Document:

Exhibit
10.9

 

ARYX THERAPEUTICS, INC.

 

2007 EMPLOYEE STOCK PURCHASE PLAN

 

ADOPTED BY THE BOARD OF DIRECTORS: 
JULY 18, 2007

APPROVED BY THE STOCKHOLDERS:  OCTOBER 22, 2007

 

1.                                      GENERAL.

 

(a)                                  The
purpose of the Plan is to provide a means by which Eligible Employees of the
Company and certain designated Related Corporations may be given an opportunity
to purchase shares of Common Stock. The Plan is intended to permit the Company
to grant a series of Purchase Rights to Eligible Employees under an Employee
Stock Purchase Plan.

 

(b)                                  The
Company, by means of the Plan, seeks to retain the services of such Employees,
to secure and retain the services of new Employees and to provide incentives
for such persons to exert maximum efforts for the success of the Company and
its Related Corporations.

 

2.                                      ADMINISTRATION.

 

(a)                                  The
Board shall administer the Plan unless and until the Board delegates
administration of the Plan to a Committee or Committees, as provided in Section
2(c).

 

(b)                                  The
Board shall have the power, subject to, and within the limitations of, the
express provisions of the Plan:

 

(i)                                    To
determine how and when Purchase Rights to purchase shares of Common Stock shall
be granted and the provisions of each Offering comprised of such Purchase
Rights (which need not be identical).

 

(ii)                                To
designate from time to time which Related Corporations of the Company shall be
eligible to participate in the Plan.

 

(iii)                            To
construe and interpret the Plan and Purchase Rights, and to establish, amend
and revoke rules and regulations for administration of the Plan. The Board, in
the exercise of this power, may correct any defect, omission or inconsistency
in the Plan, in a manner and to the extent it shall deem necessary or expedient
to make the Plan or Purchase Rights fully effective.

 

(iv)                               To
settle all controversies regarding the Plan and Purchase Rights granted under
it.

 

(v)                                   To suspend or terminate the Plan at
any time. Suspension or termination of the Plan shall not impair rights and
obligations under any Purchase Right granted while the Plan is in effect except
with the written consent of the affected Participant.

 

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(vi)                               To
amend the Plan in any respect the Board deems necessary or advisable. However,
except as provided in Section 12(a) relating to Capitalization Adjustments,
stockholder approval shall be required for any amendment of the Plan that
either (i) materially increases the number of shares of Common Stock available
for issuance under the Plan, (ii) materially expands the class of individuals
eligible to become Participants and receive Purchase Rights under the Plan,
(iii) materially increases the benefits accruing to Participants under the Plan
or materially reduces the price at which shares of Common Stock may be purchased
under the Plan, (iv) materially extends the term of the Plan, or (v) expands
the types of awards available for issuance under the Plan, but in each of (i)
through (v) only to the extent required by applicable law or listing
requirements. Except as provided above, the rights and obligations under any
Purchase Rights granted before amendment of the Plan shall not be impaired by
any amendment of the Plan except: (i) with the consent of the person to whom
such Purchase Rights were granted, or (ii) as necessary to comply with any laws
or governmental regulations (including, without limitation, the provisions of
the Code and the regulations promulgated thereunder relating to Employee Stock
Purchase Plans).

 

(vii)                           Generally,
to exercise such powers and to perform such acts as it deems necessary or
expedient to promote the best interests of the Company and its Related
Corporations and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.

 

(viii)                       To
adopt such procedures and sub-plans as are necessary or appropriate to permit
participation in the Plan by Employees who are foreign nationals or employed
outside the United States.

 

(c)                                  The
Board may delegate some or all of the administration of the Plan to a Committee
or Committees. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board that have been delegated to the Committee,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may retain the
authority to concurrently administer the Plan with the Committee and may, at
any time, revest in the Board some or all of the powers previously delegated.

 

(d)                                  All
determinations, interpretations and constructions made by the Board in good
faith shall not be subject to review by any person and shall be final, binding
and conclusive on all persons.

