Document:

exv10w4

Exhibit 10.4

EMPLOYMENT AGREEMENT

     This Employment Agreement is made and entered into by and between RNCS, Inc. (the
“Company”), a Delaware corporation with its principal place of business at Worcester,
Massachusetts, and Anastasia Khvorova, of Worcester, Massachusetts (the “Executive”),
signed on September 24, 2011 and effective as of the Effective Date, as defined in that certain
Securities Purchase Agreement, by and among Tang Capital Partners, LP, RTW Investments, LLC, the
Company, and RXi Pharmaceuticals Corporation (the “Securities Purchase Agreement”), and
entered into as of September 24, 2011 (the “Effective Date”).

     WHEREAS, the operations of the Company and its Affiliates are a complex matter requiring
direction and leadership in a variety of arenas, including scientific operations and others;

     WHEREAS, the Executive is possessed of certain experience and expertise that qualify her to
provide the direction and leadership required by the Company and its Affiliates; and

     WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore
wishes to employ the Executive as its Senior Vice President and Chief Scientific Officer and the
Executive wishes to accept such employment;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms,
provisions and conditions set forth in this Agreement, the parties hereby agree:

     1. Employment. Subject to the terms and conditions set forth in this Agreement, the
Company hereby offers, and the Executive hereby accepts, employment.

     2. Term. Subject to earlier termination as hereinafter provided, the Executive’s
employment shall commence on the Effective Date, and shall continue until terminated pursuant to
Section 5 hereof (the “Term”).

     3. Capacity and Performance.

          (a) During the Term, the Executive shall be employed by the Company on a full-time basis and
shall direct the Company’s research and development programs and perform such other duties and
responsibilities on behalf of the Company and its Affiliates related to her position as reasonably
may be designated from time to time by the Board of Directors of the Company (the “Board”)
or by its Chair or other designee.

          (b) During the Term, the Executive shall devote her full business time and her best efforts,
business judgment, skill and knowledge exclusively to the advancement of the business and interests
of the Company and its Affiliates and to the discharge of her duties and responsibilities
hereunder. The Executive shall not engage in any other business activity or serve in any industry,
trade, professional, governmental or academic position during the term of this Agreement, except as
may be expressly approved in advance by the Board in writing, and except as noted on Schedule “A”,
a copy of which is annexed hereto.

 

 

     4. Compensation and Benefits. As compensation for all services performed by the
Executive during the Term and subject to the Executive’s performance of her duties and obligations
to the Company and its Affiliates, pursuant to this Agreement or otherwise, the Company shall
provide the Executive with the following compensation and benefits:

          (a) Base Salary and Bonus. During the Term, the Company shall pay the Executive a
base salary at the rate of $310,000 per annum, payable in accordance with the payroll practices of
the Company for its executives and subject to increase adjustment from time to time by the Board,
in its sole discretion but not below $310,000 per annum (such base salary, as from time to time
adjusted, the “Base Salary”). The Executive shall be eligible to receive an annual
performance bonus, to be awarded at the discretion of the Compensation Committee of the Board of
Directors (the “Compensation Committee”), for the achievement of certain Company and
Executive performance goals, which goals will be established annually by the Compensation
Committee. The target bonus for achieving these goals shall be equal to thirty (30%) percent of
the Base Salary.

          (b) Stock Options. On the day that is seven (7) days following the Closing (as
defined in the Securities Purchase Agreement), the Company shall grant to the Executive an option
to purchase shares of the common stock of the Company in an amount which shall equal 2% of the
outstanding common stock as of such grant date (calculated on a fully-diluted basis), which option
shall be exercisable at the fair market value of the common stock on the grant date (the
“Option”). The shares that are subject to the Option shall vest and become exercisable in
monthly installments over four (4) years beginning on the first month after the Effective Date of
the Agreement, provided, in each case, that the Executive remains in the employ of the Company
through each such monthly vesting date. Each vested Option shall have a term of ten (10) years and
be exercisable by the Executive at any time during such ten (10) year period. The Option shall be
subject to the Company 2011 Equity Incentive Plan, other equity incentive plan, award certificate
and shareholder and/or option holder agreements and other restrictions and limitations generally
applicable to equity held by Company executives or otherwise required by law. The Executive shall
not be eligible to receive any stock options, restricted stock or other equity of the Company,
however, whether under an equity incentive plan or otherwise, except as expressly provided in this
Agreement or as otherwise expressly authorized for her individually by the Board.

          (c) Paid Time Off. During the Term, the Executive shall be entitled to earn paid time
off at the rate of 25 days per year. Paid time off, which may be taken for any reason including
vacation, sick leave and personal leave, may be taken at such times and intervals as shall be
determined by the Executive, subject to the reasonable business needs of the Company. Paid time
off shall otherwise be governed by the policies of the Company, as in effect from time to time.
The number of paid “time off” days will accrue per pay period and will stop accruing once twenty
(20) days have been reached.

          (d) Other Benefits. During the term hereof, the Executive shall be entitled to
participate in any and all employee benefit plans from time to time in effect for employees of the
Company generally, except to the extent any such employee benefit plan is in a category of benefit
otherwise provided to the Executive (e.g., a severance pay plan). Such participation shall be
subject to the terms of the applicable plan documents and generally applicable Company

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policies. The Company may alter, modify, add to or delete its employee benefit plans at any
time as it, in its sole judgment, determines to be appropriate, without recourse by the Executive.

          (e) Business Expenses. The Company shall pay or reimburse the Executive for all
reasonable and necessary business expenses incurred or paid by the Executive in the performance of
her duties and responsibilities hereunder, subject to any maximum annual limit and other
restrictions on such expenses set by the Board and provided to the Executive, and to such
reasonable substantiation and documentation as may be specified by the Company from time to time.

     5. Termination of Employment and Severance Benefits. The Executive’s employment
hereunder shall terminate under the following circumstances:

          (a) Death. In the event of the Executive’s death during the Term, the Executive’s
employment shall immediately and automatically terminate. In such event, the Company shall pay any
Final Compensation (as defined below) to the Executive’s designated beneficiary or, if no
beneficiary has been designated by the Executive in writing, to her estate.

          (b) Disability.

