EX-10.16



 Exhibit 10.16 
 Conatus Pharmaceuticals Inc. 
 Employee Incentive Compensation Plan

 Conatus Pharmaceuticals Employee Incentive Compensation Plan is designed as a mechanism for rewarding the achievement of specifically
measured corporate and individual goals by offering both short-term and long-term incentive compensation to employees. By awarding incentive compensation based on the achievement of specific, corporate and individual, pre-set objectives the plan
promotes a commitment to attaining corporate success while reaching individual goals. By awarding both short-term and long-term incentives the plan provides measurable rewards along with positioning the company for long-term success. 

Purpose of the Plan 
 Conatus
Pharmaceuticals Employee Incentive Compensation Plan (the “Plan”) is designed to: 
  

	•	 	 Provide incentive to meet short-term and long-term corporate and individual goals. 



 

	•	 	 Encourage teamwork and ensure consistency among staff goals and objectives. 



 

	•	 	 Recognize performance contributions that significantly impact corporate results. 



 

	•	 	 Pay competitively in order to attract and retain quality performers. 


 Plan Governance 
 A Compensation Committee (the “Committee”) appointed by the
Board of Directors is responsible for governance and administration of the Plan. The Committee is responsible for the approval of participation, award targets, performance measures, and earned awards under the Plan. 

Corporate and Individual Performance 

The Plan will make awards based on annual individual and corporate objectives as agreed to by the Committee prior to the beginning of the performance
measurement period. The relative weight between individual and corporate performance factors will vary based on reporting levels and responsibility. The Plan’s weighting scheme is intended to reflect the direct impact each position has on
overall corporate results, attach importance to corporate performance, and allow opportunity for participants to earn individual awards in low company performance years. The weighting will be reviewed annually by the Committee and adjusted if
necessary. The initial weighting will be as follows: 
  

									
	 	  	Corporate	 	 	Individual	 
			
	 President/CEO
	  	 	100	% 	 	 	0	% 
	 Sr. Vice President
	  	 	80	% 	 	 	20	% 
	 Vice President
	  	 	70	% 	 	 	30	% 
	 Sr. Director/Director
	  	 	60	% 	 	 	40	% 
	 All other employees
	  	 	50	% 	 	 	50	% 

 Performance Objectives 
 At the beginning of the Plan year, each participant will establish in dialogue with their supervisor four to six individual performance goals against which Plan performance will be measured. In addition,
Plan participants will agree on corporate objectives for the year as established in the annual budgeting process. All individual and 

  
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corporate goals that are to be used for performance measurement in the Plan must be approved by the Committee 
 Short Term Incentive Awards 
 Cash Incentive Awards and Award Targets 

Cash incentive awards are determined by applying an “award multiplier” to each covered employee’s base salary The target award multipliers
are used to establish the target cash pool based on overall corporate performance at the beginning of each year. The target award multiplier will generally be equal to the actual award multiplier used at year-end in situations where most objectives
for the measurements period have been met. The award multiplier to be used in calculating each individual award at year-end may range from 0% to 150% of the target award multiplier. Target award multipliers for each salary grade are provided in
Appendix A. 
 Performance Measurement 
 The following scale will be used by the Committee to determine the total cash pool based upon measurement of performance as determined by the Committee. Separate payment multipliers will be established
for the individual and the corporate components of the annual award. The same payment multiplier for the corporate component of each participant’s annual award shall be used for all Plan participants in any given year. 

 

					
	 Performance Category
	  	Award Multiplier
			
	1)	  	Performance for the year was outstanding and exceeded objectives (EC rating)	  	100 to 150%
			
	2)	  	Performance for the year met or exceeded objectives or was excellent in view of prevailing conditions (EE rating)	  	75% to 100%
			
	3)	  	Performance generally met the year’s objectives or was very acceptable in view of prevailing conditions (ME rating)	  	25% to 75%
			
	4)	  	Performance for the year met some but not all objectives (BE rating)	  	0% to 25%

 Calculation of Award 
 A specific dollar target award for the performance period is calculated by multiplying the employee’s base salary by the target award multiplier divided between its corporate component and its
individual component based on the performance factor mix for that specific position. At the end of the performance period, the Committee will agree on corporate and individual award multipliers using the criteria described above. The corporate award
multiplier, which is based on overall corporate performance, is used to calculate actual corporate performance by multiplying the target corporate award established for each individual at the beginning of the performance period by the actual award
multiplier. The individual award multiplier, which is based on an individual’s performance against his objectives, is used in the same way to calculate the actual individual performance award. A sample calculation is shown in Appendix B.