 

3.                                      SHARES OF COMMON STOCK SUBJECT TO THE PLAN.

 

(a)                                  Subject
to the provisions of Section 12(a) relating to Capitalization Adjustments, the aggregate
number of shares of Common Stock that may be sold pursuant to Purchase Rights
shall not exceed 145,833 shares of Common Stock. In addition, the number of
shares of Common Stock available for issuance under the Plan shall
automatically increase on January 1st of each year, commencing in 2008 and
ending on (and including) January 1, 2017, in an amount equal to the lesser of
(i) one percent (1%) of the total number of shares of Common Stock

 

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outstanding on December
31st of the preceding calendar year, or (ii) a lesser number of shares of
Common Stock determined by the Board of Directors prior to the first day of any
calendar year.

 

(b)                                  If
any Purchase Right granted under the Plan shall for any reason terminate
without having been exercised, the shares of Common Stock not purchased under
such Purchase Right shall again become available for issuance under the Plan.

 

(c)                                  Subject
to the provisions of Section 12(a) relating to Capitalization Adjustments, the
aggregate maximum number of shares of Common Stock that may be issued pursuant
to the exercise of Purchase Rights shall be 1,666,666 shares of Common Stock.

 

(d)                                  The
stock purchasable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares repurchased by the Company on the
open market.

 

4.                                      GRANT OF PURCHASE RIGHTS; OFFERING.

 

(a)                                  The
Board may from time to time grant or provide for the grant of Purchase Rights
to purchase shares of Common Stock under the Plan to Eligible Employees in an
Offering (consisting of one or more Purchase Periods) on an Offering Date or
Offering Dates selected by the Board. Each Offering shall be in such form and
shall contain such terms and conditions as the Board shall deem appropriate,
which shall comply with the requirement of Section 423(b)(5) of the Code that
all Employees granted Purchase Rights shall have the same rights and privileges.
The terms and conditions of an Offering shall be incorporated by reference into
the Plan and treated as part of the Plan. The provisions of separate Offerings
need not be identical, but each Offering shall include (through incorporation
of the provisions of this Plan by reference in the document comprising the
Offering or otherwise) the period during which the Offering shall be effective,
which period shall not exceed twenty-seven (27) months beginning with the
Offering Date, and the substance of the provisions contained in Sections 5 through
8.

 

(b)                                  If
a Participant has more than one Purchase Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant shall be
deemed to apply to all of his or her Purchase Rights under the Plan, and (ii) a
Purchase Right with a lower exercise price (or an earlier-granted Purchase
Right, if different Purchase Rights have identical exercise prices) shall be
exercised to the fullest possible extent before a Purchase Right with a higher
exercise price (or a later-granted Purchase Right if different Purchase Rights
have identical exercise prices) shall be exercised.

 

(c)                                  The
Board shall have the discretion to structure an Offering so that if the Fair
Market Value of a share of Common Stock on any Purchase Date within that
Offering is less than or equal to the Fair Market Value of a share of Common
Stock on the Offering Date for that Offering, then (i) that Offering shall
terminate immediately following the purchase of shares of Common Stock on such
Purchase Date, and (ii) Participants in the terminated Offering automatically shall
be enrolled in the new Offering that commences immediately after such Purchase Date.

 

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5.                                      ELIGIBILITY.

 

(a)                                  Purchase
Rights may be granted only to Employees of the Company or, as the Board may
designate as provided in Section 2(b), to Employees of a Related Corporation. Except
as provided in Section 5(b), an Employee shall not be eligible to be granted
Purchase Rights under the Plan unless, on the Offering Date, such Employee has
been in the employ of the Company or the Related Corporation, as the case may
be, for such continuous period preceding such Offering Date as the Board may
require, but in no event shall the required period of continuous employment be
greater than two (2) years. In addition, the Board may provide that no Employee
shall be eligible to be granted Purchase Rights under the Plan unless, on the
Offering Date, such Employee’s customary employment with the Company or the
Related Corporation is more than twenty (20) hours per week and more than five
(5) months per calendar year or such other criteria as the Board may determine
consistent with Section 423 of the Code.

 

(b)                                  The
Board may provide that each person who, during the course of an Offering, first
becomes an Eligible Employee shall, on a date or dates specified in the
Offering which coincides with the day on which such person becomes an Eligible
Employee or which occurs thereafter, receive a Purchase Right under that
Offering, which Purchase Right shall thereafter be deemed to be a part of that
Offering. Such Purchase Right shall have the same characteristics as any
Purchase Rights originally granted under that Offering, as described herein,
except that:

 

(i)                                    the
date on which such Purchase Right is granted shall be the “Offering Date” of
such Purchase Right for all purposes, including determination of the exercise
price of such Purchase Right;

 

(ii)                                the
period of the Offering with respect to such Purchase Right shall begin on its
Offering Date and end coincident with the end of such Offering; and

 

(iii)                            the
Board may provide that if such person first becomes an Eligible Employee within
a specified period of time before the end of the Offering, he or she shall not
receive any Purchase Right under that Offering.

