Exhibit 10.11
RXi PHARMACEUTICALS CORPORATION
One Innovation Drive
Worcester, Massachusetts 01605
February 23, 2007

     
CytRx Corporation
  Tariq M. Rana, Ph.D.
11726 San Vicente Boulevard, Suite 650
  University of Massachusetts
Los Angeles, California 90049
  364 Plantation St., LRB 827,
 
  Lab 860 A-E
Michael P. Czech, Ph.D.
  Worcester, MA 01605
University of Massachusetts
   
55 Lake Avenue, Suite 100
  Gregory J. Hannon, Ph.D.
Worcester, MA 01605
  Howard Hughes Medical Institute
 
  Cold Spring Harbor Laboratory
Craig C. Mello, Ph.D.
  One Bungtown Road
Howard Hughes Medical Institute
  Cold Spring Harbor, NY 11724
University of Massachusetts
   
373 Plantation St., Suite 219
   
Worcester, MA 01605
   

      Re: Stockholders Agreement
Gentlemen:
     RXi Pharmaceuticals Corporation (“RXi”), CytRx Corporation (“CytRx”), and
the other current stockholders and Scientific Advisory Board members of RXi
(“SAB Members”) believe it is in their mutual best interests to enter into this
letter agreement (this “Agreement”) in order to set forth their understanding
and agreement regarding their ownership and voting of shares of common stock of
RXi (“RXi Shares”), which for this purpose includes any and all additional
shares of common stock and other voting securities of RXi that they may acquire
or own at any time. The parties also believe it is mutually beneficial that, in
consideration of CytRx’s willingness to enter into this Agreement, RXi grant
CytRx certain rights to purchase any “New Securities” (as defined in Annex 1)
which RXi proposes to sell or issue.
     In consideration of the mutual promises set forth herein, and other good
and valuable consideration, the parties hereby agree as follows:
     1. From the period beginning upon the closing of an equity financing of RXi
in an aggregate amount of not less than $15 million dollars from investors
(including CytRx acting as an Investor) (the “Initial Financing”), CytRx agrees
that it will not vote its RXi Shares or otherwise take steps to elect or have
elected individuals who are (i) employees, officers or directors of CytRx,
(ii) employees, officers or directors of any entity that has a contractual
business relationship with CytRx, or (iii) employees, officers, directors of any
entity that has a contractual business relationship with any officer or director
of CytRx (collectively, (i), (ii), and

 

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CytRx Corporation
February 23, 2007
Page 2
(iii) are “Affiliates”) to constitute a majority of RXi’s Board of Directors,
and, in the event that Affiliates are elected to hold a majority of the seats of
RXi’s Board of Directors, CytRx shall use reasonable efforts to cause a
sufficient number of its Affiliates to resign from their position as directors
of RXi or to cause a sufficient number of independent directors to be added to
RXi’s Board of Directors, so that Affiliates do not constitute a majority of
RXi’s Board of Directors. If at any time following the Initial Financing, CytRx,
together with its subsidiaries and any other entities controlled by, or under
common control with, CytRx (collectively, “CytRx Affiliates”) hold in the
aggregate a majority of the outstanding voting power of RXi, CytRx will use
reasonable efforts without delay to transfer or otherwise dispose of a
sufficient number of shares of RXi’s voting stock to bring the aggregate
ownership by CytRx and CytRx Affiliates of the total outstanding shares of RXi’s
voting stock below fifty percent (50%), subject to the rules and regulations of
the Securities and Exchange Commission and applicable state securities laws.
     2. CytRx agrees that, from the period beginning at the closing of the
Initial Financing it shall vote, or provide its written consent with respect to,
all RXi Shares then owned or controlled by it and CytRx Affiliates in such
manner as shall be recommended by the Board of Directors of RXi with respect to
any or all of the following matters that may be submitted by RXi for action by
the stockholders of RXi:
          (a) any proposal to amend the certificate of incorporation of RXi to
increase the authorized RXi Shares in order to facilitate obtaining additional
financing needed by RXi at any time and from time to time to fund its ongoing
working capital requirements;
          (b) the sale and issuance of RXi Shares or other securities in any
such working capital financing; and
          (c) any other matter submitted for action by the RXi stockholders
generally with respect to any such financing;
provided, however, that CytRx shall have no obligation hereunder with respect to
any of the foregoing matters in which CytRx or the RXi Shares owned by it or
CytRx Affiliates would receive different treatment than the treatment afforded
the other RXi stockholders generally; and provided further, that CytRx’s
obligations above shall not extend to any financing for purposes of acquiring
the business, technologies, assets, or operations of any other company.
     3. RXi hereby grants CytRx the rights set forth on Annex 1 hereto, which is
incorporated herein by reference. Such rights granted to CytRx shall become
effective as of the first date as of which the issued and outstanding RXi Shares
owned in the aggregate by CytRx and CytRx Affiliates shall constitute less than
50% of the total issued and outstanding RXi Shares, and shall terminate upon the
earlier of (a) January 8, 2012 or (b) the first date as of which CytRx and CytRx
Affiliates own in the aggregate less than ten percent (10%) of the outstanding
RXi Shares. Notwithstanding the provisions of Annex 1, the rights granted
thereunder to CytRx

