Exhibit 10.2
EMPLOYMENT AGREEMENT
     This Employment Agreement (this “Agreement”), is executed and entered into
on the 10th day of June, 2008, by and between MDRNA, INC., a Delaware
corporation (the “Company”), with offices at 3830 Monte Villa Parkway, Bothell,
Washington 98021 and J. Michael French, an individual resident in the State of
Arizona (the “Executive”), effective June 23, 2008 (the “Effective Date”).
W I T N E S S E T H :
     WHEREAS, the Company and the Executive wish to enter into this Agreement,
which shall set forth the Executive’s terms of employment as Chief Executive
Officer of the Company,
     NOW THEREFORE, in consideration of the mutual promises and agreements
herein and for other good and valuable consideration the receipt and sufficiency
of which are hereby mutually acknowledged, the Company and the Executive agree
as follows:
1. Application and Effectiveness of Agreements. Effective as of the Effective
Date, this Agreement shall govern (i) the employment relationship between the
Company and the Executive and (ii) other matters as set forth herein.
2. Employment; Responsibilities and Authority; Definitions.
          (a) Subject to the terms and conditions of this Agreement, the Company
shall employ the Executive as its Chief Executive Officer during the Employment
Period (as defined in Section 3, below) and the Executive shall perform such
acts and duties and furnish such services to the Company and its Subsidiaries
(as defined below) as the Board of Directors of the Company (the “Board”) shall
from time to time direct.
          (b) Subject to the terms and conditions of this Agreement, the
Executive hereby accepts such employment and agrees to devote his full time and
continuous best efforts to the duties provided for herein.
          (c) For purposes of this Agreement: (1) the “Business of the Company”
means the description of the Company’s business as is described in Part I,
Item 1 of the Company’s most recent Annual Report on Form 10-K filed with the
U.S. Securities and Exchange Commission (provided, however, that for purposes of
Sections 18(b) through (e) hereof, “Business of the Company” shall mean the
Company’s business as of the date of termination of Executive’s employment, as
the same may have changed since the Effective Date), and (2) the term
“Subsidiary” means a corporation or other entity that is at least majority
owned, directly or indirectly, by the Company.
3. Term; Employment Period. The “Employment Period” under this Agreement shall
commence on the Effective Date and shall terminate at the close of business on
June 9, 2011 unless it is (a) extended by written agreement between the parties
or by continuing employment of the Executive by the Company as provided in the
following sentence or (b) earlier terminated pursuant to Section 11 hereof. If
the Executive shall remain in full-time employment by the Company beyond what
would otherwise be the end of the Employment Period without any written
agreement between the parties, this Agreement and the Employment Period shall be

 

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deemed to continue on a quarter-to-quarter basis and either party shall have the
right to terminate the Executive’s employment hereunder at the end of any
ensuing fiscal quarter on written notice of at least ninety (90) days.
4. Salary. For services rendered to the Company during the Employment Period,
the Company shall compensate the Executive with a base salary, payable in
semi-monthly installments, which initially shall be three hundred and forty
thousand dollars ($340,000) per annum commencing on the Effective Date and which
shall thereafter be set by the Board from time to time as determined by the
Board or the Compensation Committee of the Board (the “Compensation Committee”),
with the target for each year being the 50th percentile of the Radford survey.
This target is precatory and not binding on the Company, and the Executive’s
base salary may be more or less than said targeted percentile (but in no event
shall it be less than the initial base salary).
5. Incentive Cash Compensation.
          (a) For the Company’s fiscal year that began on January 1, 2008, and
for each subsequent fiscal year or portion thereof during the Employment Period,
the Executive shall also be eligible to receive incentive cash compensation
based on the Executive’s performance in relation to the performance areas and
performance targets which the Board or Compensation Committee shall determine
and communicate to the Executive as described below (the “Annual Bonus Plan”).
The targeted amount of such Annual Bonus Plan shall be forty percent (40%) of
the Executive’s base salary for such year; provided, however, that the Executive
and the Company acknowledge that the amount actually paid to the Executive
pursuant to this Section 5 for any fiscal year or portion thereof may be nil, or
may be more or less than said targeted amount.
          (b) The Board shall establish performance criteria for determination
of the incentive cash compensation that will be payable to the Executive with
respect to each fiscal year of the Company. To the extent possible, such
criteria shall be established, as to each fiscal year, prior to the end of the
second month of such fiscal year. As an example, such performance criteria may
be comprised of several designated performance areas and one or more performance
targets in each area. The Company acknowledges that the business objectives used
in determining the Executive’s incentive cash compensation, and the performance
areas and performance targets referred to herein, shall be based on the input
and recommendations of the Company’s Chair and that, in exercising its review
and supervisory role with respect to the determination and adoption of those
performance areas and performance targets, the Board or the Compensation
Committee, as the case may be, shall act reasonably and in consultation and
cooperation with the Chair and consistently with past practice.
          (c) As soon as practical, and absent unforeseen circumstances no later
than ninety (90) days following the end of each fiscal year of the Company, the
Board shall determine, reasonably and in good faith, the extent to which the
applicable performance criteria for such fiscal year shall have been achieved
and, accordingly, shall cause the appropriate amount of incentive cash
compensation to be paid to the Executive. If unforeseen developments occur that
in the opinion of the Board make the performance areas and/or targets previously
determined unachievable, infeasible, or inadvisable — and therefore
inappropriate as a measure of the performance of the Executive — the Board shall
consider in good faith the extent to which the