 

(c)                                  No
Employee shall be eligible for the grant of any Purchase Rights under the Plan
if, immediately after any such Purchase Rights are granted, such Employee owns
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any Related Corporation. For
purposes of this Section 5(c), the rules of Section 424(d) of the Code shall apply
in determining the stock ownership of any Employee, and stock which such
Employee may purchase under all outstanding Purchase Rights and options shall
be treated as stock owned by such Employee.

 

(d)                                  As
specified by Section 423(b)(8) of the Code, an Eligible Employee may be granted
Purchase Rights under the Plan only if such Purchase Rights, together with any
other rights granted under all Employee Stock Purchase Plans of the Company and
any Related Corporations, do not permit such Eligible Employee’s rights to
purchase stock of the Company or any Related Corporation to accrue at a rate
which exceeds twenty five thousand dollars ($25,000) of Fair Market Value of
such stock (determined at the time such rights are granted, and

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which, with respect to
the Plan, shall be determined as of their respective Offering Dates) for each
calendar year in which such rights are outstanding at any time.

 

(e)                                  Officers
of the Company and any designated Related Corporation, if they are otherwise
Eligible Employees, shall be eligible to participate in Offerings under the
Plan. Notwithstanding the foregoing, the Board may provide in an Offering that
Employees who are highly compensated Employees within the meaning of Section
423(b)(4)(D) of the Code shall not be eligible to participate.

 

6.                                      PURCHASE RIGHTS; PURCHASE PRICE.

 

(a)                                  On
each Offering Date, each Eligible Employee, pursuant to an Offering made under
the Plan, shall be granted a Purchase Right to purchase up to that number of
shares of Common Stock purchasable either with a percentage or with a maximum
dollar amount, as designated by the Board, but in either case not exceeding
fifteen percent (15%) of such
Employee’s earnings (as defined by the Board in each Offering) during the
period that begins on the Offering Date (or such later date as the Board
determines for a particular Offering) and ends on the date stated in the
Offering, which date shall be no later than the end of the Offering.

 

(b)                                  The
Board shall establish one (1) or more Purchase Dates during an Offering as of
which Purchase Rights granted pursuant to that Offering shall be exercised and
purchases of shares of Common Stock shall be carried out in accordance with
such Offering.

 

(c)                                  In
connection with each Offering made under the Plan, the Board may specify a
maximum number of shares of Common Stock that may be purchased by any
Participant on any Purchase Date during such Offering. In connection with each
Offering made under the Plan, the Board may specify a maximum aggregate number
of shares of Common Stock that may be purchased by all Participants pursuant to
such Offering. In addition, in connection with each Offering that contains more
than one Purchase Date, the Board may specify a maximum aggregate number of
shares of Common Stock that may be purchased by all Participants on any
Purchase Date under the Offering. If the aggregate purchase of shares of Common
Stock issuable upon exercise of Purchase Rights granted under the Offering
would exceed any such maximum aggregate number, then, in the absence of any
Board action otherwise, a pro rata allocation of the shares of Common Stock
available shall be made in as nearly a uniform manner as shall be practicable
and equitable.

 

(d)                                  The
purchase price of shares of Common Stock acquired pursuant to Purchase Rights
shall be not less than the lesser of:

 

(i)                                    an
amount equal to eighty-five percent (85%) of the Fair Market Value of the
shares of Common Stock on the Offering Date; or

 

(ii)                                an
amount equal to eighty-five percent (85%) of the Fair Market Value of the
shares of Common Stock on the applicable Purchase Date.

 

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7.                                      PARTICIPATION; WITHDRAWAL; TERMINATION.