 

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CytRx Corporation
February 23, 2007
Page 3
shall be suspended if, and for so long as, CytRx shall be in breach of any of
its obligations under this Agreement.
     4. Except for the provisions of paragraph 3, above, the provisions of this
Agreement may be terminated at any time by the written consent or agreement of
CytRx, RXi, and a majority of the SAB Members then serving as such. Unless
sooner terminated, the provisions of this Agreement shall terminate as to an SAB
Member, at such time as he is no longer serving as a member of RXi’s Scientific
Advisory Board.
     5. This Agreement is governed by and construed in accordance with the laws
of the State of Delaware irrespective of any conflicts of law principles.
     6. This Agreement shall be binding upon CytRx, RXi, and the SAB Members and
their respective heirs and successors in interest. The obligations of each of
CytRx and the SAB Members hereunder shall terminate as to any RXi Shares sold,
transferred or assigned by it or him upon such sale, transfer or assignment, and
this Agreement shall not bind or inure to the benefit of any transferee of RXi
Shares sold, assigned or transferred by any party (other than transfers to CytRx
Affiliates and other than transfers to a successor in interest of all or any
substantial part of the business or assets of a party by way of sale, exchange,
merger or otherwise).
     7. This Agreement may not be modified or amended, except in a writing
signed by CytRx, RXi, and at least a majority of the SAB Members who are then
serving as members of RXi’s Scientific Advisory Board.
     8. Without limiting the rights of each party hereto to pursue any and all
other legal and equitable remedies available to such party, each party
acknowledges and agrees that the remedy at law in the event of a breach by any
party of it obligations under this Agreement would be inadequate and, therefore,
that the parties shall be entitled to specific performance, injunctive relief
and other equitable remedies in such event.
     9. This Agreement, including Annex 1 hereto, contain the entire agreement
among the parties hereto with respect to the subject matter hereof and supersede
all prior and contemporaneous agreements and understandings with respect
thereto.
     10. The parties hereto shall at all times act in good faith and shall not
take any actions, or fail to take actions, to circumvent or frustrate the
provisions of this Agreement.

 

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CytRx Corporation
February 23, 2007
Page 4
     11. This Agreement may be executed in counterparts, each of which when
executed and delivered shall be deemed to be an original and all of which when
taken together shall constitute but one and the same instruction.

         
 
      Very truly yours,
 
       
 
       
 
      Tod Woolf, Ph.D., Chief Executive Officer
 
      RXi Pharmaceuticals Corporation
 
        AGREED, ACKNOWLEDGED AND ACCEPTED:    
 
        CYTRX CORPORATION    
 
       
By:
       
 
       
 
  Steven Kriegsman
President and Chief Executive Officer    
 
       
 
              Craig C. Mello, Ph.D.    
 
       
 
              Tariq M. Rana, Ph.D.    
 
       
 
              Michael P. Czech, Ph.D.    
 
       
 
              Gregory J. Hannon, Ph.D.    

