Exhibit 10.16


 


ARYX
THERAPEUTICS, INC.


 


NON-EMPLOYEE
DIRECTOR COMPENSATION


 


Cash Compensation Arrangements


 


In 2008, the Compensation Committee retained
Radford Surveys + Consulting, or Radford, an independent compensation
consulting firm, to provide us and the Compensation Committee with assistance
in reviewing our non-employee director compensation. After reviewing the
Radford report and related recommendations, the Compensation Committee and
Board revised our cash compensation arrangement for non-employee directors,
effective January 1, 2009, as follow:


 


·                  a $20,000 annual retainer
for service as a Board member;


 


·                  a $15,000 or $7,500
supplemental annual retainer for service as chairman or member of the Audit
Committee, respectively;


 


·                  a $10,000 or $5,000
supplemental annual retainer for service as chairman or member of the
Compensation Committee, respectively;


 


·                  a $5,000 or $2,500
supplemental annual retainer for service as chairman or member of the
Nominating and Corporate Governance Committee, respectively;


 


·                  a $5,000 supplemental annual
retainer for services as lead independent director of the Board; and


 


·                  $2,000 for each Board
meeting attended in person ($1,000 for meetings attended by video or telephone
conference).


 


We continue to reimburse our non-employee
directors for their reasonable expenses incurred in attending meetings of our
Board and committees of the Board.


 


2007 Non-Employee Directors’ Stock Option Plan


 


Our 2007 Non-Employee Directors’ Stock Option
Plan, or 2007 Directors’ Plan, became effective in connection with our initial
public offering in November 2007. The 2007 Directors’ Plan provides for
the automatic grant of nonstatutory stock options to purchase shares of our
common stock to our non-employee directors over their period of service on our
Board. As of December 31, 2008, the number of shares of common stock that
may be issued under the 2007 Directors’ Plan is 266,662 shares. The number
of shares of common stock reserved for issuance will automatically increase on January 1st of
each year through and including January 1, 2017, by the excess of (a) the
number of shares of common stock subject to options granted during the
preceding calendar year, over (b) the number of shares added back to the
share reserve during the preceding calendar year. If any option expires or
terminates for any reason, in whole or in part, without having been exercised
in full, the shares of common stock not acquired under such option will become
available for future issuance under the 2007 directors’ plan. The following
types of shares issued under the 2007 directors’ plan may again become
available for the grant of new options: (a) any shares withheld to satisfy
withholding taxes, (b) any shares used to pay the exercise price of an
option in a net exercise arrangement and (c) shares tendered to us to pay
the exercise price of an option.


 


Pursuant to the terms of the 2007 Directors’
Plan, any individual who first becomes a non-employee director is automatically
granted an option to purchase 16,666 shares of our common stock, with an
exercise price equal to the then fair market value of our common stock. Each
initial option vests in a series of 36 successive equal monthly installments
measured from the date of grant. In addition, on April 30th of each
year beginning in 2009, each non-employee director will automatically be
granted a non-statutory stock option to purchase 6,666 shares of our common
stock on that date with an exercise price equal to the then fair market value
of our common stock. The


 

















 


shares subject to each such annual option vest in a series of 12
successive equal monthly installments measured from the date of grant. All
stock options granted under the 2007 Directors’ Plan will have a maximum term
of ten years.


 


If a non-employee director’s service
relationship with us, or any of our affiliates, whether as a non-employee
director or subsequently as an employee, director or consultant of ours or an
affiliate, ceases for any reason other than disability or death, or after any
12-month period following a change in control, the optionee may exercise any
vested options for a period of three months following the cessation of service.
If such an optionee’s service relationship with us, or any of our affiliates,
ceases due to disability or death (or an optionee dies within a certain period
following cessation of service), the optionee or a beneficiary may exercise the
option for a period of 12 months in the event of disability, and
18 months in the event of death. If such an optionee’s service terminates
within 12 months following a specified change in control transaction, the
optionee may exercise the option for a period of 12 months following the
effective date of such a transaction. The option term may be extended in the
event that exercise of the option following termination of service is
prohibited by applicable securities laws. In no event, however, may an option
be exercised beyond the expiration of its term.


 


In the event of certain significant corporate
transactions, all outstanding options under the 2007 Directors’ Plan may be
assumed, continued or substituted for by any surviving or acquiring entity (or
its parent company). If the surviving or acquiring entity (or its parent
company) elects not to assume, continue or substitute for such options, then (a) with
respect to any such options that are held by optionees then performing services
for us or our affiliates, the vesting and exercisability of such options will
be accelerated in full and such options will be terminated if not exercised
prior to the effective date of the corporate transaction and (b) all other
outstanding options will terminate if not exercised prior to the effective date
of the corporate transaction. Our Board may also provide that the holder of an
outstanding option not assumed in the corporate transaction will surrender such
option in exchange for a payment equal to the excess of (a) the value of
the property that the optionee would have received upon exercise of the option,
over (b) the exercise price otherwise payable in connection with the
option. In addition, the vesting and exercisability of options held by
non-employee directors who are either required to resign their position in
connection with a specified change in control transaction or are removed from
their position in connection with such a change in control will be accelerated
in full.