ERISA”) and, to the
extent not preempted by ERISA, the laws of the State of Florida.

 

Section 9.                                         CLAIMS, INQUIRIES AND
APPEALS.

 

(a)                                Applications for Benefits and Inquiries.  Any
application for benefits, inquiries about the Plan or inquiries about present or
future rights under the Plan must be submitted to the Plan Administrator in
writing by an applicant (or his or her authorized representative).

 

(b)                                Denial of Claims.  In the event that any
application for benefits is denied in whole or in part, the Plan Administrator
must provide the applicant with written or electronic notice of the denial of
the application, and of the applicant’s right to review the denial.  Any
electronic notice will comply with the regulations of the U.S. Department of
Labor.  The notice of denial will be set forth in a manner designed to be
understood by the applicant and will include the following:

 

(1)                                 the specific reason or reasons for the
denial;

 

(2)                                 references to the specific Plan provisions
upon which the denial is based;

 

(3)                                 a description of any additional information
or material that the Plan Administrator needs to complete the review and an
explanation of why such information or material is necessary; and

 

(4)                                 an explanation of the Plan’s review
procedures and the time limits applicable to such procedures, including a
statement of the applicant’s right to bring a civil action under section
502(a) of ERISA following a denial on review of the claim, as described in
Section 9(d) below.

 

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This notice of denial will be given to the applicant within ninety (90) days
after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case, the Plan
Administrator has up to an additional ninety (90) days for processing the
application.  If an extension of time for processing is required, written notice
of the extension will be furnished to the applicant before the end of the
initial ninety (90) day period.

 

This notice of extension will describe the special circumstances necessitating
the additional time and the date by which the Plan Administrator is to render
its decision on the application.

 

(c)                                Request for a Review.  Any person (or that
person’s authorized representative) for whom an application for benefits is
denied, in whole or in part, may appeal the denial by submitting a request for a
review to the Plan Administrator within sixty (60) days after the application is
denied.  A request for a review shall be in writing and shall be addressed to
the Plan Administrator.

 

A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent.  The applicant (or his or her representative) shall have the
opportunity to submit (or the Plan Administrator may require the applicant to
submit) written comments, documents, records, and other information relating to
his or her claim.  The applicant (or his or her representative) shall be
provided, upon request and free of charge, reasonable access to, and copies of,
all documents, records and other information relevant to his or her claim.  The
review shall take into account all comments, documents, records and other
information submitted by the applicant (or his or her representative) relating
to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination.

 

(d)                                Decision on Review.  The Plan Administrator
will act on each request for review within sixty (60) days after receipt of the
request, unless special circumstances require an extension of time (not to
exceed an additional sixty (60) days), for processing the request for a review. 
If an extension for review is required, written notice of the extension will be
furnished to the applicant within the initial sixty (60) day period.  This
notice of extension will describe the special circumstances necessitating the
additional time and the date by which the Plan Administrator is to render its
decision on the review.  The Plan Administrator will give prompt, written or
electronic notice of its decision to the applicant. Any electronic notice will
comply with the regulations of the U.S. Department of Labor.  In the event that
the Plan Administrator confirms the denial of the application for benefits in
whole or in part, the notice will set forth, in a manner calculated to be
understood by the applicant, the following:

 

(1)                                 the specific reason or reasons for the
denial;

 

(2)                                 references to the specific Plan provisions
upon which the denial is based;

 

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(3)                                 a statement that the applicant is entitled
to receive, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information relevant to his or her claim;
and

 

(4)                                 a statement of the applicant’s right to
bring a civil action under section 502(a) of ERISA.

 

(e)                                Rules and Procedures.  The Plan Administrator
will establish rules and procedures, consistent with the Plan and with ERISA, as
necessary and appropriate in carrying out its responsibilities in reviewing
benefit claims.  The Plan Administrator may require an applicant who wishes to
submit additional information in connection with an appeal from the denial of
benefits to do so at the applicant’s own expense.

