Exhibit
10.6


 


ARYX
THERAPEUTICS, INC.


2007
EQUITY INCENTIVE PLAN


 


OPTION AGREEMENT

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)


 


Pursuant to your Option Grant
Notice (“Grant Notice”)
and this Option Agreement, ARYx
Therapeutics, Inc. (the “Company”) has granted
you an option under its 2007 Equity Incentive Plan (the “Plan”) to purchase
the number of shares of the Company’s Common Stock indicated in your Grant
Notice at the exercise price indicated in your Grant Notice. Defined terms not
explicitly defined in this Option Agreement but defined in the Plan shall have
the same definitions as in the Plan.


 


The details of your option are
as follows:


 


1.             VESTING. Subject
to the limitations contained herein, your option will vest as provided in your
Grant Notice, provided that vesting will cease upon the termination of your
Continuous Service.


 


2.             NUMBER OF SHARES AND
EXERCISE PRICE. The number of shares of Common Stock subject to your option
and your exercise price per share referenced in your Grant Notice may be
adjusted from time to time for Capitalization Adjustments.


 


3.             EXERCISE RESTRICTION
FOR NON-EXEMPT EMPLOYEES. In the event that you are an Employee eligible
for overtime compensation under the Fair Labor Standards Act of 1938, as
amended (i.e., a “Non-Exempt Employee”),
you may not exercise your option until you have completed at least six (6)
months of Continuous Service measured from the Date of Grant specified in your
Grant Notice, notwithstanding any other provision of your option.


 


4.             METHOD OF PAYMENT. Payment
of the exercise price is due in full upon exercise of all or any part of your
option. You may elect to make payment of the exercise price in cash or by check
or in any other manner permitted
by your Grant Notice, which may include one or more of the
following:


 


(a)           Provided that at
the time of exercise the Common Stock is publicly traded and quoted regularly
in The Wall Street Journal, pursuant to a
program developed under Regulation T as promulgated by the Federal Reserve
Board that, prior to the issuance of Common Stock, results in either the
receipt of cash (or check) by the Company or the receipt of irrevocable
instructions to pay the aggregate exercise price to the Company from the sales
proceeds.


 


(b)           Provided that at
the time of exercise the Common Stock is publicly traded and quoted regularly
in The Wall Street Journal, by delivery to
the Company (either by actual delivery or attestation) of already-owned shares
of Common Stock that are owned free and clear of any liens, claims, encumbrances
or security interests, and that are valued at Fair Market Value on the date of
exercise. “Delivery” for these purposes, in the sole discretion of the Company
at 


 


1

















 


the time you exercise
your option, shall include delivery to the Company of your attestation of
ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding
the foregoing, you may not exercise your option by tender to the Company of
Common Stock to the extent such tender would violate the provisions of any law,
regulation or agreement restricting the redemption of the Company’s stock.


 


5.             WHOLE SHARES. You
may exercise your option only for whole shares of Common Stock.


 


6.             SECURITIES LAW
COMPLIANCE. Notwithstanding anything to the contrary contained herein, you
may not exercise your option unless the shares of Common Stock issuable upon
such exercise are then registered under the Securities Act or, if such shares
of Common Stock are not then so registered, the Company has determined that
such exercise and issuance would be exempt from the registration requirements
of the Securities Act. The exercise of your option also must comply with other
applicable laws and regulations governing your option, and you may not exercise
your option if the Company determines that such exercise would not be in
material compliance with such laws and regulations.


 


7.             TERM. You may not
exercise your option before the commencement or after the expiration of its
term. The term of your option commences on the Date of Grant and expires upon
the earliest of the following:


 


(a)           three (3) months
after the termination of your Continuous Service for any reason other than your
Disability or death; provided, however,
that (i) if during any part of such three (3) month period your option is not
exercisable solely because of the condition set forth in Section 6, your option
shall not expire until the earlier of the Expiration Date or until it shall
have been exercisable for an aggregate period of three (3) months after the
termination of your Continuous Service and (ii) if (x) you are a Non-Exempt
Employee, (y) you terminate your Continuous Service within six (6) months after
the Date of Grant specified in your Grant Notice, and (z) you have vested in a
portion of your option at the time of your termination of Continuous Service,
your option shall not expire until the earlier of (A) the later of the date
that is seven (7) months after the Date of Grant specified in your Grant Notice
or the date that is three (3) months after the termination of your Continuous
Service or (B) the Expiration Date;


 


(b)           twelve (12) months
after the termination of your Continuous Service due to your Disability;


 


(c)           eighteen (18)
months after your death if you die either during your Continuous Service or
within three (3) months after your Continuous Service terminates;


 


(d)           the Expiration Date
indicated in your Grant Notice; or


 


(e)           the day before the
tenth (10th) anniversary of the Date of Grant.