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actual performance of the Executive nevertheless warrants payment of the amounts
that would have been payable if the performance criteria had been achieved; and,
to such extent, payment shall be made to the Executive.
6. Stock Options. The Company and the Executive hereby acknowledge that the
Board of Directors shall grant, as and to the extent provided below in this
paragraph, to the Executive options to purchase shares of common stock of the
Company (the “Outstanding Options”). The terms of the grant agreements granting
such Outstanding Options shall govern the rights and obligations of the
Executive with respect thereto, subject, however, to the provisions of
Sections 12 and 21 of this Agreement, if and as applicable. Upon the Effective
Date of this Agreement, the Executive shall receive a grant of options to
purchase 1,260,000 shares of common stock of the Company. With respect to these
options: (A) 420,000 options shall vest and be exercisable on June 10, 2009 at
the fair market value calculated as of the Effective Date (the “Effective Date
Strike Price”); (B) 105,000 options shall vest and be exercisable on each of
September 10, 2009, December 10, 2009, March 10, 2010 and June 10, 2010 (for an
aggregate 420,000 options during such period) at the Effective Date Strike Price
plus $1.00; and (C) 105,000 options shall vest and be exercisable on each of
September 10, 2010, December 10, 2010, March 10, 2011 and June 9, 2011 (for an
aggregate 420,000 options during such period) with a strike price equal to the
Effective Date Strike Price plus $2.00. It is intended that 160,037 of these
Outstanding Options qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, and the remaining Outstanding Options shall be
treated as non-qualified options. It is further intended that the incentive
stock options shall vest such that, as nearly as possible, the aggregate fair
market value prices of those incentive stock options which first become
exercisable in each of calendar years 2009, 2010 and 2011 shall be $100,000 in
each such year.
7. Board. During the Employment Period, the Company shall: (i) take such actions
as may be necessary initially to submit Executive’s name to the Nominating and
Governance Committee of the Board for consideration as a director, and
thereafter, if said Committee deems Executive qualified, to appoint Executive as
a director (it being contemplated that such actions shall be completed no later
than the next Board of Directors meeting which follows the date of this
Agreement), and (ii) thereafter to cause the nomination and recommendation of
the Executive for election at the following shareholders’ meeting as a director,
and to use all best efforts to cause Executive to be elected as a
non-independent director. Upon termination of Executive’s employment, Executive
shall immediately resign from the Board and shall be deemed to have immediately
for all purposes to have resigned from the Board.
8. Temporary Housing and Related Travel. The Company acknowledges that
Executive’s home residence is in Arizona. The Company shall reimburse Executive
for his reasonable travel expenses from his home residence to Bothell,
Washington, and temporary housing expenses in Bothell, Washington, until such
time as Executive relocates to Bothell.
9. Benefits. During the Employment Period, the Company shall provide or cause to
be provided to the Executive at least such employee benefits as are provided to
other executive officers of the Company.
10. Paid Time Off. The Executive shall be entitled to paid time off in
accordance with the Company’s policies in effect from time to time for executive
officers of the Company.