 

(f)                                  Exhaustion of Remedies.  No legal action
for benefits under the Plan may be brought until the applicant (i) has submitted
a written application for benefits in accordance with the procedures described
by Section 9(a) above, (ii) has been notified by the Plan Administrator that the
application is denied, (iii) has filed a written request for a review of the
application in accordance with the appeal procedure described in
Section 9(c) above, and (iv) has been notified that the Plan Administrator has
denied the appeal.  Notwithstanding the foregoing, if the Plan Administrator
does not respond to a Participant’s claim or appeal within the relevant time
limits specified in this Section 9, the Participant may bring legal action for
benefits under the Plan pursuant to Section 502(a) of ERISA.

 

Section 10.                                  BASIS OF PAYMENTS TO AND FROM PLAN.

 

The Plan shall be unfunded, and all cash payments under the Plan shall be paid
only from the general assets of the Company.

 

Section 11.                                  OTHER PLAN INFORMATION.

 

(a)                                Employer and Plan Identification Numbers. 
The Employer Identification Number assigned to the Company (which is the “Plan
Sponsor” as that term is used in ERISA) by the Internal Revenue Service is
77-0456039.  The Plan Number assigned to the Plan by the Plan Sponsor pursuant
to the instructions of the Internal Revenue Service is 2009.

 

(b)                                Ending Date for Plan’s Fiscal Year.  The date
of the end of the fiscal year for the purpose of maintaining the Plan’s records
is December 31.

 

(c)                                Agent for the Service of Legal Process.  The
agent for the service of legal process with respect to the Plan is the Plan
Administrator.

 

(d)                                Plan Sponsor and Administrator.  The “Plan
Sponsor” and the “Plan Administrator” of the Plan is:

 

ARYx Therapeutics, Inc.

6300 Dumbarton Circle

Fremont, CA 94555

 

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The Plan Sponsor’s and Plan Administrator’s telephone number is (510) 585-2200. 
The Plan Administrator is the named fiduciary charged with the responsibility
for administering the Plan.

 

Section 12.                                  STATEMENT OF ERISA RIGHTS.

 

Participants in this Plan (which is a welfare benefit plan sponsored by ARYx
Therapeutics, Inc.) are entitled to certain rights and protections under ERISA. 
If you are an Eligible Employee, you are considered a participant in the Plan
and, under ERISA, you are entitled to:

 

(a)                                Receive Information About Your Plan and
Benefits

 

(1)                                 Examine, without charge, at the Plan
Administrator’s office and at other specified locations, such as worksites, all
documents governing the Plan and a copy of the latest annual report (Form 5500
Series), if applicable, filed by the Plan with the U.S. Department of Labor and
available at the Public Disclosure Room of the Employee Benefits Security
Administration;

 

(2)                                 Obtain, upon written request to the Plan
Administrator, copies of documents governing the operation of the Plan and
copies of the latest annual report (Form 5500 Series), if applicable, and an
updated (as necessary) Summary Plan Description.  The Administrator may make a
reasonable charge for the copies; and

 

(3)                                 Receive a summary of the Plan’s annual
financial report, if applicable.  The Plan Administrator is required by law to
furnish each participant with a copy of this summary annual report.

 

(b)                                Prudent Actions by Plan Fiduciaries.  In
addition to creating rights for Plan participants, ERISA imposes duties upon the
people who are responsible for the operation of the employee benefit plan.  The
people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do
so prudently and in the interest of you and other Plan participants and
beneficiaries.  No one, including your employer, your union or any other person,
may fire you or otherwise discriminate against you in any way to prevent you
from obtaining a Plan benefit or exercising your rights under ERISA.

 

(c)                                Enforce Your Rights.  If your claim for a
Plan benefit is denied or ignored, in whole or in part, you have a right to know
why this was done, to obtain copies of documents relating to the decision
without charge, and to appeal any denial, all within certain time schedules.