 

(a)                                  A
Participant may elect to authorize payroll deductions pursuant to an Offering
under the Plan by completing and delivering to the Company, within the time
specified in the Offering, an enrollment form (in such form as the Company may
provide). Each such enrollment form shall authorize an amount of Contributions
expressed as a percentage of the submitting Participant’s earnings (as defined
in each Offering) during the Offering (not to exceed the maximum percentage
specified by the Board). Each Participant’s Contributions shall be credited to
a bookkeeping account for such Participant under the Plan and shall be
deposited with the general funds of the Company except where applicable law
requires that Contributions be deposited with a third party. To the extent
provided in the Offering, a Participant may begin such Contributions after the
beginning of the Offering. To the extent provided in the Offering, a
Participant may thereafter reduce (including to zero) or increase his or her
Contributions. To the extent specifically provided in the Offering, in addition
to making Contributions by payroll deductions, a Participant may make
Contributions through the payment by cash or check prior to each Purchase Date
of the Offering.

 

(b)                                  During
an Offering, a Participant may cease making Contributions and withdraw from the
Offering by delivering to the Company a notice of withdrawal in such form as
the Company may provide. Such withdrawal may be elected at any time prior to
the end of the Offering, except as provided otherwise in the Offering. Upon
such withdrawal from the Offering by a Participant, the Company shall
distribute to such Participant all of his or her accumulated Contributions
(reduced to the extent, if any, such Contributions have been used to acquire
shares of Common Stock for the Participant) under the Offering, and such
Participant’s Purchase Right in that Offering shall thereupon terminate. A
Participant’s withdrawal from an Offering shall have no effect upon such
Participant’s eligibility to participate in any other Offerings under the Plan,
but such Participant shall be required to deliver a new enrollment form in
order to participate in subsequent Offerings.

 

(c)                                  Purchase
Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon a Participant ceasing to be an Employee for any reason or for
no reason (subject to any post-employment participation period required by law)
or other lack of eligibility. The Company shall distribute to such terminated
or otherwise ineligible Employee all of his or her accumulated Contributions
(reduced to the extent, if any, such Contributions have been used to acquire
shares of Common Stock for the terminated or otherwise ineligible Employee)
under the Offering.

 

(d)                                  Purchase
Rights shall not be transferable by a Participant except by will, the laws of descent
and distribution, or by a beneficiary designation as provided in Section 10. During
a Participant’s lifetime, Purchase Rights shall be exercisable only by such
Participant.

 

(e)                                  Unless
otherwise specified in an Offering, the Company shall have no obligation to pay
interest on Contributions.

 

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8.                                      EXERCISE OF PURCHASE RIGHTS.

 

(a)                                  On
each Purchase Date during an Offering, each Participant’s accumulated
Contributions shall be applied to the purchase of shares of Common Stock up to
the maximum number of shares of Common Stock permitted pursuant to the terms of
the Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares shall be issued upon the exercise of Purchase
Rights unless specifically provided for in the Offering.

 

(b)                                  If
any amount of accumulated Contributions remains in a Participant’s account
after the purchase of shares of Common Stock and such remaining amount is less
than the amount required to purchase one share of Common Stock on the final
Purchase Date of an Offering, then such remaining amount shall be held in such
Participant’s account for the purchase of shares of Common Stock under the next
Offering under the Plan, unless such Participant withdraws from such next
Offering, as provided in Section 7(b), or is not eligible to participate in
such Offering, as provided in Section 5, in which case such amount shall be
distributed to such Participant after the final Purchase Date, without interest.
If the amount of Contributions remaining in a Participant’s account after the
purchase of shares of Common Stock is at least equal to the amount required to
purchase one (1) whole share of Common Stock on the final Purchase Date of the
Offering, then such remaining amount shall be distributed in full to such
Participant at the end of the Offering without interest.

 

(c)                                  No
Purchase Rights may be exercised to any extent unless the shares of Common
Stock to be issued upon such exercise under the Plan are covered by an
effective registration statement pursuant to the Securities Act and the Plan is
in material compliance with all applicable federal, state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date during
any Offering hereunder the shares of Common Stock are not so registered or the
Plan is not in such compliance, no Purchase Rights or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the shares of Common Stock are subject to such an effective registration
statement and the Plan is in such compliance, except that the Purchase Date
shall not be delayed more than twelve (12) months and the Purchase Date shall
in no event be more than twenty-seven (27) months from the Offering Date. If,
on the Purchase Date under any Offering hereunder, as delayed to the maximum
extent permissible, the shares of Common Stock are not registered and the Plan
is not in such compliance, no Purchase Rights or any Offering shall be
exercised and all Contributions accumulated during the Offering (reduced to the
extent, if any, such Contributions have been used to acquire shares of Common
Stock) shall be distributed to the Participants without interest.