     (i) The Company may terminate the Executive’s employment hereunder, upon notice to the
Executive, in the event that the Executive becomes disabled through any illness, injury,
accident or condition of either a physical or psychological nature and, as a result, is
unable to perform substantially all of her duties and responsibilities hereunder,
notwithstanding the provision of any reasonable accommodation, for a total of ninety (90)
days, whether or not consecutive, during any period of three hundred and sixty-five (365)
consecutive calendar days. In the event of such termination, the Company shall have no
further obligation to the Executive, other than for payment of Final Compensation.

     (ii) The Board may designate another employee to act in the Executive’s place during
any period of the Executive’s disability. Notwithstanding any such designation, the
Executive shall continue to receive the Base Salary in accordance with Section 4(a) and
benefits in accordance with Section 4(d), to the extent permitted by the then-current terms
of the applicable benefit plans, until the Executive becomes eligible for disability income
benefits under the Company’s disability income plan or until the termination of her
employment, whichever shall first occur.

     (iii) While receiving disability income payments under the Company’s disability income
plan, the Executive shall not be entitled to receive any Base Salary under Section 4(a)
hereof, but shall continue to participate in Company benefit plans in accordance with
Section 4(d) and the terms of such plans, until the termination of her employment.

     (iv) If any question shall arise as to whether during any period the Executive is
disabled through any illness, injury, accident or condition of either a physical or
psychological nature so as to be unable to perform substantially all of her duties and
responsibilities hereunder, the Executive may, and at the request of the Company shall,

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submit to a medical examination by a physician selected by the Company to whom the
Executive or her duly appointed guardian, if any, has no reasonable objection to determine
whether the Executive is so disabled and such determination shall for the purposes of this
Agreement be conclusive of the issue. If such question shall arise and the Executive shall
fail to submit to such medical examination, the Company’s determination of the issue shall
be binding on the Executive.

          (c) By the Company for Cause. The Company may terminate the Executive’s employment
hereunder for Cause at any time upon written notice to the Executive setting forth in reasonable
detail the nature of such Cause. The following, as determined by the Board in its reasonable
judgment, shall constitute Cause for termination:

     (i) The Executive’s repeated failure or repeated refusal to perform (other than by
reason of disability), or gross negligence in the performance of, her material duties and
responsibilities to the Company or any of its Affiliates;

     (ii) Material breach by the Executive of any provision of this Agreement or any other
agreement with the Company or any of its Affiliates; provided that the first occurrence of
any particular breach shall not constitute Cause unless the Employee has failed to cure such
breach within ten (10) days after receiving written notice from the Employer stating the
nature of such breach;

     (iii) The Executive’s conviction of, or plea of guilty or nolo contendere to, any
felony;

     (iv) The Executive’s act of fraud;

     (v) The Executive’s act or omission that, in the reasonable determination of the
Company indicates alcohol or drug abuse by the Executive; or

     (vi) The Executive’s act or personal conduct that, in the judgment of the Company’s
Board of Directors (or a Committee of the Board), gives rise to a material risk of liability
of the Executive or the Company under federal or applicable state law for discrimination, or
sexual or other forms of harassment, or other similar liabilities to subordinate employees.

Upon the giving of notice of termination of the Executive’s employment hereunder for Cause, the
Company shall have no further obligation to the Executive, other than for Final Compensation.

          (d) By the Company Other than for Cause. The Company may terminate the Executive’s
employment hereunder other than for Cause at any time upon written notice to the Executive.

     (i) Within Twelve Months of the Effective Date. In the event of such
termination within the first twelve (12) months following the Effective Date, in addition to
Final Compensation, subject to Section 5(d)(iv) and provided that no benefits are payable to
the Executive under a separate severance agreement as a result of such

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termination, then monthly during the period of twelve (12) months following the date of
termination, the Company shall continue to pay the Executive the Base Salary at the rate in
effect on the date of termination and, subject to any employee contribution applicable to
the Executive on the date of termination, shall continue to contribute to the premium cost
of the Executive’s participation in the Company’s group medical and dental plans (unless
prohibited by law), provided that the Executive is entitled to continue such participation
under applicable law and plan terms.

     (ii) More Than Twelve Months after the Effective Date. In the event of such
termination after the first twelve (12) months following the Effective Date, in addition to
Final Compensation, subject to Section 5(d)(iv) and provided that no benefits are payable to
the Executive under a separate severance agreement as a result of such termination, then
monthly during the period of six (6) months following the date of termination, the Company
shall continue to pay the Executive the Base Salary at the rate in effect on the date of
termination and, subject to any employee contribution applicable to the Executive on the
date of termination, shall continue to contribute to the premium cost of the Executive’s
participation in the Company’s group medical and dental plans (unless prohibited by law),
provided that the Executive is entitled to continue such participation under applicable law
and plan terms.

     (iii) Following a Change of Control. In the event of such termination within
twelve (12) months following a Change of Control, in addition to Final Compensation, subject
to Section 5(d)(iv) and provided that no benefits are payable to the Executive under a
separate severance agreement as a result of such termination, then: (A) monthly during the
period of twelve (12) months following the date of termination, the Company shall continue
to pay the Executive the Base Salary at the rate in effect on the date of termination, (B)
the vesting of a portion of the Executive’s outstanding equity awards granted by the Company
shall accelerate, with such acceleration to be equal to the greater of 50% of the unvested
portion of all such outstanding awards or the portion that would have vested over the twenty
four (24) months from the termination date and, (C) subject to any employee contribution
applicable to the Executive on the date of termination, shall continue to contribute to the
premium cost of the Executive’s participation in the Company’s group medical and dental
plans (unless prohibited by law), provided that the Executive is entitled to continue such
participation under applicable law and plan terms. For purposes of this Agreement,
“Change in Control” shall mean: (x) an acquisition of any voting securities of the
Company (the “Voting Securities”) by any “person” (as the term “person” is used for purposes
of Section 13(d) or Section 14(d) of the Securities Exchange Act of 1934, as amended (the
“1934 Act”), immediately after which such person has “beneficial ownership” (within the
meaning of Rule 13d-3 promulgated under the 1934 Act) (“Beneficial Ownership”) of 50% or
more of the combined voting power of the Company’s then outstanding Voting Securities
without the approval of the Board; (y) a merger or consolidation in which the Company’s
stockholders immediately prior to such transaction hold, immediately after the consummation
of the merger or consolidation, less than 50% of the combined voting power of the Company’s
or its successor; or (z) the sale of all or substantially all of the Company’s assets.