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11. Termination.
          (a) Executive’s employment by the Company shall be “at will.” Either
the Company or the Executive may terminate Executive’s employment by the Company
at the end of any calendar month, with or without Cause or Good Reason (as such
terms are defined below), in its or his sole discretion, upon thirty (30) days’
prior written notice of termination. In addition, the Executive’s employment by
the Company shall be terminated by his death or “Disability” (as defined below).
Termination of the Executive’s employment as provided for herein shall terminate
the Employment Period.
          (b) For purposes of this Agreement, in the case of a termination of
the Executive’s employment hereunder by the Executive, the term “Good Reason”
shall have the meaning set forth for it below; in the case of a termination of
the Executive’s employment hereunder by the Company, the term “Cause” shall have
the meaning set forth for it below; and the other terms set out below in this
Section 11 shall have the meanings provided for them respectively:
               (i) “Good Reason” shall mean (i) any material diminution in the
Executive’s authority or role as Chief Executive Officer, including his no
longer serving as the highest ranking executive officer in the Company;
(ii) failure of the Company to pay to the Executive any amounts of base salary
and/or incentive cash compensation as provided for in Sections 4 or 5 above, or
to honor promptly any of its obligations or commitments regarding stock options
or other benefits referred to in Sections 7, 8, 9, and/or 10 above, or to honor
promptly any of its other material obligations hereunder, or the Company’s
material violation of any of the terms, covenants, representations or warranties
contained in this Agreement; (iii) a material demotion in the Executive’s title
or status; or (iv) failure of the Executive to have been appointed and/or
re-elected to the Board of Directors; provided that, the Executive must notify
the Company of the existence of a Good Reason within 90 days of the initial
event giving rise to such Good Reason, and the Company shall have 30 days from
the date of such notice to cure and remediate such condition and thereby
eliminate the Good Reason.
               (ii) “Cause” shall mean (i) the Executive’s willful and repeated
failure to perform his duties hereunder or to comply with any reasonable and
proper direction given by the Board, which failure continues for a period of
thirty (30) days following receipt by the Executive of written notice from the
Company containing a specific description of any such alleged failure(s) and a
demand for immediate cure thereof; (ii) conviction of the Executive of a
criminal offense involving moral turpitude; (iii) the Executive’s commission of
an act of fraud or theft against the Company; or (iv) the Executive’s material
violation of any of the terms, covenants, representations or warranties
contained in this Agreement provided that, in the case of this clause “iv,” if
such violation is subject to cure and effective remediation by the Executive,
such violation is not so cured and remediated by the Executive within thirty
(30) days following receipt by the Executive of written notice from the Company
containing a reference to the violation and a demand for immediate cure thereof.
          (c) “Disability” shall mean that the Executive is unable to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous

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period of not less than twelve (12) months, as determined by an independent
physician chosen jointly by the Executive and the Company.
          (d) “Termination Date” shall mean (i) if this Agreement is terminated
on account of death, the date of death; (ii) if this Agreement is terminated for
Disability, the date that such Disability is established; (iii) if this
Agreement is terminated by the Company or by the Executive, the effective date
of the termination as provided in Section 11(a) hereof; or (iv) if this
Agreement expires by its terms, June 9, 2011 or, if later, the expiration of the
Employment Period.
     12. Severance.
          (a) Subject to Section 21 hereof, if (i) the Company terminates the
employment of the Executive during any Employment Period and without Cause, or
(ii) the Executive terminates his employment during any Employment Period for
Good Reason, then (A) Executive shall be entitled to receive base salary,
incentive cash compensation (determined on a pro-rated basis as to the year in
which the Termination Date occurs), pay for accrued but unused paid time off,
and reimbursement for expenses pursuant to Section 13 hereof through the
Termination Date, and an amount equal to twelve (12) months of the Executive’s
specified base salary hereunder at the rate in effect on the Termination Date
payable over the following twelve (12) months in semi-monthly installments, and
(B) notwithstanding the vesting and exercisability provisions otherwise
applicable to Outstanding Options, all of such options shall be fully vested and
exercisable upon such termination and shall remain exercisable as specified in
the option grant agreements. Except to the extent that more time is required to
determine any of the incentive compensation amounts, the Company shall pay the
cash amounts provided for in this Section within thirty (30) days after the six
(6) month anniversary of the date of such termination (but no later than the end
of the calendar year in which such six (6) month anniversary occurs); provided,
however, that pay for accrued but unused paid time off shall be paid as soon as
practicable following such termination, and that to the extent that Section 409A
of the Internal Revenue Code of 1986 and any guidance or regulations issued
thereunder, as amended, do not require the effectuation of the six (6) month
delay described above with respect to any other cash amounts provided for in
this Section, the Company shall pay such cash amounts within thirty (30) days
after the date of such termination (but no later than the end of the calendar
year in which such termination occurs). Notwithstanding the foregoing, the
Company shall not be required to pay any severance pay for any period following
the Termination Date if it shall have been determined in writing by a court of
competent jurisdiction or by any arbitrator appointed pursuant to Section 26
that the Executive has materially violated the provisions of Section 18, 19, or
20 of this Agreement and such violation has not been cured within thirty (30)
days following receipt of written notice from the Company containing a
description of the violation and a demand for immediate cure. The Company also
may withhold any severance pay while it pursues such determination.
          (b) Subject to Section 21 hereof, if (A) the Executive voluntarily
terminates his employment during any Employment Period other than for Good
Reason or (B) the Executive’s employment is terminated by the Company during any
Employment Period for Cause, then the Executive shall be entitled to receive
salary, a pro-rated amount of incentive cash compensation for the fiscal year in
which the Termination Date occurs, pay for accrued but unused paid time off, and
reimbursement of expenses pursuant to Section 13 hereof through the Termination
Date

