exv10w2







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



 









 






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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