 


If your option is an Incentive
Stock Option, note that to obtain the federal income tax advantages associated
with an Incentive Stock Option, the Code requires that at all times beginning
on the date of grant of your option and ending on the day three (3) months
before the date of your option’s exercise, you must be an employee of the
Company or an Affiliate, except 


 


2

















 


in
the event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an Incentive
Stock Option if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you
otherwise exercise your option more than three (3) months after the date your
employment with the Company or an Affiliate terminates.


 


8.             EXERCISE.


 


(a)           You may exercise
the vested portion of your option during its term by delivering a Notice of
Exercise (in a form designated by the Company) together with the exercise price
to the Secretary of the Company, or to such other person as the Company may
designate, during regular business hours, together with such additional
documents as the Company may then require.


 


(b)           By exercising your
option you agree that, as a condition to any exercise of your option, the
Company may require you to enter into an arrangement providing for the payment
by you to the Company of any tax withholding obligation of the Company arising
by reason of (i) the exercise of your option, or (ii) the disposition of shares
of Common Stock acquired upon such exercise.


 


(c)           If your option is
an Incentive Stock Option, by exercising your option you agree that you will
notify the Company in writing within fifteen (15) days after the date of any
disposition of any of the shares of the Common Stock issued upon exercise of
your option that occurs within two (2) years after the date of your option
grant or within one (1) year after such shares of Common Stock are transferred
upon exercise of your option.


 


9.             TRANSFERABILITY. Your
option is not transferable, except by will or by the laws of descent and
distribution, and is exercisable during your life only by you. Notwithstanding
the foregoing, by delivering written notice to the Company, in a form
satisfactory to the Company, you may designate a third party who, in the event
of your death, shall thereafter be entitled to exercise your option. In
addition, you may transfer your option to a trust if you are considered to be
the sole beneficial owner (determined under Section 671 of the Code and
applicable state law) while the option is held in the trust, provided that you
and the trustee enter into transfer and other agreements required by the
Company.


 


10.          OPTION NOT A SERVICE
CONTRACT. Your option is not an employment or service contract, and nothing
in your option shall be deemed to create in any way whatsoever any obligation
on your part to continue in the employ of the Company or an Affiliate, or of
the Company or an Affiliate to continue your employment. In addition, nothing
in your option shall obligate the Company or an Affiliate, their respective
stockholders, Boards of Directors, Officers or Employees to continue any
relationship that you might have as a Director or Consultant for the Company or
an Affiliate.


 


11.          WITHHOLDING OBLIGATIONS.


 


(a)           At the time you
exercise your option, in whole or in part, or at any time thereafter as
requested by the Company, you hereby authorize withholding from payroll and any



 


3

















 


other amounts payable to
you, and otherwise agree to make adequate provision for (including by means of
a “cashless exercise” pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign
tax withholding obligations of the Company or an Affiliate, if any, which arise
in connection with the exercise of your option.


 


(b)           Upon your request
and subject to approval by the Company, in its sole discretion, and compliance
with any applicable legal conditions or restrictions, the Company may withhold
from fully vested shares of Common Stock otherwise issuable to you upon the
exercise of your option a number of whole shares of Common Stock having a Fair
Market Value, determined by the Company as of the date of exercise, not in
excess of the minimum amount required to be withheld by law (or such lower amount
as may be necessary to avoid classification of your option as a liability for
financial accounting purposes). Any adverse consequences to you arising in
connection with such share withholding procedure shall be your sole
responsibility.


 


(c)           You may not
exercise your option unless the tax withholding obligations of the Company
and/or any Affiliate are satisfied. Accordingly, you may not be able to
exercise your option when desired even though your option is vested, and the
Company shall have no obligation to issue a certificate for such shares of
Common Stock or release such shares of Common Stock from any escrow provided
for herein unless such obligations are satisfied.


 


12.          NOTICES. Any notices
provided for in your option or the Plan shall be given in writing and shall be
deemed effectively given upon receipt or, in the case of notices delivered by
mail by the Company to you, five (5) days after deposit in the United States
mail, postage prepaid, addressed to you at the last address you provided to the
Company.


 


13.          GOVERNING PLAN DOCUMENT.
Your option is subject to all the provisions of the Plan, the provisions of
which are hereby made a part of your option, and is further subject to all
interpretations, amendments, rules and regulations, which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of your option and those of the Plan, the provisions of
the Plan shall control.


 


4

















 


ARYX THERAPEUTICS,
INC.


2007 EQUITY INCENTIVE PLAN


 


OPTION GRANT NOTICE


 


ARYx Therapeutics, Inc. (the “Company”), pursuant
to its 2007 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an
option to purchase the number of shares of the Company’s Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Option Agreement, the Plan, and the Notice of Exercise, all
of which are attached hereto and incorporated herein in their entirety.