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     (iv) Release of Claims. Any obligation of the Company to the Executive
hereunder, other than for Final Compensation, is conditioned on the Executive signing a
timely and effective release of claims in the form provided by the Company (the
“Employee Release”) and delivering it to the Company by the deadline specified
therein, and the Employee Release taking effect by its terms, within sixty (60) calendar
days following the date her employment terminates. Any severance payments to which the
Executive is entitled hereunder shall be payable in accordance with the normal payroll
practices of the Company, with the first payment, which shall be retroactive to the day
immediately following the date the Executive’s employment terminated, being due and payable
on the Company’s next regular payday for executives that follows the expiration of thirty
(30) calendar days from the date the Executive’s employment terminates. The Release of
Claims required for separation benefits in accordance with this Section 5(d)(iii) creates
legally binding obligations on the part of the Executive and the Company and its Affiliates
therefore advise the Executive to seek the advice of an attorney before signing it.

          (e) By the Executive for Good Reason. The Executive may terminate her employment
hereunder for Good Reason (A) by providing notice to the Company specifying in reasonable detail
the condition giving rise to the Good Reason no later than thirty (30) days following the
occurrence of that condition; (B) by providing the Company a period of thirty (30) days to remedy
the condition and so specifying in the notice and (C) by terminating her employment for Good Reason
within thirty (30) days following the expiration of the period to remedy if the Company fails to
remedy the condition. The following, occurring without the Executive’s consent, shall constitute
“Good Reason” for termination by the Executive:

     (i) a material reduction of the Executive’s duties and responsibilities assigned to her
as the Senior Vice President and Chief Scientific Officer.

     (ii) the Company’s breach of any material term of the Agreement; provided that the
first occasion of any particular breach shall not constitute such Good Reason unless the
Company has failed to cure such breach within sixty (60) days after receiving written notice
from the Executive stating the nature of such breach.

     (iii) Relocation of the Company’s principal executive offices of a distance in excess
of fifty (50) miles from its location at the Effective Date.

In the event of a termination of employment in accordance with this Section 5(e), the Executive
will be entitled to receive the same pay and benefits she would have been entitled to receive had
she been terminated by the Company other than for Cause in accordance with Section 5(d) above;
provided that the Executive satisfies all conditions to such entitlement, including without
limitation the signing of an effective Release of Claims as set forth in Section 5(d).

          (f) Timing of Payments and Section 409A.

     (i) Notwithstanding anything to the contrary in this Agreement, if at the time of the
Executive’s termination of employment, the Executive is a “specified employee,” as defined
below, any and all amounts payable under this Section 5 on account of such

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separation from service that would (but for this provision) be payable within six (6)
months following the date of termination, shall instead be paid on the next business day
following the expiration of such six (6) month period or, if earlier, upon the Executive’s
death; except (A) to the extent of amounts that do not constitute a deferral of compensation
within the meaning of Treasury regulation Section 1.409A-1(b) (including without limitation
by reason of the safe harbor set forth in Section 1.409A-1(b)(9)(iii), as determined by the
Company in its reasonable good faith discretion); (B) benefits which qualify as excepted
welfare benefits pursuant to Treasury regulation Section 1.409A-1(a)(5); or (C) other
amounts or benefits that are not subject to the requirements of Section 409A of the Internal
Revenue Code (“Section 409A”).

     (ii) For purposes of this Agreement, all references to “termination of employment” and
correlative phrases shall be construed to require a “separation from service” (as defined in
Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions
contained therein), and the term “specified employee” means an individual determined by the
Company to be a specified employee under Treasury regulation Section 1.409A-1(i).

     (iii) Each payment made under this Agreement shall be treated as a separate payment and
the right to a series of installment payments under this Agreement is to be treated as a
right to a series of separate payments.

     (iv) The Executive’s right to reimbursement for business expenses hereunder shall be
subject to the following additional rules: (i) the amount of expenses eligible for
reimbursement during any calendar year shall not affect the expenses eligible for
reimbursement in any other taxable year, (ii) reimbursement shall be made not later than
December 31 of the calendar year following the calendar year in which the expense was
incurred, and (iii) the right to reimbursement is not subject to liquidation or exchange for
any other benefit.

     (v) In no event shall the Company have any liability relating to any payment or benefit
under this Agreement failing to comply with, or be exempt from, the requirements of Section
409A.

          (g) Post-Agreement Employment. In the event the Executive remains in the employ of
the Company or any of its Affiliates following termination of this Agreement, by the expiration of
the term or otherwise, then such employment shall be at will.

     6. Effect of Termination. The provisions of this Section 6 shall apply to any
termination of the Executive’s employment hereunder:

          (a) The Company shall pay to the Executive: (i) any Base Salary earned but not paid during
the final payroll period of the Executive’s employment through the date of termination, (ii) pay
for any paid time off earned but not used through the date of termination, (iii) any bonus
compensation awarded for the year preceding that in which termination occurs, but unpaid on the
date of termination and (iv) any business expenses incurred by the Executive but un-reimbursed on
the date of termination, provided that such expenses and required

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substantiation and documentation are submitted within sixty (60) days of termination and that
such expenses are reimbursable under Company policy (all of the foregoing, “Final
Compensation”). Subject to the terms of this Agreement, the Company shall have no further
obligation to the Executive hereunder. Any Base Salary or pay for earned but unused paid time off
shall be payable at the time provided by applicable law. Any bonus due for the preceding year
shall be payable at the time provided for at the time such bonus is awarded. Any business expenses
shall be payable not later than ninety (90) days following the date of termination.

          (b) Payment by the Company of Final Compensation and any Base Salary and contributions to the
cost of the Executive’s continued participation in the Company’s group health and dental plans that
may be due the Executive in each case under the applicable termination provision of Section 5 shall
constitute the entire obligation of the Company to the Executive hereunder. The Executive shall
promptly give the Company notice of all facts necessary for the Company to determine the amount and
duration of its obligations in connection with any termination pursuant to Section 5(d) hereof.

