**Exhibit 10.16**

 

**ARYXTHERAPEUTICS, INC.**

 

**NON-EMPLOYEEDIRECTOR COMPENSATION**

 

**Cash Compensation Arrangements**

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  $2,000 for each Boardmeeting attended in person ($1,000 for meetings attended by video or telephoneconference).

 

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

 

**2007 Non-Employee Directors’ Stock Option Plan**

 

Our 2007 Non-Employee Directors’ Stock OptionPlan, or 2007 Directors’ Plan, became effective in connection with our initialpublic offering in November 2007. The 2007 Directors’ Plan provides forthe automatic grant of nonstatutory stock options to purchase shares of ourcommon stock to our non-employee directors over their period of service on ourBoard. As of December 31, 2008, the number of shares of common stock thatmay be issued under the 2007 Directors’ Plan is 266,662 shares. The numberof shares of common stock reserved for issuance will automatically increase on January 1st ofeach year through and including January 1, 2017, by the excess of (a) thenumber of shares of common stock subject to options granted during thepreceding calendar year, over (b) the number of shares added back to theshare reserve during the preceding calendar year. If any option expires orterminates for any reason, in whole or in part, without having been exercisedin full, the shares of common stock not acquired under such option will becomeavailable for future issuance under the 2007 directors’ plan. The followingtypes of shares issued under the 2007 directors’ plan may again becomeavailable for the grant of new options: (a) any shares withheld to satisfywithholding taxes, (b) any shares used to pay the exercise price of anoption in a net exercise arrangement and (c) shares tendered to us to paythe exercise price of an option.

 

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

 

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

 

If a non-employee director’s servicerelationship with us, or any of our affiliates, whether as a non-employeedirector or subsequently as an employee, director or consultant of ours or anaffiliate, ceases for any reason other than disability or death, or after any12-month period following a change in control, the optionee may exercise anyvested 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 periodfollowing cessation of service), the optionee or a beneficiary may exercise theoption for a period of 12 months in the event of disability, and18 months in the event of death. If such an optionee’s service terminateswithin 12 months following a specified change in control transaction, theoptionee may exercise the option for a period of 12 months following theeffective date of such a transaction. The option term may be extended in theevent that exercise of the option following termination of service isprohibited by applicable securities laws. In no event, however, may an optionbe exercised beyond the expiration of its term.

 

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

 

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