 

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ANNEX 1
Preemptive Rights
SECTION 1. General

  A.   CytRx shall have the right, on the terms and provisions of this Annex 1,
to purchase New Securities (as defined below in Paragraph B) that RXi may, from
time to time, sell, issue or exchange.     B.   “New Securities” shall mean,
subject to Section 4.B, any shares of common stock of RXi (“RXi Common Stock”)
and other equity securities of RXi, whether now authorized or not, any rights,
options, and warrants to purchase RXi Common Stock or other equity securities,
and securities of any type whatsoever that are, or may become, convertible into,
or exercisable or exchangeable for, shares of RXi Common Stock or other equity
securities.

SECTION 2. Sales and Issuances of New Securities for Cash

  A.   RXi shall not at any time issue or sell for cash any New Securities
(each, a “Cash Sale”), unless and until RXi shall have first delivered to CytRx
notice of the proposed Cash Sale (the “Cash Offer Notice”) and otherwise
complied with the provisions of this paragraph A, as follows:

  (i)   The Cash Offer Notice shall (1) describe in reasonable detail the
proposed Cash Sale, (2) set forth the nature and dollar amount of the New
Securities involved (the “Offered Securities”), (3) describe the sale price of
the Offered Securities and other terms of the proposed Cash Sale, (4) identify
the persons or entities, if known, to which the Offered Securities are proposed
to be offered, issued or sold, and (5) include an express offer to issue and
sell to CytRx a portion of such Offered Securities determined by multiplying the
total dollar amount of Offered Securities by CytRx’s Proportionate Percentage
(as hereinafter defined) as determined as of the date of the Cash Offer Notice.
CytRx’s “Proportionate Percentage” for purposes of this Annex shall mean, as of
any determination date, a fraction, expressed as a percentage, the numerator of
which is the sum of (w) the number of issued and outstanding shares of RXi
Common Stock then owned beneficially (as hereinafter defined) by CytRx plus
(x) the number of shares of RXi Common Stock that may be acquired by CytRx upon
the exercise, conversion or exchange of rights, options, warrants and other
securities of RXi owned beneficially by CytRx that are exercisable or
exchangeable for, or convertible into, shares of RXi Common Stock within 60 days
of the date of determination of such beneficial ownership, and the denominator
of which is the sum of (y) the total number of shares of RXi Common Stock then
issued and outstanding plus (z) the number of shares referred to in clause
(x) above. CytRx shall be deemed to “beneficially own” shares of RXi Common
Stock and other

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ANNEX 1

      securities that are held of record by CytRx or held in the name of a
broker or other custodian for CytRx’s account.

  (ii)   CytRx shall have the right during the 10-business day period following
delivery of the Cash Offer Notice to elect to purchase, at the price and upon
the other terms specified therein, its Proportionate Percentage of the Offered
Securities; provided, however, that RXi may postpone or terminate the
transaction described in the Cash Offer Notice, which shall have the effect of
postponing or terminating CytRx’s rights under this paragraph A. To exercise its
rights under this paragraph A, CytRx must notify RXi on or prior to the
expiration of the foregoing 10-business day period of the amount, if any, of the
Offered Securities (not to exceed its CytRx’s Proportionate Percentage thereof)
that CytRx elects to purchase (the “Notice of Acceptance”).     (iii)   RXi
shall have 90 days from the date of the Cash Offer Notice to consummate the Cash
Sale in accordance with the Cash Offer Notice, which may include the issuance or
sale of all or any part of the Offered Securities which CytRx has not elected to
purchase as reflected in the Notice of Acceptance. Any of the Offered Securities
not so issued or sold by RXi within such 90-day period shall not be issued or
sold by RXi, unless and until RXi again complies with the procedures specified
in this Annex.     (iv)   In the event RXi determines in good faith to issue or
sell less than all the Offered Securities pursuant to the Cash Sale, then the
amount of the Offered Securities that CytRx shall be entitled to purchase shall
automatically be reduced to an amount equal to the amount of the Offered
Securities, if any, that CytRx elected to purchase as set forth in its Notice of
Acceptance multiplied by a fraction, (1) the numerator of which shall be the
amount of Offered Securities that RXi issues or sell (including the Offered
Securities to be issued or sold to CytRx pursuant to subparagraph A(ii) above
prior to such reduction) and (2) the denominator of which shall be the amount of
the Offered Securities that RXi initially proposed to issue or sell as specified
in the Cash Offer Notice.     (v)   On the date of the closing of the issuance
or sale of all or less than all the Offered Securities, CytRx shall purchase
from RXi, and RXi shall sell and issue to CytRx, the amount of Offered
Securities specified in the Notice of Acceptance (as reduced pursuant to
subparagraph A(iv) above, if applicable) upon the terms and conditions specified
in the Cash Offer Notice. The purchase by CytRx of any of the Offered Securities
is subject in all cases to the preparation, execution and delivery by RXi and
CytRx of a customary purchase agreement relating to such Offered Securities and
other documents consistent with the terms of the Cash Offer Notice and
reasonably satisfactory in form and substance to CytRx, RXi and their respective
counsel.