  
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 Long Term Incentive Awards 
 Stock Option Award Targets 
 The Plan is designed to provide long-term incentive
compensation through the annual award of stock options to participants. Options will be granted out of the Company’s existing Stock Option Plan and will be granted at the fair market value of Conatus common stock as of the first business day in
January of each year. Employees with a performance rating of Below Expectations (BE) will not be eligible to receive a stock option award. Options granted under the provisions of the Conatus Incentive Compensation Plan will vest over four years. The
target award schedule on Appendix C will initially be established under the Plan. This schedule is subject to revision at the beginning of each Plan year by the Committee. 
 As with the annual cash awards, the above number of shares would be expected to be awarded in years where most objectives for the measurement period have been met. The actual award multiplier that would
be used in calculation of the annual grant at year-end is the same multiplier used for computation of the cash awards. 
 Calculation of
Stock Award 
 The same multipliers are used for both the stock and cash awards for any one participant. A sample calculation is shown in
Appendix B. 
 Partial Year Participation 
 If an employee becomes a Plan participant after the beginning of the Plan year, the committee will take into consideration the following factors in determining the eligibility of individual’s to
receive an incentive award: 
  

	•	 	 The individual’s overall contribution 


  

	•	 	 The portion of the year spent as a Plan participant 


  

	•	 	 If a participant’s employment is terminated during a Plan year for reason of death, disability, or retirement, the award eligibility will be
determined based on performance as of the end of the Plan year. The final award if any, will be calculated by multiplying the full year award amount by the number of full weeks of employment during the performance period divided by 52.



 Change in Control 
 In the event of a change in control of the company (as determined by the Committee consistent with existing definitions in other benefit plans), and if the plan is assumed by the acquiring company,
incentive awards for the year in which the change in control occurs will be the greater of the target award or the actual award determined by the Committee in its sole discretion. 
 In addition, all unvested stock options previously granted under this Plan will be subject to 50% accelerated vesting immediately upon a change in control. The remaining unvested shares shall vest the
earlier of (i) the date which is twelve months following the effective date of the change in control, or (ii) the date immediately prior to the date on which an employee incurs either an involuntary termination without cause or a
constructive termination, if, and only if, the covered employee incurs the constructive termination or involuntary termination without cause at any time after the change in control, but prior to the date which is twelve months following the
effective date of the change in control. 

  
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 Appendix A 
 Conatus Pharmaceuticals Inc. 
 Employee Incentive Compensation Plan

 Target Award Multipliers 
  

							
	 GRADE
LEVEL
	  	 SAMPLE TITLES
	  	TARGET
BONUS %	 
	CEO	  	President	  	 	40.0	% 
	Sr. VP	  	Sr. Vice President, Research & Development	  	 	30.0	% 
	VP	  	Vice President, Preclinical Development	  	 	25.0	% 
	Sr. Director	  	Sr. Director, Clinical Development	  	 	15.0	% 
	Director	  	Controller	  	 	10.0	% 
	Manager	  	Manager, IT	  	 	7.5	% 
	Professional	  	Chemist	  	 	5.0	% 
	Clerical	  	Administrative Assistant	  	 	3.0	% 


  
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 Appendix B 
 Conatus Pharmaceuticals Inc. 
 Employee Incentive Compensation Plan

 Sample Calculations 
  

			
	EXAMPLE I: CASH AWARD CALCULATION	  	
		
	 Position
	  	Director
	 Base Salary
	  	$120,000
	 Target Award Multiplier
	  	10%
	 Target Award Amount
	  	$12,000
		
	 Target Award Components (based on Performance Factor Mix):
	  	
		
	 Target award based on Corporate performance (50%)
	  	$6,000
	 Target award based on Individual performance (50%)
	  	$6,000
		
	 Actual Cash Award Calculation:
	  	
		
	 Assumed Payment Multipliers Based on Compensation Committee’s
	  	
	 Assessment of Corporate & Individual Performance
	  	
		
	 Corporate multiplier
	  	75% - All corporate objectives met
		
	 Individual multiplier
	  	125% - Performance was outstanding and exceeded objectives
		
	 Cash Award:
	  	
	 Corporate component
	  	$4,500 ($6,000 x 75%)
	 Individual component
	  	7,500 ($6,000 x 125%)
		
	 Total Cash Award
	  	$12,000

  

			
	 EXAMPLE II: STOCK AWARD CALCULATION
	  	
		
	 Position
	  	Director
	 Target Stock Award
	  	20,000 shares
		
	 Target award based on Corporate performance (50%)
	  	10,000 shares
	 Target award based on Individual performance (50%)
	  	10,000 shares
		
	 Actual Stock Option Award Calculation:
	  	
		
	 Corporate component
	  	7,500 (10,000 x 75%)
	 Individual component
	  	12,500 (10,000 x 125%)
		
	 Total stock option grant
	  	20,000 shares


  
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 Appendix C 
 Conatus Pharmaceuticals Inc. 
 Employee Incentive Compensation Plan

 Target Stock Option Awards 
  

											
	 GRADE

LEVEL
	  	 SAMPLE TITLES
	  	AT HIRE
SHARES*	 	  	TARGET
STOCK
OPTION
AWARDS	 
	 CEO
	  	President	  	 	1,500,000	  	  	 	300,000	  
	 Sr. VP
	  	Sr. Vice President, Research & Development	  	 	500,000	  	  	 	100,000	  
	 VP
	  	Vice President, Preclinical Development	  	 	200,000	  	  	 	40,000	  
	 Sr. Director

Director
	  	 Senior Director, Clinical Development
 Controller
	  	 
 	150,000
100,000	  
  	  	 
 	30,000
20,000	  
  
	 Manager

Professional

Clerical
	  	 Manager, IT

Chemist
 Administrative Assistant
	  	 
 
 	50,000
25,000
10,000	  
  
  	  	 
 
 	10,000
5,000
2,000	  
  
  


  
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