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only; vesting of Outstanding Options shall cease on such Termination Date; any
then un-vested Outstanding Options shall terminate (with the then-vested
Outstanding Options vested and exercisable as specified in the option grant
agreements). The Company shall pay the cash amounts provided for in this Section
within thirty (30) days after the six (6) month anniversary of the date of such
termination (but no later than the end of the calendar year in which such six
(6) month anniversary occurs); provided, however, that pay for accrued but
unused paid time off shall be paid as soon as practicable following such
termination, and that to the extent that Section 409A of the Internal Revenue
Code of 1986 and any guidance or regulations issued thereunder, as amended, do
not require the effectuation of the six (6) month delay described above with
respect to any other cash amounts provided for in this Section, the Company
shall pay such cash amounts within thirty (30) days after the date of such
termination (but no later than the end of the calendar year in which such
termination occurs).
          (c) Subject to Section 21 hereof, if the Executive’s employment is
terminated during any Employment Period due to death or Disability, the
Executive (or his estate or legal representative as the case may be) shall be
entitled to receive (i) salary, reimbursement of expenses pursuant to Section 13
hereof, and pay for any unused paid time off accrued through the Termination
Date; (ii) a pro-rated amount of incentive cash compensation for the fiscal year
in which the Termination Date occurs; and (iii) a lump sum equal to base salary
at the rate in effect on the date of such termination for the lesser of
(a) twelve (12) months and (b) the remaining term of this Agreement at the time
of such termination. In such case, vesting of the Outstanding Options shall
cease on such Termination Date, and any then un-vested Outstanding Options shall
terminate (with the then-vested Outstanding Options vested and exercisable as
specified in the option grant agreements). Except to the extent that more time
is required to determine any of the incentive compensation amounts, the Company
shall pay the cash amounts provided for in this Section on the thirtieth (30th)
day following the Executive’s death, or if termination is due to Disability,
within thirty (30) days after the six (6) month anniversary of the date of such
termination (but no later than the end of the calendar year in which such six
(6) month anniversary occurs); provided, however, that to the extent that
Section 409A of the Internal Revenue Code of 1986 and any guidance or
regulations issued thereunder, as amended, do not require the effectuation of
the six (6) month delay described above with respect to any cash amounts
provided for in this Section upon termination due to Disability, the Company
shall pay such cash amounts within thirty (30) days after the date of such
termination (but no later than the end of the calendar year in which such
termination occurs).
          (d) In addition to the provisions of Section 12(a), 12(b), or 12(c),
hereof, as the case may be, to the extent COBRA shall be applicable or as
provided by law, the Executive and/or his dependants shall be entitled to
continuation of group health plan benefits for the periods provided by law
following the Termination Date if the Executive (or his survivors) makes the
appropriate election and payments; provided, further, that if the Executive
and/or his survivors are entitled to severance under Section 12(a) or 12(c)
hereof, and the Executive and/or his survivors elect COBRA coverage under a
group health plan maintained by the Company, the Company shall continue to
contribute towards the cost of such coverage for the Executive and/or his
dependents for the twelve (12) month period following his Termination Date, at
the same rate which was in effect upon the date of such termination of
employment.