 

Under ERISA, there are steps you can take to enforce the above rights.  For
instance, if you request a copy of Plan documents or the latest annual report
from the Plan, if applicable, and do not receive them within 30 days, you may
file suit in a Federal court.  In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $110 a day until you
receive the materials, unless the materials were not sent because of reasons
beyond the control of the Plan Administrator.

 

10

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If you have a claim for benefits which is denied or ignored, in whole or in
part, you may file suit in a state or Federal court.

 

If you are discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file suit in a Federal
court.  The court will decide who should pay court costs and legal fees.  If you
are successful, the court may order the person you have sued to pay these costs
and fees.  If you lose, the court may order you to pay these costs and fees, for
example, if it finds your claim is frivolous.

 

(d)                                Assistance with Your Questions.  If you have
any questions about the Plan, you should contact the Plan Administrator.  If you
have any questions about this statement or about your rights under ERISA, or if
you need assistance in obtaining documents from the Plan Administrator, you
should contact the nearest office of the Employee Benefits Security
Administration, U.S. Department of Labor, listed in your telephone directory or
the Division of Technical Assistance and Inquiries, Employee Benefits Security
Administration, U.S. Department of Labor, 200 Constitution Avenue N.W.,
Washington, D.C. 20210.  You may also obtain certain publications about your
rights and responsibilities under ERISA by calling the publications hotline of
the Employee Benefits Security Administration.

 

Section 13.                                  GENERAL PROVISIONS.

 

(a)                                Notices.  Any notice, demand or request
required or permitted to be given by either the Company or an Eligible Employee
pursuant to the terms of this Plan shall be in writing and shall be deemed given
when delivered personally or deposited in the U.S. mail with postage prepaid,
and addressed to the parties, in the case of the Company, at the address set
forth in Section 11(d) and, in the case of an Eligible Employee, at the address
as set forth in the Company’s employment file maintained for the Participant as
previously furnished by the Participant or such other address as a party may
request by notifying the other in writing.

 

(b)                                Transfer and Assignment.  The rights and
obligations of an Eligible Employee under this Plan may not be transferred or
assigned without the prior written consent of the Company.  This Plan shall be
binding upon any person who is a successor by merger, acquisition, consolidation
or otherwise to the business formerly carried on by the Company without regard
to whether or not such person or entity actively assumes the obligations
hereunder.

 

(c)                                Waiver.  Any party’s failure to enforce any
provision or provisions of this Plan shall not in any way be construed as a
waiver of any such provision or provisions, nor prevent any party from
thereafter enforcing each and every other provision of this Plan.  The rights
granted the parties herein are cumulative and shall not constitute a waiver of
any party’s right to assert all other legal remedies available to it under the
circumstances.

 

(d)                                Severability.  Should any provision of this
Plan (including any appendices hereto) be declared or determined to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired.

 

(e)                                Section Headings.  Section headings in this
Plan are included for convenience of reference only and shall not be considered
part of this Plan for any other purpose.

 

11

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Section 14.                                  CIRCULAR 230 DISCLAIMER.

 

THE FOLLOWING DISCLAIMER IS PROVIDED IN ACCORDANCE WITH THE INTERNAL REVENUE
SERVICE’S CIRCULAR 230 (21 CFR PART 10).  ANY ADVICE IN THIS PLAN IS NOT
INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY YOU FOR THE PURPOSE OF
AVOIDING ANY PENALTIES THAT MAY BE IMPOSED ON YOU.  ANY ADVICE IN THIS PLAN WAS
WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF PARTICIPATION IN THE COMPANY’S
SEVERANCE BENEFIT PLAN.  YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR
CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

 

Section 15.                                  EXECUTION.

 

To record the adoption of the Plan as set forth herein, effective as of May 20,
2009, the Company has caused its duly authorized officer to execute the same as
of May 27, 2009.

 

 

 

ARYX THERAPEUTICS, INC.