          (c) Except for any right of the Executive to continue medical and dental plan participation in
accordance with applicable law, benefits shall terminate pursuant to the terms of the applicable
benefit plans based on the date of termination of the Executive’s employment without regard to any
continuation of Base Salary or other payment to the Executive following such date of termination.

          (d) Provisions of this Agreement shall survive any termination if so provided herein or if
necessary or desirable to accomplish the purposes of other surviving provisions, including without
limitation the obligations of the Executive under Sections 7, 8 and 9 hereof. The obligation of
the Company to make payments to or on behalf of the Executive under Section 5(d) hereof is
expressly conditioned upon the Executive’s continued full performance of obligations under Sections
7, 8 and 9 hereof. The Executive recognizes that, except as expressly provided in Section 5(d), no
compensation is earned after termination of employment.

     7. Confidential Information.

          (a) The Executive acknowledges that the Company and its Affiliates continually develop
Confidential Information, that the Executive may develop Confidential Information for the Company
or its Affiliates and that the Executive may learn of Confidential Information during the course of
employment. The Executive will comply with the policies and procedures of the Company and its
Affiliates for protecting Confidential Information and shall not disclose to any Person or use,
other than as required by applicable law or for the proper performance of her duties and
responsibilities to the Company and its Affiliates, any Confidential Information obtained by the
Executive incident to her employment or other association with the Company or any of its
Affiliates. The Executive understands that this restriction shall continue to apply after her
employment terminates, regardless of the reason for such termination. The confidentiality
obligation under this Section 7 shall not apply to information which is generally known or readily
available to the public at the time of disclosure or becomes generally known through no wrongful
act on the part of the Executive or any other Person having an obligation of confidentiality to the
Company or any of its Affiliates.

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          (b) All documents, records, tapes and other media of every kind and description relating
to the business, present or otherwise, of the Company or its Affiliates and any copies, in whole or
in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the
sole and exclusive property of the Company and its Affiliates. The Executive shall safeguard all
Documents and shall surrender to the Company at the time her employment terminates, or at such
earlier time or times as the Board or its designee may specify, all Documents then in the
Executive’s possession or control.

     8. Assignment of Rights to Intellectual Property. The Executive shall promptly and
fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees
to assign to the Company (or as otherwise directed by the Company) the Executive’s full right,
title and interest in and to all Intellectual Property. The Executive agrees to execute any and
all applications for domestic and foreign patents, copyrights or other proprietary rights and to do
such other acts (including without limitation the execution and delivery of instruments of further
assurance or confirmation) requested by the Company to assign the Intellectual Property to the
Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to
the Intellectual Property. The Executive will not charge the Company for time spent in complying
with these obligations. All copyrightable works that the Executive creates shall be considered
“work made for hire” and shall, upon creation, be owned exclusively by the Company. The
Executive’s obligation to assist the Company in obtaining and enforcing patents for Intellectual
Property in any and all countries shall continue beyond the termination of the Executive’s
employment with the Company, but the Company shall compensate the Executive at a reasonable,
standard hourly rate following such termination for time directly spent by Employee at the
Company’s request for such assistance.

     9. Restricted Activities. The Executive agrees that the following restrictions on her
activities during and after her employment are necessary to protect the good will, Confidential
Information, trade secrets and other legitimate interests of the Company and its Affiliates:

          (a) During the Term, the Executive will not undertake any outside activity, whether or not
Competitive with the business of the Company or its Affiliates that could reasonably give rise to a
conflict of interest or otherwise interfere with her duties and obligations to the Company or any
of its Affiliates.

          (b) During the Term and for the Restricted Period (defined below), the Executive shall not,
directly or indirectly, whether as owner, partner, investor, consultant, agent, employee,
co-venturer or otherwise: (i) engage in any Competitive activity within the United States or any
other country in which the Company has conducted discovery, development or commercialization
activities for any Product or has sought patent protection for any Product, in either case as of
the date of such termination; or (ii) undertake any planning for any Competitive business.
Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner
in any activity that is directly or indirectly Competitive or potentially Competitive and further
agrees not to work or provide services, in any capacity, whether as an employee, independent
contractor or otherwise, whether with or without compensation, to any Person who is engaged in any
business that is Competitive. For the purposes of this Section 9, the Executive’s foregoing
obligations to not engage in any Competitive activity shall encompass all drugs and drug candidates
being discovered, developed or commercialized for the same

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biological target or for the treatment
of the same diseases, disorders or conditions targeted by any Product. The foregoing, however,
shall not prevent the Executive’s passive ownership of one percent (1%) or less of the equity
securities of any publicly traded company. For purposes of this Agreement: (A) the
“Restricted Period” shall be twelve (12) months if Executive’s employment terminates on or
prior to the first anniversary of the Effective Date, and six (6) months if Executive’s employment
terminates after the first anniversary of the Effective Date; and (B) the term
“Competitive” shall mean either the discovery, development or commercialization of any
human therapeutics or human diagnostics utilizing RNA interference, or the discovery, development
or commercialization of any Products.

          (c) During the Restricted Period, the Executive will not directly or indirectly (a) solicit or
encourage any customer of the Company or any of its Affiliates to terminate or diminish its
relationship with them; or (b) seek to persuade any such customer or prospective customer of the
Company or any of its Affiliates to conduct with anyone else any business or activity which such
customer or prospective customer conducts or could conduct with the Company or any of its
Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who
are or have been a customer of the Company or any of its Affiliates at any time within the
immediately preceding two year period or whose business has been solicited on behalf of the Company
or any of the Affiliates by any of their officers, employees or agents within said two year period,
other than by form letter, blanket mailing or published advertisement, and (z) only if the
Executive has performed work for such Person during her employment with the Company or one of its
Affiliates or been introduced to, or otherwise had contact with, such Person as a result of her
employment or other associations with the Company or one of its Affiliates or has had access to
Confidential Information which would assist in the Executive’s solicitation of such Person

          (d) During the Restricted Period, the Executive will not, and will not assist any other Person
to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to
persuade any employee of the Company or any of its Affiliates to discontinue employment or (b)
solicit or encourage any independent contractor providing services to the Company or any of its
Affiliates to terminate or diminish its relationship with them. For the purposes of this
Agreement, an “employee” of the Company or any of its Affiliates is any person who was such at any
time within the preceding two years.