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          (e) Subject to Section 21 hereof, the Executive acknowledges that,
upon termination of his employment, he is entitled to no other compensation,
severance or other benefits other than those specifically set forth or referred
to in this Agreement.
13. Expenses. The Company shall pay or reimburse the Executive for all expenses
that are reasonably incurred by him in furtherance of his duties hereunder and
such further expenses as may be authorized and approved by the Company from time
to time. In addition, the Company shall reimburse the Executive for the costs of
his legal counsel incurred in connection with the review and negotiation of this
Agreement, in an amount not to exceed $5,000.
14. Facilities and Services. The Company shall furnish the Executive with office
space, secretarial and support staff, and such other facilities and services as
shall be reasonably necessary for the performance of his duties under this
Agreement.
15. Mitigation Not Required. In the event this Agreement is terminated, the
Executive shall not be required to mitigate his losses or the amounts otherwise
payable hereunder by seeking other employment or otherwise. The Executive’s
acceptance of any other employment shall not diminish or impair the amounts
otherwise payable to the Executive hereunder.
16. Place of Performance. The Executive shall perform his duties at the main
offices of the Company subject to reasonable travel requirements which may be
authorized and directed from time to time by the Board.
17. Insurance and Indemnity. With respect to his service hereunder, the Company
shall maintain, at its expense, customary directors’ and officers’ liability and
errors and omissions insurance covering the Executive and, if such coverage is
available at reasonable cost, for all other executive officers and directors of
the Company, in an amount both deemed appropriate by the Company and available
in the marketplace. To the extent such defense and indemnification are not fully
and irrevocably provided by Company-supplied insurance, the Company shall defend
and indemnify the Executive, to the fullest extent permitted by law, from and
against any liability asserted against or incurred by the Executive (a) by
reason of the fact that the Executive is or was an officer, director, employee,
or consultant of the Company or any affiliate or related party or is or was
serving in any capacity at the request of the Company for any other corporation,
partnership, joint venture, trust, employment benefit plan or other entity or
enterprise or (b) in connection with any action(s), omission(s), or
occurrence(s) during the course of such service or such status as an officer,
director, employee, or consultant of or to any of the foregoing. The Company’s
obligations under this Section 17 shall survive the termination of the
Executive’s employment hereunder and any termination of this Agreement.
18. Non-Competition.
          (a) The Executive agrees that, except in accordance with his duties
under this Agreement on behalf of the Company, he will not during the Employment
Period: participate in, be employed in any capacity by, serve as director,
consultant, agent or representative for, or have an interest, directly or
indirectly in, any enterprise which is engaged in the business of developing,
licensing, or selling technology, products or services which are directly
competitive with the Business of the Company or any of its Subsidiaries or with
any technology, products or services being actively developed, with the bona
fide intent to market same, by the Company or any of its Subsidiaries at the
time in question; provided, however, that interests in publicly-traded

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entities that constitute less than a five percent (5%) interest in such
entities, and do not otherwise constitute control either directly or indirectly
of such entities, which interests were acquired or are held for investment
purposes, shall not be deemed to be a violation of this paragraph.
          (b) In addition, the Executive agrees that, for a period of six
(6) months after the end of the Executive’s employment by the Company (unless
such employment is terminated by the Company without Cause, or by the Executive
for Good Reason, in which event the following shall be inapplicable), the
Executive shall not (1) own, either directly or indirectly or through or in
conjunction with one or more members of his or his spouse’s family or through
any trust or other contractual arrangement, a greater than five percent (5%)
interest in, or otherwise control either directly or indirectly, or
(2) participate in, be employed in any capacity by, or serve as director,
consultant, agent or representative for, any partnership, corporation, or other
entity which is engaged in the business of developing, licensing, or selling
technology, products or services which are directly competitive with the
Business of the Company or any of its Subsidiaries as of the termination of the
Executive’s employment with the Company or which are directly competitive with
any technology, products, or services being actively developed by the Company or
any of its Subsidiaries, with the bona fide intent to market same, as of the
termination of the Executive’s employment at the Company.
          (c) Executive further agrees, for twelve (12) months following the end
of the Executive’s employment by the Company (unless such employment is
terminated by the Company without Cause, or by the Executive for Good Reason, in
which event the following shall be inapplicable), to refrain from directly or
indirectly soliciting or hiring the Company’s collaborative partners,
consultants, certified research organizations, principal vendors, licensees or
employees except any such solicitation in connection with activities that would
not be directly competitive with and/or adverse to the Business of the Company
or any of its Subsidiaries or with and to any products or services being offered
by the Company or any of its Subsidiaries at the date such employment terminated
or then being actively developed, with the bona fide intent to market same, by
the Company or any of its Subsidiaries.
          (d) Executive further agrees, while employed by the Company and for
twelve (12) months following the end of the Executive’s employment by the
Company (unless such employment is terminated by the Company without Cause, or
by the Executive for Good Reason, in which event the following shall be
inapplicable), that he will not, directly or indirectly, as a sole proprietor,
member of a partnership or as a stockholder, investor, officer or director of a
corporation, or as an employee, agent, associate or consultant of any person,
firm or corporation, other than for the exclusive benefit of the Company or any
of its Subsidiaries, solicit or accept business from, or perform or supervise
the performance of any services related to such business for, (i) any client of
the Company or any of its Subsidiaries who was a client during the Executive’s
employment with the Company, (ii) any clients or prospective clients of the
Company or any of its Subsidiaries who were solicited or serviced, directly or
indirectly, by the Executive, in whole or in part, or (iii) any former client of
the Company or any of its Subsidiaries who was a client within one (1) year
prior to the Executive’s termination of employment and who was solicited or
serviced, directly or indirectly, by the Executive, or by those supervised,
directly or indirectly, by the Executive, in whole or in part, in connection
with activities that would be directly competitive with and/or adverse to the
Business of the Company or any of its Subsidiaries or with and to any products
or services being offered by the Company or any of its