 

 

 

 

 

 

By:

/s/ Paul Goddard

 

 

Paul Goddard, Ph.D.

 

 

Chairman of the Board and Chief Executive Officer

 

12

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For Employees Age 40 or Older

Individual Termination

 

EXHIBIT A

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set forth in the ARYx
Therapeutics, Inc. Executive Severance Benefit Plan (the “Plan”).

 

I understand that this Release, together with the Plan, constitutes the
complete, final and exclusive embodiment of the entire agreement between ARYx
Therapeutics, Inc. (the “Company”) and me with regard to the subject matter
hereof.  I am not relying on any promise or representation by the Company that
is not expressly stated therein.  Certain capitalized terms used in this Release
are defined in the Plan.

 

I hereby confirm my obligations under the Company’s proprietary information and
inventions agreement.

 

While employed by the Company and for two (2) years immediately following the
date on which I cease to be employed by the Company for any reason, I agree not
to (whether directly or indirectly, personally or through others):
(a) encourage, induce, attempt to induce, solicit or attempt to solicit any
employee of the Company or any of the Company’s subsidiaries to leave his or her
employment with the Company or any of the Company’s subsidiaries, (b) encourage,
induce, attempt to induce, solicit or attempt to solicit any customer of the
Company or any of the Company’s subsidiaries to reduce or terminate its customer
relationship with the Company, or (c) be or become an officer, director,
stockholder, owner, co-owner, affiliate, partner, promoter, employee, agent,
representative, designer, consultant, advisor, manager, licensor, sublicensor,
licensee or sublicensee of, for or to, or otherwise be or become associated with
or acquire or hold (of record, beneficially or otherwise) any direct or indirect
interest in, any entity that engages directly or indirectly in competition with
the Company; provided, however, that I may, without violating this paragraph,
provide services to a business division of a competing entity if such business
division does not compete with the Company and my services to the competing
entity are limited to such business division, and provided further, that I may
own, as a passive investor, an equity interest of any competing entity, so long
as my holdings in such entity do not in the aggregate constitute more than 1% of
the voting stock of such entity.  I acknowledge that, due to the nature of the
Company ‘s business and the products and services provided by the Company, it is
possible to compete with the Company from any location within the world, and I
acknowledge and agree that it is thus impossible to identify or otherwise limit
the geographic scope of this agreement and that it is reasonable for the
restrictions contained herein to apply on a worldwide basis.

 

Except as otherwise set forth in this Release, I hereby generally and completely
release the Company and its parents, subsidiaries, successors, predecessors and
affiliates, and its and their partners, members, directors, officers, employees,
stockholders, shareholders, agents, attorneys, predecessors, insurers,
affiliates and assigns, from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related to events,
acts, conduct, or omissions occurring at any time prior to and including 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

 

1

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related to my employment with the Company or the termination of that employment;
(b) all claims related to my compensation or benefits, 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; (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 (as amended), the
federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal
Employee Retirement Income Security Act of 1974 (as amended), the federal
Americans with Disabilities Act of 1990, the federal Family and Medical Leave
Act (“FMLA”), the California Family Rights Act (“CFRA”), the California Labor
Code (as amended), and the California Fair Employment and Housing Act (as
amended) and the California Fair Employment and Housing Act (as amended);
provided, however, that nothing in this paragraph shall be construed in any way
to release the Company from its obligation to indemnify me pursuant to agreement
or applicable law or to prohibit me for contesting a claim for indemnification
made by the Company or any of the other persons released hereunder.

 

I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA, and that the consideration given under the
Plan for the waiver and release in the preceding paragraph hereof is in addition
to anything of value to which I was already entitled.  I further acknowledge
that I have been advised by this writing, as required by the ADEA, that:  (a) my
waiver and release do not apply to any rights or claims that may arise after the
date I sign this Release; (b) I should consult with an attorney prior to signing
this Release (although I may choose voluntarily not do so); (c) I have
twenty-one (21) days to consider this Release (although I may choose voluntarily
to sign this Release earlier); (d) I have seven (7) days following the date I
sign this Release to revoke the Release by providing written notice to an
officer of the Company; and (e) this Release shall not be effective until the
date upon which the revocation period has expired, which shall be the eighth day
after I sign this Release.