 


	
  Optionholder:

  	
   

  
	
  Date of Grant:

  	
   

  
	
  Vesting Commencement Date:

  	
   

  
	
  Number of Shares Subject to Option:

  	
   

  
	
  Exercise Price (Per Share):

  	
   

  
	
  Total Exercise Price:

  	
   

  
	
  Expiration Date:

  	
   

  



 


	
  Type of
  Grant:

  	
  o
  Incentive Stock Option(1)

  	
  o
  Nonstatutory Stock Option

  
	
   

  	
   

  	
   

  
	
  Exercise
  Schedule:

  	
  [Initial Grant:
  1/4th of the shares vest and become exercisable one year after the
  Vesting Commencement Date; the balance of the shares vest and become
  exercisable in a series of thirty-six (36) successive equal monthly
  installments measured from the first anniversary of the Vesting Commencement
  Date.]

  
	
   

  	
   

  	
   

  
	
   

  	
  [Refresher Grant: The shares vest and become exercisable in a series of
  forty-eight (48) successive equal monthly installments over the four (4)-year
  period measured from the Vesting Commencement Date.]

  
	
   

  	
   

  	
   

  
	
  Payment:

  	
  By one or a
  combination of the following items (described in the Option Agreement):

  
	
   

  	
   

  	
   

  
	
   

  	
  x

  	
  By cash or check

  
	
   

  	
  x

  	
  Pursuant to a
  Regulation T Program if the Shares are publicly traded

  
	
   

  	
  x

  	
  By delivery of
  already-owned shares if the Shares are publicly traded

  
				



 


Additional Terms/Acknowledgements:
The undersigned Optionholder acknowledges receipt of, and understands and
agrees to, this Option Grant Notice, the Option Agreement, and the Plan. Optionholder
further acknowledges that as of the Date of Grant, this Option Grant Notice,
the Option Agreement, and the Plan set forth the entire understanding between
Optionholder and the Company regarding the acquisition of stock in the Company
and supersede all prior oral and written agreements on that subject with the
exception of (i) options previously granted and delivered to Optionholder under
the Plan, and (ii) the following agreements only:


 


OTHER AGREEMENTS:


 


 


	
  ARYX THERAPEUTICS, INC.

  	
  OPTIONHOLDER:

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Signature

  	
  Signature

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
								



 


ATTACHMENTS:  Option Agreement, 2007 Equity Incentive Plan,
and Notice of Exercise


 






(1) If this is an Incentive Stock Option, it (plus other outstanding
Incentive Stock Options) cannot be first exercisable for
more than $100,000 in value (measured by exercise price) in any calendar
year.  Any excess over $100,000 is a
Nonstatutory Stock Option.


 

















 


ATTACHMENT
I


 


OPTION AGREEMENT


 


 


ATTACHMENT
II


 


2007 EQUITY INCENTIVE PLAN


 


 


ATTACHMENT
III


 


NOTICE OF EXERCISE


 

















 


NOTICE OF EXERCISE


 


ARYx Therapeutics, Inc.


6300 Dumbarton Circle

Fremont, CA 94555


 


	
  Date of Exercise:                        

  



 


Ladies and
Gentlemen:


 


This constitutes notice under my stock option that I
elect to purchase the number of shares for the price set forth below.


 


	
  Type of option (check one):

  	
   

  	
   ̈
  Incentive

  	
   

  	
   ̈
  Nonstatutory

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stock option dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Number of shares as to which option is exercised:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Shares to be issued in name of:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total exercise price:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash payment delivered herewith:

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Value
  of        shares of ARYx
  Therapeutics, Inc. Common Stock
  delivered herewith(1):

  	
   

  	
  $

  	
   

  	
   

  



 


By this exercise, I agree (i) to provide such
additional documents as you may require pursuant to the terms of the ARYx
Therapeutics, Inc. 2007 Equity Incentive
Plan, (ii) to provide for the payment by me to you (in the manner
designated by you) of your withholding obligation, if any, relating to the
exercise of this option, and (iii) if this exercise relates to an incentive
stock option, to notify you in writing within fifteen (15) days after the date
of any disposition of any of the shares of Common Stock issued upon exercise of
this option that occurs within two (2) years after the date of grant of this
option or within one (1) year after such shares of Common Stock are issued upon
exercise of this option.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  



 






(1)           Shares
must meet the public trading requirements set forth in the option.  Shares must be valued on the date of exercise
in accordance with the terms of the Plan and the option being exercised, and
must be owned free and clear of any liens, claims, encumbrances or security
interests.  Certificates must be endorsed
or accompanied by an executed assignment separate from certificate.


 


1