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Subsidiaries at the date such employment terminated or then being actively
developed, with the bona fide intent to market same, by the Company or any of
its Subsidiaries.
          (e) The Executive hereby agrees that damages and any other remedy
available at law would be inadequate to redress or remedy any loss or damage
suffered by the Company upon any breach of the terms of this Section 18 by the
Executive, and the Executive therefore agrees that the Company, in addition to
recovering on any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of this Section 18 by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.
19. Assignment of Patents. Executive shall disclose fully to the Company any and
all discoveries he shall make and any and all ideas, concepts or inventions he
shall conceive or make that are related or applicable to the Business of the
Company or of any of its Subsidiaries or to any other products, services, or
technology in medicine or the health sciences in which the Company shall during
the Employment Period undertake, or actively and in good faith consider,
research or commercial involvement; provided, however, that either (a) such
discovery(ies), idea(s), concept(s) and/or invention(s) are made by the
Executive during the Employment Period or (b) such discovery(ies), idea(s),
concept(s) and/or invention(s) are made by the Executive during the period of
six (6) months after his employment terminates and are in whole or in part the
result of his work with the Company. Such disclosure is to be made promptly
after each such discovery or conception, and each such discovery, idea, concept
or invention will become and remain the property of the Company, whether or not
patent applications are filed thereon. Upon the request and at the expense of
the Company, the Executive shall (i) make application through the patent
solicitors of the Company for letters patent of the United States and any and
all other countries at the discretion of the Company on such discoveries, ideas
and inventions, and (ii) assign all such applications to the Company, or at its
order, without additional payment by the Company except as otherwise agreed by
the Company and the Executive. The Executive shall give the Company, its
attorneys and solicitors, reasonable assistance in preparing and prosecuting
such applications and, on request of the Company, execute such papers and do
such things as shall be reasonably necessary to protect the rights of the
Company and vest in it or its assigns the discoveries, ideas or inventions,
applications and letters patent herein contemplated. Said cooperation shall also
include such actions as are reasonably necessary to aid the Company in the
defense of its rights in the event of litigation. This Section 19 shall not
apply to any invention for which no equipment, supplies, facilities, or trade
secret information of the Company or its Subsidiaries was used, and which was
developed entirely on the Executive’s own time, unless (i) the invention relates
directly to the Business of the Company or of any of its Subsidiaries or to the
actual or demonstrably anticipated research or development of the Company or of
any of its Subsidiaries, or (ii) the invention results from any work performed
by the Executive for the Company.
20. Trade Secrets.
          (a) In the course of the term of this Agreement, it is anticipated
that the Executive shall have access to secret or confidential technical,
scientific and commercial information, records, data, formulations,
specifications, systems, methods, plans, policies, inventions, material and
other knowledge that is (are) specifically related or applicable to the Business
of the Company or of any of its Subsidiaries or to any other products, services,
or technology in medicine or the health sciences in which the Company shall
during the Employment Period