     10. Notification Requirement. Until forty-five (45) days after the conclusion of the
Restricted Period, the Executive shall give notice to the Company of each new business activity she
undertakes, at least ten (10) days prior to beginning any such activity. Such notice shall state
the name and address of the Person for whom such activity is undertaken and the nature of the
Executive’s business relationship(s) and position(s) with such Person. The Executive shall provide
the Company with such other pertinent information concerning such business activity as the Company
may reasonably request in order to determine the Executive’s continued compliance with her
obligations under Sections 7, 8 and 9 hereof.

     11. Enforcement of Covenants. The Executive acknowledges that she has carefully read
and considered all the terms and conditions of this Agreement, including the restraints imposed
upon her pursuant to Sections 7, 8 and 9 hereof. The Executive agrees without reservation that
each of the restraints contained herein is necessary for the reasonable and proper

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protection of
the good will, Confidential Information, trade secrets and other legitimate interests of the
Company and its Affiliates; that each and every one of those restraints is reasonable in respect to
subject matter, length of time and geographic area; and that these restraints, individually or in
the aggregate, will not prevent her from obtaining other suitable employment during the period in
which the Executive is bound by these restraints. The Executive further agrees that she will never
assert, or permit to be asserted on her behalf, in any forum, any position contrary to the
foregoing. The Executive further acknowledges that, were she to breach any of the covenants
contained in Sections 7, 8 or 9 hereof, the damage to the Company would be irreparable. The
Executive therefore agrees that the Company, in addition to any other remedies available to it,
shall be entitled to preliminary and permanent injunctive relief against any breach or threatened
breach by the Executive of any of said covenants, without having to post bond and to recover its
reasonable attorneys’ fees and costs incurred in securing such relief. The Executive agrees that
the Restricted Period shall be tolled, and shall not run, during any period of time in which she is
in violation of the terms thereof, in order that the Company and its Affiliates shall have all of
the agreed-upon temporal protection recited herein. The parties further agree that, in the event
that any provision of Section 7, 8 or 9 hereof shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a
geographic area or too great a range of activities, such provision shall be deemed to be modified
to permit its enforcement to the maximum extent permitted by law.

     12. Conflicting Agreements. The Executive hereby represents and warrants that the
execution of this Agreement and the performance of her obligations hereunder will not breach or be
in conflict with any other agreement to which the Executive is a party or is bound and that the
Executive is not now subject to any covenants against competition or similar covenants or any court
order or other legal obligation that would affect the performance of her obligations hereunder.
The Executive will not disclose to or use on behalf of the Company any proprietary information of a
third party without such party’s consent.

     13. Definitions. Words or phrases which are initially capitalized or are within
quotation marks shall have the meanings provided in this Section and as provided elsewhere herein.
For purposes of this Agreement, the following definitions apply:

          (a) “Affiliates” means all persons and entities directly or indirectly controlling,
controlled by or under common control with the Company, where control may be by management
authority, contract or equity interest.

          (b) “Confidential Information” means any and all information of the Company and its
Affiliates that is not generally known by those with whom the Company or any of its Affiliates
competes or does business, or with whom the Company or any of its Affiliates plans to compete or do
business and any and all information, publicly known in whole or in part or not, which, if
disclosed by the Company or any of its Affiliates would assist in competition against them.
Confidential Information includes without limitation such information relating to (i) the
development, research, testing, manufacturing, marketing and financial activities of the Company
and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance
and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the
customers of the Company and its Affiliates and (v) the people and organizations

-11-

 

with whom the
Company and its Affiliates have business relationships and the nature and substance of those
relationships. Confidential Information also includes any information that the Company or any of
its Affiliates has received, or may receive hereafter, belonging to customers or others with any
understanding, express or implied, that the information would not be disclosed.

          (c) “Intellectual Property” means inventions, discoveries, developments, methods,
processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or
constituting trade secrets) conceived, made, created, developed or reduced to practice by the
Executive (whether alone or with others, whether or not during normal business hours or on or off
Company premises) during the Executive’s employment and during the period of six (6) months
immediately following termination of her employment that relate to either the Products or any
prospective activity of the Company or any of its Affiliates or that make use of Confidential
Information or any of the equipment or facilities of the Company or any of its Affiliates.

          (d) “Person” means an individual, a corporation, a limited liability company, an
association, a partnership, an estate, a trust and any other entity or organization, other than the
Company or any of its Affiliates.

          (e) “Products” mean all products and product candidates planned, researched,
developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by
the Company or any of its Affiliates, together with all related services provided or planned by the
Company or any of its Affiliates, during the Executive’s employment with the Company or any of its
Affiliates.

     14. Withholding. All payments made by the Company under this Agreement shall be
reduced by any tax or other amounts required to be withheld by the Company under applicable law.

     15. Assignment. Neither the Company nor the Executive may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the prior written
consent of the other; provided, however, that the Company may assign its rights and obligations
under this Agreement without the consent of the Executive in the event that the Executive is
transferred to a position with any of the Affiliates or in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any Person or transfer all or
substantially all of its properties or assets to any Person. This Agreement shall inure to the
benefit of and be binding upon the Company and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.

     16. Severability. If any portion or provision of this Agreement shall to any extent
be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of
this Agreement, or the application of such portion or provision in circumstances other than those
as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.

-12-

 

     17. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require the performance of
any term or obligation of this Agreement, or the waiver by either party of any breach of this
Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.

     18. Notices. Any and all notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be effective when delivered in person,
consigned to a reputable national courier service or deposited in the United States mail, postage
prepaid, registered or certified, and addressed to the Executive at her last known address on the
books of the Company or, in the case of the Company, at its principal place of business, attention
of the Chief Executive Officer, or to such other address as either party may specify by notice to
the other actually received.

     19. Entire Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes all prior communications, agreements and understandings, written or oral,
with respect to the terms and conditions of the Executive’s employment with the Company, other than
any obligations owed to the Company or its predecessor with respect to confidentiality,
non-competition, intellectual property, and proprietary information, all of which shall continue in
force.