 

9.                                      COVENANTS OF THE COMPANY.

 

The Company shall seek to obtain from each federal,
state, foreign or other regulatory commission or agency having jurisdiction
over the Plan such authority as may be required to issue and sell shares of
Common Stock upon exercise of the Purchase Rights. If, after commercially
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority that counsel for the Company deems necessary
for the lawful issuance and sale of Common Stock under the Plan, the Company
shall be relieved from any liability for failure to issue and sell Common Stock
upon exercise of such Purchase Rights unless and until such authority is
obtained.

 

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10.                               DESIGNATION OF BENEFICIARY.

 

(a)                                  A
Participant may file a written designation of a beneficiary who is to receive
any shares of Common Stock and/or cash, if any, from the Participant’s account
under the Plan in the event of such Participant’s death subsequent to the end
of an Offering but prior to delivery to the Participant of such shares of
Common Stock or cash. In addition, a Participant may file a written designation
of a beneficiary who is to receive any cash from the Participant’s account
under the Plan in the event of such Participant’s death during an Offering. Any
such designation shall be on a form provided by or otherwise acceptable to the
Company.

 

(b)                                  The
Participant may change such designation of beneficiary at any time by written
notice to the Company. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant’s death, the Company shall deliver such shares of
Common Stock and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver
such shares of Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.

 

11.                               MISCELLANEOUS PROVISIONS.

 

(a)                                  The
Plan and Offering do not constitute an employment contract. Nothing in the Plan
or in the Offering shall in any way alter the at will nature of a Participant’s
employment or be deemed to create in any way whatsoever any obligation on the
part of any Participant to continue in the employ of the Company or a Related
Corporation, or on the part of the Company or a Related Corporation to continue
the employment of a Participant.

 

(b)                                  The
provisions of the Plan shall be governed by the laws of the State of Delaware without resort to that
state’s conflicts of laws rules.

 

(c)                                  Proceeds
from the sale of shares of Common Stock pursuant to Purchase Rights shall
constitute general funds of the Company.

 

(d)                                  A
Participant shall not be deemed to be the holder of, or to have any of the
rights of a holder with respect to, shares of Common Stock subject to Purchase
Rights unless and until the Participant’s shares of Common Stock acquired upon
exercise of Purchase Rights are recorded in the books of the Company (or its
transfer agent).

 

12.                               ADJUSTMENTS UPON CHANGES IN COMMON STOCK;
CORPORATE TRANSACTIONS.

 

(a)                                  In
the event of a Capitalization Adjustment, the Board shall appropriately and
proportionately adjust: (i) the class(es) and maximum number of securities
subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum
number of securities that may be issued pursuant to the exercise of Purchase
Rights pursuant to Section 3(c), (iii) the class(es) and number of securities
subject to, and the purchase price in effect for, outstanding Offerings and Purchase
Rights, and (iv) the class(es) and number of securities imposed by purchase
limits

 

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under each ongoing
Offering. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive.

 

(b)                                  In
the event of a Corporate Transaction, then: (i) any surviving corporation or
acquiring corporation (or the surviving or acquiring corporation’s parent
company) may assume or continue Purchase Rights outstanding under the Plan or
may substitute similar rights (including a right to acquire the same
consideration paid to the stockholders in the Corporate Transaction) for those
outstanding under the Plan, or (ii) if any surviving or acquiring corporation
(or its parent company)  does not
assume or continue such Purchase Rights or does not substitute similar rights
for Purchase Rights outstanding under the Plan, then the Participants’
accumulated Contributions shall be used to purchase shares of Common Stock
within ten (10) business days prior to the Corporate Transaction under any
ongoing Offerings, and the Participants’ Purchase Rights under the ongoing
Offerings shall terminate immediately after such purchase.

 

13.                               TERMINATION OR SUSPENSION OF THE PLAN.

 

(a)                                  The
Board may suspend or terminate the Plan at any time. Unless sooner terminated,
the Plan shall terminate at the time that all of the shares of Common Stock
reserved for issuance under the Plan, as increased and/or adjusted from time to
time, have been issued under the terms of the Plan. No Purchase Rights may be
granted under the Plan while the Plan is suspended or after it is terminated.