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undertake, or actively and in good faith consider, research or commercial
involvement and that is/are owned by the Company or its Subsidiaries
(“Confidential Material”). The Executive recognizes and acknowledges that
included within the Confidential Material are the following as they may
specifically relate or be applicable to the Company’s Business or technology, or
to current or specifically contemplated future Company products or services: the
Company’s confidential commercial information, technology, formulations and
know-how, methods of manufacture, chemical formulations, device designs, pending
patent applications, clinical data, pre-clinical data and any related materials,
all as they may exist from time to time, and that such material is or may be
valuable special, and unique aspects of the Company’s business. All such
Confidential Material shall be and remain the property of the Company. Except as
required by his duties to the Company, the Executive shall not, directly or
indirectly, either during the term of his employment or at any time thereafter,
disclose or disseminate to anyone or make use of, for any purpose whatsoever,
any Confidential Material. Upon termination of his employment, the Executive
shall promptly deliver to the Company all Confidential Material (including all
copies thereof, whether prepared by the Executive or others) which are in the
possession or under the control of the Executive. The Executive shall not be
deemed to have breached this Section 20 if the Executive is compelled by legal
process or order of any judicial, legislative, or administrative authority or
body to disclose any Confidential Material; provided that Executive shall give
prompt notice of such process or order to the Company, and the Executive shall
in good faith use reasonable efforts to provide the Company the opportunity to
intervene in the event Executive may be compelled to disclose Confidential
Information of the Company pursuant to such process or order.
          (b) The Executive hereby agrees that damages and any other remedy
available at law would be inadequate to redress or remedy any loss or damage
suffered by the Company upon any breach of the terms of this Section 20 by the
Executive, and the Executive therefore agrees that the Company, in addition to
recovering on any claim for damages or obtaining any other remedy available at
law, also may enforce the terms of this Section 20 by injunction or specific
performance, and may obtain any other appropriate remedy available in equity.
21. Payment and Other Provisions After Change of Control.
          (a) In the event the Executive’s employment with the Company is
terminated either by the Company or by the Executive (other than because of the
Executive’s death or Disability) following the occurrence of a Change of
Control, and such termination is without Cause if by the Company, or for Good
Reason if by Executive, and the date of such termination is within one (1) year
following the occurrence of such Change of Control, then the Executive shall be
entitled to receive from the Company, in lieu of the severance payment otherwise
payable pursuant to Section 12 hereof, salary, expense reimbursement, and pay
for unused paid time off through the termination date and, in addition, the
following:
               (i) Additional Amount Based on Base Salary. A lump-sum amount
equal to the greater of: (a) twelve (12) months of Executive’s specified base
salary hereunder, and (b) the balance of Executive’s specified base salary
hereunder to the end of the term of this Agreement;
               (ii) Incentive Cash Compensation. The amount of the Executive’s
incentive cash compensation for the fiscal year in which the date of termination
occurs

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(determined on a pro-rated basis) plus an additional lump-sum amount equal to
fifty percent (50%) of the Executive’s base salary for such year; and
               (iii) Other Benefits. Notwithstanding the vesting and/or
exercisability provisions otherwise applicable to Outstanding Options, all such
stock options shall be fully vested and exercisable upon a Change of Control and
shall remain exercisable as specified in the option grant agreements, and
subject to the right of the Company to direct the sale of shares in connection
with a Change of Control.
Except to the extent that more time is required to determine the incentive cash
compensation payable pursuant to Section 21(a)(ii) hereof, the Company shall pay
the cash amounts provided for in this Section 21(a) within thirty (30) days
after the six (6) month anniversary of the date of such termination (but no
later than the end of the calendar year in which such six (6) month anniversary
occurs).
          (b) For purposes of this Agreement, the term “Change of Control” shall
mean:
               (i) The acquisition by any individual, entity or group (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) or any successor provision) (any of the
foregoing hereafter a “Person”) of forty percent (40%) or more of either (a) the
then outstanding shares of Capital Stock of the Company (the “Outstanding
Capital Stock”) or (b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the “Voting Securities”), provided, however, that such an acquisition
by one of the following shall not constitute a change of control: (1) the
Company or any of its Subsidiaries, or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its Subsidiaries or
(2) any Person that is eligible, pursuant to Rule 13d-1(b) under the Exchange
Act, to file a statement on Schedule 13G with respect to its beneficial
ownership of Voting Securities, whether or not such Person shall have filed a
statement on Schedule 13G, unless such Person shall have filed a statement on
Schedule 13D with respect to beneficial ownership of forty percent (40%) or more
of the Voting Securities or (3) any corporation with respect to which, following
such acquisition, more than sixty percent (60%) of both the then outstanding
shares of common stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Capital Stock or Voting
Securities immediately prior to such acquisition in substantially the same
proportions as their ownership, immediately prior to such acquisition, of the
Outstanding Capital Stock or Voting Securities, as the case may be; or
               (ii) Individuals who, as of the Effective Date, constitute the
Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any individual becoming a director
subsequent to the Effective Date whose election or nomination for election by
the Company’s shareholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
Directors of the Company (as such terms are used