     20. Amendment. This Agreement may be amended or modified only by a written instrument
signed by the Executive and by an expressly authorized representative of the Company.

     21. Headings. The headings and captions in this Agreement are for convenience only
and in no way define or describe the scope or content of any provision of this Agreement.

     22. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be an original and all of which together shall constitute one and the same instrument.

     23. Governing Law. This is a Massachusetts contract and shall be construed and
enforced under and be governed in all respects by the laws of the Commonwealth of Massachusetts,
without regard to the conflict of laws principles thereof.

[Signature page follows immediately.]

-13-

 

     IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by
its duly authorized representative, and by the Executive, as of the date first above written.

	 	 	 	 	 	 	 	 	 

	THE EXECUTIVE:

	 	 
	 	 	 	THE COMPANY
	 	 
	 
	 	 	 	 	 	 	 	 
	/s/ Anastasia Khvorova
 

Anastasia Khvorova, Ph.D.

	 	  
	 	By:
	 	/s/ Mark J. Ahn
 

Mark J. Ahn, Ph.D, President and Chief
Financial Officer
	 	 

[Signature Page to Anastasia Khvorova Employment Agreement]

 

 

Schedule A

	I.	 	Potential consulting activities. As of the Effective Date, the Employee has a
material interest (50% ownership) and is providing professional services to Advirna, LLC
and the Employee desires expects to continue this relationship on a part-time basis. The
Employer acknowledges this pre-existing relationship and agrees that the Employee may
continue to provide professional services to Advirna, LLC, on a part-time basis so long as
this activity does not materially interfere with the performance of the Employee’s duties
hereunder.
	 
	II.	 	As of Effective Date, the Employee is participating in several professional
organizations and activities, and as follows:

	 	a.	 	Board Member and Treasure of Oligonucleotide Therapeutic Society.
	 
	 	b.	 	Editorial board member of several professional journals including
Nucleic Acid Research, Silence, Nature Publishing Group Journal Molecular Therapy,
Nucleic Acids, RNA, Oligonucleotides, Silence.
	 
	 	c.	 	Review and adviser to NIH SBIR Funding Committee.
	 
	 	d.	 	Keystone symposium 2012 and OTS 2012 meeting organizer.

	III.	 	Potential participation on the Boards of other companies. The Employee may
desire to seek appointment to an outside Board(s) for a non-competing company in the
future. If so, the Employee will inform the Employer that she is contemplating an outside
Board(s) position and request approval to pursue such an opportunity and the Employer
agrees to give consider this request(s) in good faith and to unreasonably withhold its
consent to such request(s).
	 
	IV.	 	Total time expended on outside companies shall not exceed 10 hours per month.exv10w5

Exhibit 10.5

EMPLOYMENT AGREEMENT

     This Employment Agreement is made and entered into by and between RNCS, Inc. (the
“Company”), a Delaware corporation with its principal place of business at Worcester,
Massachusetts, and Pamela Pavco, of Longmont, Colorado (the “Executive”), signed on September
24, 2011 and effective as of the Effective Date, as defined in that certain Securities Purchase
Agreement, by and among Tang Capital Partners, LP, RTW Investments, LLC, the Company, and RXi
Pharmaceuticals Corporation (the “Securities Purchase Agreement”), and entered into as of
September 24, 2011 (the “Effective Date”).

     WHEREAS, the operations of the Company and its Affiliates are a complex matter requiring
direction and leadership in a variety of arenas, including research and development and others;

     WHEREAS, the Executive is possessed of certain experience and expertise that qualify her to
provide the direction and leadership required by the Company and its Affiliates; and

     WHEREAS, subject to the terms and conditions hereinafter set forth, the Company therefore
wishes to employ the Executive as its Senior Vice President of Pharmaceutical Development and the
Executive wishes to accept such employment;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises, terms,
provisions and conditions set forth in this Agreement, the parties hereby agree:

     1. Employment. Subject to the terms and conditions set forth in this Agreement, the
Company hereby offers, and the Executive hereby accepts, employment.

     2. Term. Subject to earlier termination as hereinafter provided, the Executive’s
employment shall commence on the Effective Date, and shall continue until terminated pursuant to
Section 5 hereof (the “Term”).

     3. Capacity and Performance.

          (a) During the Term, the Executive shall be employed by the Company on a full-time basis and
shall perform the duties and responsibilities of her position and such other duties and
responsibilities on behalf of the Company and its Affiliates as reasonably may be designated from
time to time by the Board of Directors of the Company (the “Board”) or by its Chair or
other designee.

          (b) During the Term, the Executive shall devote her full business time and her best efforts,
business judgment, skill and knowledge exclusively to the advancement of the business and interests
of the Company and its Affiliates and to the discharge of her duties and responsibilities
hereunder. The Executive’s services hereunder shall be rendered at the geographic location of the
Executive’s choosing (and the Executive shall not be required to relocate), except for travel when
and as required in the performance of the Executive’s duties hereunder. The Executive shall not
engage in any other business activity or serve in any

 

 

industry, trade, professional, governmental or academic position during the term of this
Agreement, except as may be expressly approved in advance by the Board in writing.

     4. Compensation and Benefits. As compensation for all services performed by the
Executive during the Term and subject to the Executive’s performance of her duties and obligations
to the Company and its Affiliates, pursuant to this Agreement or otherwise, the Company shall
provide the Executive with the following compensation and benefits:

          (a) Base Salary and Bonus. During the Term, the Company shall pay the Executive a
base salary at the rate of $300,000 per annum, payable in accordance with the payroll practices of
the Company for its executives and subject to adjustment from time to time by the Board, in its
sole discretion (such base salary, as from time to time adjusted, the “Base Salary”). The
Executive shall be eligible to receive an annual performance bonus, to be awarded at the discretion
of the Compensation Committee of the Board of Directors (the “Compensation Committee”), for the
achievement of certain Company and Executive performance goals, which goals will be established
annually by the Compensation Committee. The target bonus for achieving these goals shall be equal
to thirty (30%) percent of the Base Salary.