 

(b)                                  Any
benefits, privileges, entitlements and obligations under any Purchase Rights
while the Plan is in effect shall not be impaired by suspension or termination
of the Plan except (i) as expressly provided in the Plan or with the consent of
the person to whom such Purchase Rights were granted, (ii) as necessary to
comply with any laws, regulations or listing requirements, or (iii) as
necessary to ensure that the Plan and/or Purchase Rights comply with the
requirements of Section 423 of the Code.

 

14.                               EFFECTIVE DATE OF PLAN.

 

The Plan shall become effective on the IPO Date, but
no Purchase Rights shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.

 

15.                               DEFINITIONS.

 

As used in the Plan, the following definitions shall
apply to the capitalized terms indicated below:

 

(a)                                  “Board”  means the
Board of Directors of the Company.

 

(b)                                  “Capitalization Adjustment” means any
change that is made in, or other events that occur with respect to, the Common
Stock subject to the Plan or subject to any Purchase Right after the Effective
Date without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend

 

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in property other than
cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company). Notwithstanding the foregoing, the
conversion of any convertible securities of the Company shall not be treated as
a transaction “without the receipt of consideration” by the Company.

 

(c)                                  “Code”  means the
Internal Revenue Code of 1986, as amended.

 

(d)                                  “Committee”  means a
committee of one (1) or more members of the Board to whom authority has been
delegated by the Board in accordance with Section 2(c).

 

(e)                                  “Common Stock” means the common stock of the
Company.

 

(f)                                    “Company” means ARYx Therapeutics, Inc., a
Delaware corporation.

 

(g)                                 “Contributions” means the payroll deductions and
other additional payments specifically provided for in the Offering, that a
Participant contributes to fund the exercise of a Purchase Right. A Participant
may make additional payments into his or her account, if specifically provided
for in the Offering, and then only if the Participant has not already had the
maximum permitted amount withheld during the Offering through payroll
deductions.

 

(h)                                 “Corporate Transaction” means the
occurrence, in a single transaction or in a series of related transactions, of
any one or more of the following events:

 

(i)                                    the
consummation of a sale  or other
disposition of all or substantially all, as determined by the Board in its sole
discretion, of the consolidated assets of the Company and its Subsidiaries;

 

(ii)                                the
consummation of a sale or other disposition of at least ninety percent (90%) of the
outstanding securities of the Company;

 

(iii)                            the
consummation of a merger, consolidation or similar transaction following which
the Company is not the surviving corporation; or

 

(iv)                               the
consummation of a merger, consolidation or similar transaction following which
the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger, consolidation or similar
transaction are converted or exchanged by virtue of the merger, consolidation
or similar transaction into other property, whether in the form of securities,
cash or otherwise.

 

(i)                                    “Director”  means a member
of the Board.

 

(j)                                    “Eligible Employee”  means an Employee who meets the requirements set forth in
the Offering for eligibility to participate in the Offering, provided that such
Employee also meets the requirements for eligibility to participate set forth
in the Plan.

 

(k)                                “Employee”  means any
person, including Officers and Directors, who is employed for purposes of
Section 423(b)(4) of the Code by the Company or a Related

 

10

 

Corporation. However,
service solely as a Director, or payment of a fee for such services, shall not
cause a Director to be considered an “Employee” for purposes of the Plan.

 

(l)                                    “Employee Stock Purchase Plan”  means a plan that grants Purchase Rights intended to be
options issued under an “employee stock purchase plan,” as that term is defined
in Section 423(b) of the Code.

 

(m)                              “Exchange Act”  means the
Securities Exchange Act of 1934, as amended.

 

(n)                                 “Fair Market Value” means, as of any
date, the value of the Common Stock determined as follows:

 

(i)                                    If
the Common Stock is listed on any established stock exchange including the
Nasdaq Global Select Market or the Nasdaq Global Market, the Fair Market Value
of a share of Common Stock shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange (or the
exchange or market with the greatest volume of trading in the Common Stock) on
the date of determination, as reported in The
Wall Street Journal or such other source as the Board deems
reliable.