 

I acknowledge that I have read and understand Section 1542 of the California
Civil Code which reads as follows: “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.”  I hereby expressly waive and relinquish all rights
and benefits under that section and any law of any jurisdiction of similar
effect with respect to my release of any claims hereunder.

 

I hereby represent that I have been paid all compensation owed and for all hours
worked, I have received all the leave and leave benefits and protections for
which I am eligible, pursuant to FMLA, CFRA, or otherwise, and I have not
suffered any on-the-job injury for which I have not already filed a workers’
compensation claim.

 

I acknowledge that to become effective, I must sign and return this Release to
the Company so that it is received not later than twenty-one (21) days following
the later of the date of the termination of my employment and the date it is
provided to me.

 

2

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

 

 

EMPLOYEE

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

3

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For Employees Age 40 or Older

Group Termination

 

EXHIBIT B

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set forth in the ARYx
Therapeutics, Inc. Executive Severance Benefit Plan (the “Plan”).

 

I understand that this Release, together with the Plan, constitutes the
complete, final and exclusive embodiment of the entire agreement between ARYx
Therapeutics, Inc. (the “Company”) and me with regard to the subject matter
hereof.  I am not relying on any promise or representation by the Company that
is not expressly stated therein.  Certain capitalized terms used in this Release
are defined in the Plan.

 

I hereby confirm my obligations under the Company’s proprietary information and
inventions agreement.

 

While employed by the Company and for two (2) years immediately following the
date on which I cease to be employed by the Company for any reason, I agree not
to (whether directly or indirectly, personally or through others):
(a) encourage, induce, attempt to induce, solicit or attempt to solicit any
employee of the Company or any of the Company’s subsidiaries to leave his or her
employment with the Company or any of the Company’s subsidiaries, (b) encourage,
induce, attempt to induce, solicit or attempt to solicit any customer of the
Company or any of the Company’s subsidiaries to reduce or terminate its customer
relationship with the Company, or (c) be or become an officer, director,
stockholder, owner, co-owner, affiliate, partner, promoter, employee, agent,
representative, designer, consultant, advisor, manager, licensor, sublicensor,
licensee or sublicensee of, for or to, or otherwise be or become associated with
or acquire or hold (of record, beneficially or otherwise) any direct or indirect
interest in, any entity that engages directly or indirectly in competition with
the Company; provided, however, that I may, without violating this paragraph,
provide services to a business division of a competing entity if such business
division does not compete with the Company and my services to the competing
entity are limited to such business division, and provided further, that I may
own, as a passive investor, an equity interest of any competing entity, so long
as my holdings in such entity do not in the aggregate constitute more than 1% of
the voting stock of such entity.  I acknowledge that, due to the nature of the
Company ‘s business and the products and services provided by the Company, it is
possible to compete with the Company from any location within the world, and I
acknowledge and agree that it is thus impossible to identify or otherwise limit
the geographic scope of this agreement and that it is reasonable for the
restrictions contained herein to apply on a worldwide basis.

 

Except as otherwise set forth in this Release, I hereby generally and completely
release the Company and its parents, subsidiaries, successors, predecessors and
affiliates, and its and their partners, members, directors, officers, employees,
stockholders, shareholders, agents, attorneys, predecessors, insurers,
affiliates and assigns, from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related to events,
acts, conduct, or omissions occurring at any time prior to and including 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

 

1

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

 

related to my employment with the Company or the termination of that employment;
(b) all claims related to my compensation or benefits, 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; (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 (as amended), the
federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal
Employee Retirement Income Security Act of 1974 (as amended), the federal
Americans with Disabilities Act of 1990, the federal Family and Medical Leave
Act (“FMLA”), the California Family Rights Act (“CFRA”), the California Labor
Code (as amended), and the California Fair Employment and Housing Act (as
amended) and the California Fair Employment and Housing Act (as amended);
provided, however, that nothing in this paragraph shall be construed in any way
to release the Company from its obligation to indemnify me pursuant to agreement
or applicable law or to prohibit me for contesting a claim for indemnification
made by the Company or any of the other persons released hereunder.