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in Rule 14a-11 of Regulation 14A, or any successor section, promulgated under
the Exchange Act); or
               (iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation (a “Business Combination”), in each
case, with respect to which all or substantially all holders of the Outstanding
Capital Stock and Voting Securities immediately prior to such Business
Combination do not, following such Business Combination, beneficially own,
directly of indirectly, in substantially the same proportions, more than sixty
percent (60%) of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from the Business Combination; or
               (iv) A complete liquidation or dissolution of the Company; or
               (v) A sale or other disposition of all or substantially all of
the assets of the Company other than to a corporation with respect to which,
following such sale or disposition, more than sixty percent (60%) of the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors are then owned beneficially, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Capital Stock or Voting Securities
Immediately prior to such sale or disposition in substantially the same
proportions as their ownership of the Outstanding Capital Stock and Voting
Securities, as the case may be, immediately prior to such sale or disposition.
22. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and personally delivered (including by regular
messenger service, signature required) or sent by registered or certified mail,
return receipt requested, to both his office and his residence, in the case of
notices directed to the Executive, or to its principal office, Attn.: Chief
Financial Officer, in the case of notices directed to the Company, or to such
other address and/or addressee as the party to whom such notice is directed
shall have designated for this purpose by notice to the other in accordance with
this Section. Such notices shall be effective upon personal delivery or three
(3) days after mailing.
23. Entire Agreement; Waiver. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof (it being acknowledged,
however, that the Company and the Executive may enter into certain grant
agreements relating to Outstanding Options which shall be effective in
accordance with the terms thereof). This Agreement may not be changed orally but
only by an instrument in writing, signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought; provided that should
the Executive be appointed by the Board to an additional executive office of the
Company during the Employment Period, the terms of this Agreement shall apply,
the references to “Chief Executive Officer” shall be deemed to read “Chief
Executive Officer and [insert office]”, and the compensation provisions hereof
shall continue unamended. Waiver of or failure to exercise any rights provided
by this Agreement in any respect shall not be deemed a waiver of any further or
future rights.
24. Binding Effect; Assignment. The rights and obligations of this Agreement
shall bind and inure to the benefit of any successor of the Company by
reorganization, merger or consolidation, or any transferee of all or
substantially all of the Company’s business or properties. The

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Executive’s rights hereunder are personal to and shall not be transferable nor
assignable by the Executive.
25. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
26. Governing Law; Arbitration. This agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of Washington
applicable to contracts made and to be performed wholly within such state.
Except as otherwise provided in Sections 18(e) and 20(b) of this Agreement, any
dispute or controversy arising out of or relating to this Agreement shall be
settled by arbitration in accordance with the rules of the American Arbitration
Association, and judgment upon the award may be entered in any court having
jurisdiction thereover. The arbitration shall be held in King County, Washington
or in such other place as the parties hereto may agree.
27. Further Assurances. Each of the parties agrees to execute, acknowledge,
deliver and perform, and cause to be executed, acknowledged, delivered and
performed, at any time and from time to time, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and/or assurances as may
be necessary or proper to carry out the provisions or intent of this Agreement.
28. Severability. The parties agree that if any one or more of the terms,
provisions, covenants or restrictions of this Agreement shall be determined by a
court of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
29. Section 409A. The Executive and the Company intend that any compensation
under this Agreement shall be paid in compliance with Section 409A of the
Internal Revenue Code such that there are no adverse tax consequences, interest,
or penalties as a result of the payments. Notwithstanding any other provisions
of this Agreement to the contrary, any payment or benefits otherwise due to the
Executive upon the Executive’s termination from employment with the Company
shall not be made until and unless such termination from employment constitutes
a “Separation from Service”, as such term is defined under Section 409A of the
Internal Revenue Code. This provisions shall have no effect on payments or
benefits otherwise due or payable to the Executive or on the Executive’s behalf,
which are not on account of the Executive’s termination from employment with the
Company, including as a result of the Executive’s death. Furthermore, if the
Company reasonably determines that the Executive is a “Specified Employee” as
defined by Section 409A, upon termination of Executive’s employment for any
reason other than death (whether by resignation or otherwise), no amount may be
paid to the Executive earlier than six months after the date of termination of
Executive’s employment if such payment would violate Section 409A and the
regulations issued thereunder, and payment shall be made, or commence to be
made, as the case may be, on the date that is six months and one day after the
termination of Executive’s employment.
30. Counterparts. This Agreement may be executed in several counterparts, and
all counterparts so executed shall constitute one agreement, binding on the
parties hereto, notwithstanding that both parties are not signatory to the
original or the same counterpart.

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     IN WITNESS WHEREOF, MDRNA, INC. has caused this instrument to be signed by
a duly authorized officer and the Executive has hereunto set his hand as of the
day and year first above written.

                   Company:   MDRNA, INC.    
 
           
 
  By:   /s/ Steven C. Quay, M.D., Ph.D.     
 
     
 
Name: Steven C. Quay, M.D., Ph.D.    
 
      Title:   Chairman of the Board    
 
           
     Executive:
      /s/ J. Michael French     
 
           
 
      Name: J. Michael French    

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