          (b)
Stock Options. On the day that is seven (7) days following the Closing (as defined in
the Securities Purchase Agreement), the Company shall grant to the Executive an option
to purchase shares of the common stock of the Company in an amount which shall equal 2% of the
outstanding common stock as of such grant date (calculated on a fully-diluted basis), which option
shall be exercisable at the fair market value of the common stock on the grant date (the
“Option”). The shares that are subject to the Option shall vest and become exercisable in
monthly installments over four (4) years beginning on the first month after the Effective Date of
the Agreement, provided, in each case, that the Executive remains in the employ of the Company
through each such monthly vesting date. Each vested Option shall have a term of ten years and be
exercisable by the Executive at any time during such ten-year period. The Option shall be subject
to the Company 2011 Equity Incentive Plan, other equity incentive plan, award certificate and
shareholder and/or option holder agreements and other restrictions and limitations generally
applicable to equity held by Company executives or otherwise required by law. The Executive shall
not be eligible to receive any stock options, restricted stock or other equity of the Company,
however, whether under an equity incentive plan or otherwise, except as expressly provided in this
Agreement or as otherwise expressly authorized for her individually by the Board.

          (c) Paid Time Off. During the Term, the Executive shall be entitled to earn paid time
off at the rate of twenty-five (25) days per year. Paid time off, which may be taken for any
reason including vacation, sick leave and personal leave, may be taken at such times and intervals
as shall be determined by the Executive, subject to the reasonable business needs of the Company.
Paid time off shall otherwise be governed by the policies of the Company, as in effect from time to
time. The number of paid “time off” days will accrue per pay period and will stop accruing once
twenty (20) days have been reached.-2-

 

          (d) Other Benefits. During the term hereof, the Executive shall be entitled to
participate in any and all employee benefit plans from time to time in effect for employees of the
Company generally, except to the extent any such employee benefit plan is in a category of benefit
otherwise provided to the Executive (e.g., a severance pay plan). Such participation shall be
subject to the terms of the applicable plan documents and generally applicable Company policies.
The Company may alter, modify, add to or delete its employee benefit plans at any time as it, in
its sole judgment, determines to be appropriate, without recourse by the Executive.

          (e) Business Expenses. The Company shall pay or reimburse the Executive for all
reasonable and necessary business expenses incurred or paid by the Executive in the performance of
her duties and responsibilities hereunder, subject to any maximum annual limit and other
restrictions on such expenses set by the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to time. In addition, the Company agrees
to reimburse the Executive for expenses directly related to the Executive’s performance of duties
at the Executive’s Colorado office including (but not limited to) such reasonable and necessary
expenses directly related to fax, phone, internet, copying and similar items.

     5. Termination of Employment and Severance Benefits. The Executive’s employment
hereunder shall terminate under the following circumstances:

          (a) Death. In the event of the Executive’s death during the Term, the Executive’s
employment shall immediately and automatically terminate. In such event, the Company shall pay any
Final Compensation (as defined below) to the Executive’s designated beneficiary or, if no
beneficiary has been designated by the Executive in writing, to her estate.

          (b) Disability.

     (i) The Company may terminate the Executive’s employment hereunder, upon notice to the
Executive, in the event that the Executive becomes disabled through any illness, injury,
accident or condition of either a physical or psychological nature and, as a result, is
unable to perform substantially all of her duties and responsibilities hereunder,
notwithstanding the provision of any reasonable accommodation, for a total of ninety (90)
days, whether or not consecutive, during any period of three hundred and sixty-five (365)
consecutive calendar days. In the event of such termination, the Company shall have no
further obligation to the Executive, other than for payment of Final Compensation.

     (ii) The Board may designate another employee to act in the Executive’s place during
any period of the Executive’s disability. Notwithstanding any such designation, the
Executive shall continue to receive the Base Salary in accordance with Section 4(a) and
benefits in accordance with Section 4(d), to the extent permitted by the then-current terms
of the applicable benefit plans, until the Executive becomes eligible for disability income
benefits under the Company’s disability income plan or until the termination of her
employment, whichever shall first occur.

-3-

 

     (iii) While receiving disability income payments under the Company’s disability income
plan, the Executive shall not be entitled to receive any Base Salary under Section 4(a)
hereof, but shall continue to participate in Company benefit plans in accordance with
Section 4(d) and the terms of such plans, until the termination of her employment.

     (iv) If any question shall arise as to whether during any period the Executive is
disabled through any illness, injury, accident or condition of either a physical or
psychological nature so as to be unable to perform substantially all of her duties and
responsibilities hereunder, the Executive may, and at the request of the Company shall,
submit to a medical examination by a physician selected by the Company to whom the Executive
or her duly appointed guardian, if any, has no reasonable objection to determine whether the
Executive is so disabled and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and the Executive shall fail to
submit to such medical examination, the Company’s determination of the issue shall be
binding on the Executive.

          (c) By the Company for Cause. The Company may terminate the Executive’s employment
hereunder for Cause at any time upon written notice to the Executive setting forth in reasonable
detail the nature of such Cause. The following, as determined by the Board in its reasonable
judgment, shall constitute Cause for termination:

     (i) The Executive’s repeated failure or repeated refusal to perform (other than by
reason of disability), or gross negligence in the performance of, her material duties and
responsibilities to the Company or any of its Affiliates;

     (ii) Material breach by the Executive of any provision of this Agreement or any other
agreement with the Company or any of its Affiliates; provided that the first occurrence of
any particular breach shall not constitute Cause unless the Employee has failed to cure such
breach within ten (10) days after receiving written notice from the Employer stating the
nature of such breach;

     (iii) The Executive’s conviction of, or plea of guilty or nolo contendere to, any
felony;

     (iv) The Executive’s act of fraud;

     (v) The Executive’s act or omission that, in the reasonable determination of the
Company indicates alcohol or drug abuse by the Executive; or

     (vi) The Executive’s act or personal conduct that, in the judgment of the Company’s
Board of Directors (or a Committee of the Board), gives rise to a material risk of liability
of the Executive or the Company under federal or applicable state law for discrimination, or
sexual or other forms of harassment, or other similar liabilities to subordinate employees.

-4-

 

Upon the giving of notice of termination of the Executive’s employment hereunder for Cause, the
Company shall have no further obligation to the Executive, other than for Final Compensation.