 

I acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA, and that the consideration given under the
Plan for the waiver and release in the preceding paragraph hereof is in addition
to anything of value to which I was already entitled.  I further acknowledge
that I have been advised by this writing, as required by the ADEA, that:  (a) my
waiver and release do not apply to any rights or claims that may arise after the
date I sign this Release; (b) I should consult with an attorney prior to signing
this Release (although I may choose voluntarily not to do so); (c) I have
forty-five (45) days to consider this Release (although I may choose voluntarily
to sign this Release earlier); (d) I have seven (7) days following the date I
sign this Release to revoke the Release by providing written notice to an office
of the Company; (e) this Release shall not be effective until the date upon
which the revocation period has expired, which shall be the eighth day after I
sign this Release; and (f) I have received with this Release a detailed list of
the job titles and ages of all employees who were terminated in this group
termination and the ages of all employees of the Company in the same job
classification or organizational unit who were not terminated.

 

I acknowledge that I have read and understand Section 1542 of the California
Civil Code which reads as follows: “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.”  I hereby expressly waive and relinquish all rights
and benefits under that section and any law of any jurisdiction of similar
effect with respect to my release of any claims hereunder.

 

I hereby represent that I have been paid all compensation owed and for all hours
worked, I have received all the leave and leave benefits and protections for
which I am eligible, pursuant to FMLA, CFRA, or otherwise, and I have not
suffered any on-the-job injury for which I have not already filed a workers’
compensation claim.

 

2

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

 

I acknowledge that to become effective, I must sign and return this Release to
the Company so that it is received not later than forty-five (45) days following
the later of the date of the termination of my employment and the date it is
provided to me.

 

 

EMPLOYEE

 

 

 

Name:

 

 

 

 

 

Date:

 

 

3

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

 

For Employees Under Age 40

Individual and Group Termination

 

EXHIBIT C

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set forth in the ARYx
Therapeutics, Inc. Executive Severance Benefit Plan (the “Plan”).

 

I understand that this Release, together with the Plan, constitutes the
complete, final and exclusive embodiment of the entire agreement between ARYx
Therapeutics, Inc. (the “Company”) and me with regard to the subject matter
hereof.  I am not relying on any promise or representation by the Company that
is not expressly stated therein.  Certain capitalized terms used in this Release
are defined in the Plan.

 

I hereby confirm my obligations under the Company’s proprietary information and
inventions agreement.

 

While employed by the Company and for two (2) years immediately following the
date on which I cease to be employed by the Company for any reason, I agree not
to (whether directly or indirectly, personally or through others):
(a) encourage, induce, attempt to induce, solicit or attempt to solicit any
employee of the Company or any of the Company’s subsidiaries to leave his or her
employment with the Company or any of the Company’s subsidiaries, (b) encourage,
induce, attempt to induce, solicit or attempt to solicit any customer of the
Company or any of the Company’s subsidiaries to reduce or terminate its customer
relationship with the Company, or (c) be or become an officer, director,
stockholder, owner, co-owner, affiliate, partner, promoter, employee, agent,
representative, designer, consultant, advisor, manager, licensor, sublicensor,
licensee or sublicensee of, for or to, or otherwise be or become associated with
or acquire or hold (of record, beneficially or otherwise) any direct or indirect
interest in, any entity that engages directly or indirectly in competition with
the Company; provided, however, that I may, without violating this paragraph,
provide services to a business division of a competing entity if such business
division does not compete with the Company and my services to the competing
entity are limited to such business division, and provided further, that I may
own, as a passive investor, an equity interest of any competing entity, so long
as my holdings in such entity do not in the aggregate constitute more than 1% of
the voting stock of such entity.  I acknowledge that, due to the nature of the
Company ‘s business and the products and services provided by the Company, it is
possible to compete with the Company from any location within the world, and I
acknowledge and agree that it is thus impossible to identify or otherwise limit
the geographic scope of this agreement and that it is reasonable for the
restrictions contained herein to apply on a worldwide basis.