 

(ii)                                If
the Common Stock is listed or traded on the Nasdaq Capital Market, the Fair Market
Value of a share of Common Stock shall be the mean between the bid and asked
prices for the Common Stock on the date of determination, as reported in The Wall Street Journal or such other
source as the Board deems reliable. Unless otherwise provided by the Board, if
there is no closing sales price (or closing bid if no sales were reported) for
the Common Stock on the date of determination, then the Fair Market Value shall
be the mean between the bid and asked prices for the Common Stock on the last preceding
date for which such quotation exists.

 

(iii)                            In
the absence of such markets for the Common Stock, the Fair Market Value shall
be determined by the Board in good faith.

 

(o)                                  “IPO Date”  means the date
of the underwriting agreement between the Company and the underwriter(s)
managing the initial public offering of the Common Stock, pursuant to which the
Common Stock is priced for the initial public offering.

 

(p)                                  “Offering”  means the
grant of Purchase Rights to purchase shares of Common Stock under the Plan to
Eligible Employees.

 

(q)                                  “Offering Date” means a date selected by the Board
for an Offering to commence.

 

(r)                                  “Officer”  means  a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

 

(s)                                  “Participant”  means an
Eligible Employee who holds an outstanding Purchase Right granted pursuant to
the Plan.

 

(t)                                    “Plan”  means this
ARYx Therapeutics, Inc. 2007 Employee Stock Purchase Plan.

 

11

 

(u)                                 “Purchase Date”  means one or
more dates during an Offering established by the Board on which Purchase Rights
shall be exercised and as of which purchases of shares of Common Stock shall be
carried out in accordance with such Offering.

 

(v)                                   “Purchase Period” means a
period of time specified within an Offering beginning on the Offering Date or
on the next day following a Purchase Date within an Offering and ending on a
Purchase Date. An Offering may consist of one or more Purchase Periods.

 

(w)                                “Purchase Right”  means an option to purchase shares of Common Stock granted
pursuant to the Plan.

 

(x)                                  “Related Corporation”  means any “parent corporation” or “subsidiary corporation”
of the Company whether now or subsequently established, as those terms are
defined in Sections 424(e) and 424(f), respectively, of the Code.

 

(y)                                  “Securities Act”  means the Securities Act of 1933, as amended.

 

(z)                                  “Trading Day”  means
any day on which the exchange(s) or market(s) on which shares of Common Stock
are listed, including an established stock exchange, the Nasdaq Global Select
Market, the Nasdaq Global Market, or the Nasdaq Capital Market, is open for
trading.

 

12Exhibit
10.16

 

ARYX
THERAPEUTICS, INC.

NON-EMPLOYEE
DIRECTOR

COMPENSATION
ARRANGEMENTS

 

In July 2007, the Board of Directors (the “Board”) of ARYx Therapeutics, Inc. (“ARYx”) adopted the following
compensation program for non-employee directors of the Board to be effective
upon the closing of the initial public offering of ARYx’s common stock (the “Offering”). Pursuant to this
program, each member of the Board who is not an employee will receive the
following cash compensation for services rendered as a member of the Board and
committees of the Board, as applicable:

·        
$15,000 per year for service as a
Board member;

·        
$5,000 per year for service as
chairman of the audit committee or compensation committee;

·        
$2,500 per year for service as
chairman of the nominating and corporate governance committee;

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

·        
$1,000 for each committee meeting
attended in person ($500 for meetings attended by video or telephone
conference).

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

Additionally, members of
the Board who are not ARYx’s employees will receive non-statutory stock options
under ARYx’s 2007 Non-Employee Directors’ Stock Option Plan (the “2007 Directors’ Plan”), which will
become effective immediately upon the signing of the underwriting agreement for
the Offering. Effective upon the closing of this Offering, each non-employee
director will be automatically granted a non-statutory stock option to purchase
16,666 shares of common stock with an exercise price equal to the then fair
market value of our common stock. Each non-employee director joining our board
of directors after the closing of the Offering will automatically be granted a
non-statutory stock option to purchase 16,666 shares of common stock with
an exercise price equal to the then fair market value of ARYx’s common stock.
On the date of each annual meeting of ARYx’s stockholders beginning in 2009,
each non-employee director will automatically be granted a non-statutory stock
option to purchase 6,666 shares of ARYx’s common stock on that date with an
exercise price equal to the then fair market value of the common stock. The
initial grant will vest monthly over three years from the date of grant and the
annual grant will vest monthly over one year from the date of grant. All stock
options granted under the 2007 Directors’ Plan will have a term of ten years.

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