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ANNEX 1
SECTION 3. Sales and Issuances of New Securities Other than for Cash

A.   If at any time or from time to time RXi shall issue or sell for
consideration other than cash any New Securities (each, a “Non-Cash Sale”), it
shall comply with the provisions of this Section 3, as follows:

  (i)   RXi shall deliver to CytRx notice of the Non-Cash Sale (the “Non-Cash
Offer Notice”). Except as provided below, the Non-Cash Offer Notice shall be
delivered within 10 days following the issuance or sale of such New Securities
and (1) describe in reasonable detail the Non-Cash Sale, (2) set forth the
nature and amount of the New Securities involved, (3) describe the price or
value attributable to the New Securities, and other terms of the Non-Cash Sale,
(4) identify the persons or entities, if known, to which such New Securities are
proposed to be offered, issued or sold, and (5) include an express offer to
issue and sell to CytRx from RXi’s authorized but unissued shares of RXi Common
Stock, or from treasury shares, such number of shares of RXi Common Stock as are
necessary and sufficient to restore CytRx, after giving effect to such award,
issuance, sale or exchange, to its Proportionate Percentage as of the time
immediately preceding such Non-Cash Sale. Notwithstanding the foregoing, if the
amount of the New Securities issued or sold in a Non-Cash Sale, when added to
all other New Securities issued and sold in Non-Cash Sales of which CytRx shall
not have been notified by RXi in accordance with this subparagraph A(i),
represents 5% or less of the shares of RXi Common Stock outstanding immediately
prior to such Non-Cash Sale, then RXi may postpone the Non-Cash Offer Notice
hereunder until the date 10 days following the earlier of (1) the end of the
calendar quarter during which such Non-Cash Sale occurred and (2) the date of
the next subsequent issuance or sale of New Securities in a Non-Cash Sale which,
when added to all other New Securities issued and sold by RXi in Non-Cash Sales
as to which no Non-Cash Offer Notice shall have been given to CytRx, exceeds 1%
of the shares of RXi Common Stock outstanding immediately prior to the earliest
of all such unreported Non-Cash Sales; provided, however, that in the event the
Board of Directors of RXi shall determine to authorize or approve of a merger of
RXi with or into any other person or entity, or a sale or other disposition of
all or substantially all of RXi shares of capital stock, business or assets, RXi
shall immediately deliver to CytRx all previously postponed Non-Cash Offer
Notices.     (ii)   CytRx shall have the right during the 30-day period
following delivery of the Non-Cash Offer Notice to elect in its discretion to
purchase all or any portion of the number of shares of RXi Common Stock
determined as provided in subparagraph A(i) above. To exercise its rights under
this paragraph A, CytRx must notify RXi on or prior to the expiration of the
foregoing 30-day period of the number, if any, of such shares of RXi Common
Stock, up to the whole number thereof, that CytRx elects to purchase (the
“Notice of Acceptance”). The

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ANNEX 1

      purchase price to CytRx of such shares of RXi Common Stock shall be the
Fair Value (as defined below) of such shares.