 

Except as otherwise set forth in this Release, I hereby generally and completely
release the Company and its parents, subsidiaries, successors, predecessors and
affiliates, and its and their partners, members, directors, officers, employees,
stockholders, shareholders, agents, attorneys, predecessors, insurers,
affiliates and assigns, from any and all claims, liabilities and obligations,
both known and unknown, that arise out of or are in any way related to events,
acts, conduct, or omissions occurring at any time prior to and including 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

 

1

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

 

related to my employment with the Company or the termination of that employment;
(b) all claims related to my compensation or benefits, 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; (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 (as amended), the
federal Age Discrimination in Employment Act (as amended) (“ADEA”), the federal
Employee Retirement Income Security Act of 1974 (as amended), the federal
Americans with Disabilities Act of 1990, the federal Family and Medical Leave
Act (“FMLA”), the California Family Rights Act (“CFRA”), the California Labor
Code (as amended), and the California Fair Employment and Housing Act (as
amended) and the California Fair Employment and Housing Act (as amended);
provided, however, that nothing in this paragraph shall be construed in any way
to release the Company from its obligation to indemnify me pursuant to agreement
or applicable law or to prohibit me for contesting a claim for indemnification
made by the Company or any of the other persons released hereunder.

 

I acknowledge that I have read and understand Section 1542 of the California
Civil Code which reads as follows: “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.”  I hereby expressly waive and relinquish all rights
and benefits under that section and any law of any jurisdiction of similar
effect with respect to my release of any claims hereunder.

 

I hereby represent that I have been paid all compensation owed and for all hours
worked, I have received all the leave and leave benefits and protections for
which I am eligible, pursuant to FMLA, CFRA, or otherwise, and I have not
suffered any on-the-job injury for which I have not already filed a workers’
compensation claim.

 

I acknowledge that to become effective, I must sign and return this Release to
the Company so that it is received not later than fourteen (14) days following
the later of the date of the termination of my employment and the date it is
provided to me.

 

 

EMPLOYEE

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

2

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ARYX THERAPEUTICS, INC.

EXECUTIVE SEVERANCE BENEFIT PLAN

 

APPENDIX A

 

The Company’s Board of Directors has deemed the following executive employees to
be eligible for severance benefits under the ARYx Therapeutics, Inc. Executive
Severance Benefit Plan (“Eligible Employees”):

 

John Varian

Daniel Canafax

Pascal Druzgala

David Nagler

 

1

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ARYX THERAPEUTICS, INC.

EXECUTIVE SEVERANCE BENEFIT PLAN

 

APPENDIX B

 

Participation Agreement

 

By signing below, I hereby accept and agree to the terms of the ARYx
Therapeutics, Inc. Executive Severance Benefit Plan (the “Plan”).  I understand
that my rights under the Plan supersede and replace in their entirety any rights
I have under any other prior agreements with the Company to receive accelerated
vesting of my compensatory equity awards upon a Change of Control and/or upon
any termination of my employment with the Company.  I also understand and agree
that the defined terms used in this Plan, including but not limited to “Cause”,
“Good Reason” and “Change of Control” supersede and replace in their entirety
for all purposes any such definitions or similarly defined concepts that exist
in any other agreements I have entered into with the Company.  Capitalized terms
used in this Participation Agreement have the meanings set forth in the Plan.

 

 

 

EMPLOYEE

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

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