  (iii)   At a closing to be held on a date that is mutually agreeable to RXi
and CytRx that is not more than 20 days after the Notice of Acceptance, CytRx
shall acquire from RXi, and RXi shall sell and issue to CytRx, the number of
shares of RXi Common Stock specified in the Notice of Acceptance. The purchase
by CytRx of such shares of RXi Common Stock is subject in all cases to the
preparation, execution and delivery by RXi and CytRx of a customary purchase
agreement relating to such shares of RXi Common Stock and other documents
consistent with the terms hereof and reasonably satisfactory in form and
substance to CytRx, RXi and their respective counsel.     (iv)   The “Fair
Value” per share of RXi’s Common Stock shall be equal to the average closing
price of RXi Common Stock as reported on Nasdaq (or other principal exchange on
which such shares are then traded) over the 10 trading days ending on the
earlier of (1) the date of any press release or other announcement by RXi of the
transaction involving such New Securities and (2) the date that CytRx delivers
its Notice of Acceptance under subparagraph B(ii) above. If RXi Common Stock is
not publicly traded at that time, the Fair Value of a share of RXi Common Stock
shall be the fair market value per share of RXi Common Stock as determined in
good faith by the Board of Directors of RXi acting by not less than a majority
of the disinterested directors of RXi.

SECTION 4. Excluded Securities and New Option Securities

  A.   Notwithstanding any other provision of this Annex, this Annex shall not
apply to (i) any New Securities issued as a dividend or other distribution on or
with respect to RXi Common Stock, or (ii) any stock split, recapitalization or
reclassification of RXi Common Stock.     B.   Notwithstanding any other
provision of this Annex, the provisions of this Annex shall not apply to the
grant, award or issuance for consideration other than cash of any New Securities
consisting solely of options, warrants or other rights to subscribe for or
purchase shares of RXi Common Stock or other equity securities (“New Option
Securities”). With respect to any New Option Securities granted, awarded or
issued by RXi for consideration other than cash, the provisions of Section 3
shall apply in all respects to the issuance or sale of any New Securities upon
the exercise or conversion of such New Option Securities. Without limiting the
generality of the preceding sentence, the purchase price to CytRx of any shares
of RXi Common Stock that it elects to purchase upon any such exercise or
conversion shall be the Fair Value of such shares as of the date of CytRx’s
Notice of Acceptance delivered in accordance with Section 3.

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ANNEX 1
SECTION 5. Miscellaneous

  A.   All notices and other communications provided for or permitted to be
given under this Annex shall be in writing and shall be given by depositing the
notice in the United States mail, addressed to the party to be notified, postage
paid, and registered or certified with return receipt requested, or by such
notice being delivered in person or by facsimile communication to such party.
Notices or other communications given or served pursuant hereto shall be
effective upon receipt by the party to be notified. All notices or other
communications to be sent to RXi shall be sent to One Innovation Drive,
Worcester, Massachusetts 01605, or such other address as RXi may specify by
notice hereunder to CytRx. All notices or other communications to be sent to
CytRx shall be sent or made at the address of CytRx as set forth in RXi’s books
and records or such other address as CytRx may specify by notice hereunder to
RXi.     B.   No delay or failure on the part of any party in exercising any
rights hereunder, and no partial or single exercise thereof, shall constitute a
waiver of such rights or of any other rights hereunder.     C.   In the event
that any provision of this Annex, or the application of such provision to any
person or circumstance, is determined by a court, arbitrator or other
adjudicator to be invalid or unenforceable to any extent, the remainder of this
Annex, and the application of such provision to persons or circumstances other
than those as to which it is invalid or unenforceable, shall not be affected
thereby, and such provision and each other provision of this Annex shall be
valid and enforceable to the greatest extent permitted by law.     D.   In the
event of any arbitration, litigation or other legal proceeding involving the
interpretation of this Annex or enforcement of the rights or obligations of the
parties hereto, the prevailing party or parties shall be entitled to recover
reasonable attorneys’ fees and expenses as determined by the court, arbitrator
or other adjudicator. In the event that the arbitration, litigation or other
legal proceeding is successful only in party, the court, arbitrator or other
adjudicator shall be entitled to prorate and allocate said fees and expenses
between the parties.

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