          (d) By the Company Other than for Cause. The Company may terminate the Executive’s
employment hereunder other than for Cause at any time upon written notice to the Executive.

     (i) Within Twelve Months of the Effective Date. In the event of such
termination within the first twelve (12) months following the Effective Date, in addition to
Final Compensation, subject to Section 5(d)(iv) and provided that no benefits are payable to
the Executive under a separate severance agreement as a result of such termination, then
monthly during the period of twelve (12) months following the date of termination, the
Company shall continue to pay the Executive the Base Salary at the rate in effect on the
date of termination and, subject to any employee contribution applicable to the Executive on
the date of termination, shall continue to contribute to the premium cost of the Executive’s
participation in the Company’s group medical and dental plans (unless prohibited by law),
provided that the Executive is entitled to continue such participation under applicable law
and plan terms.

     (ii) More Than Twelve Months after the Effective Date. In the event of such
termination after the first twelve (12) months following the Effective Date, in addition to
Final Compensation, subject to Section 5(d)(iv) and provided that no benefits are payable to
the Executive under a separate severance agreement as a result of such termination, then
monthly during the period of six (6) months following the date of termination, the Company
shall continue to pay the Executive the Base Salary at the rate in effect on the date of
termination and, subject to any employee contribution applicable to the Executive on the
date of termination, shall continue to contribute to the premium cost of the Executive’s
participation in the Company’s group medical and dental plans (unless prohibited by law),
provided that the Executive is entitled to continue such participation under applicable law
and plan terms.

     (iii) Following a Change of Control. In the event of such termination within
twelve (12) months following a Change of Control, in addition to Final Compensation, subject
to Section 5(d)(iv) and provided that no benefits are payable to the Executive under a
separate severance agreement as a result of such termination, then: (A) monthly during the
period of twelve (12) months following the date of termination, the Company shall continue
to pay the Executive the Base Salary at the rate in effect on the date of termination, (B)
the vesting of a portion of the Executive’s outstanding equity awards granted by the Company
shall accelerate, with such acceleration to be equal to the greater of 50% of the unvested
portion of all such outstanding awards or the portion that would have vested over the twenty
four (24) months from the termination date and, (C) subject to any employee contribution
applicable to the Executive on the date of termination, shall continue to contribute to the
premium cost of the Executive’s participation in the Company’s group medical and dental
plans (unless prohibited by law), provided that the Executive is entitled to continue such
participation under applicable law and plan terms. For purposes of this Agreement, “Change
in Control” shall mean: (x) an acquisition of

-5-

 

any voting securities of the Company (the “Voting Securities”) by any “person” (as the
term “person” is used for purposes of Section 13(d) or Section 14(d) of the Securities
Exchange Act of 1934, as amended (the “1934 Act”), immediately after which such person has
“beneficial ownership” (within the meaning of Rule 13d-3 promulgated under the 1934 Act)
(“Beneficial Ownership”) of 50% or more of the combined voting power of the Company’s then
outstanding Voting Securities without the approval of the Board; (y) a merger or
consolidation in which the Company’s stockholders immediately prior to such transaction
hold, immediately after the consummation of the merger or consolidation, less than 50% of
the combined voting power of the Company’s or its successor; or (z) the sale of all or
substantially all of the Company’s assets.

     (iv) Release of Claims. Any obligation of the Company to the Executive
hereunder, other than for Final Compensation, is conditioned on the Executive signing a
timely and effective release of claims in the form provided by the Company (the
“Employee Release”) and delivering it to the Company by the deadline specified
therein, and the Employee Release taking effect by its terms, within sixty (60) calendar
days following the date her employment terminates. Any severance payments to which the
Executive is entitled hereunder shall be payable in accordance with the normal payroll
practices of the Company, with the first payment, which shall be retroactive to the day
immediately following the date the Executive’s employment terminated, being due and payable
on the Company’s next regular payday for executives that follows the expiration of thirty
(30) calendar days from the date the Executive’s employment terminates. The Release of
Claims required for separation benefits in accordance with this Section 5(d) (iii) creates
legally binding obligations on the part of the Executive and the Company and its Affiliates
therefore advise the Executive to seek the advice of an attorney before signing it.

          (e) By the Executive for Good Reason. The Executive may terminate her employment
hereunder for Good Reason (A) by providing notice to the Company specifying in reasonable detail
the condition giving rise to the Good Reason no later than thirty (30) days following the
occurrence of that condition; (B) by providing the Company a period of thirty (30) days to remedy
the condition and so specifying in the notice and (C) by terminating her employment for Good Reason
within thirty (30) days following the expiration of the period to remedy if the Company fails to
remedy the condition. The following, occurring without the Executive’s consent, shall constitute
“Good Reason” for termination by the Executive:

     (i) a material reduction of the Executive’s regular responsibilities from those
typically assigned to a Senior Vice President of a similarly situated biotechnology company.

     (ii) a reduction in Base Salary set forth in Section 4 hereof by more than 10% in any
calendar year, unless such reduction is in proportion with any Company-wide reductions in
base salary for all executive officers of the Company.

     (iii) the Company’s breach of any material term of the Agreement; provided that the
first occasion of any particular breach shall not constitute such Good Reason

-6-

 

unless the Company has failed to cure such breach within sixty (60) days after
receiving written notice from the Executive stating the nature of such breach.

     (iv) requiring the Executive to relocate her Colorado office a distance in excess of
fifty (50) miles from its location at the time of such requirement.

In the event of a termination of employment in accordance with this Section 5(e), the Executive
will be entitled to receive the same pay and benefits she would have been entitled to receive had
she been terminated by the Company other than for Cause in accordance with Section 5(d) above;
provided that the Executive satisfies all conditions to such entitlement, including without
limitation the signing of an effective Release of Claims as set forth in Section 5(d).

          (f) Timing of Payments and Section 409A.

     (i) Notwithstanding anything to the contrary in this Agreement, if at the time of the
Executive’s termination of employment, the Executive is a “specified employee,” as defined
below, any and all amounts payable under this Section 5 on account of such separation from
service that would (but for this provision) be payable within six (6) months following the
date of termination, shall instead be paid on the next business day following the expiration
of such six (6) month period or, if earlier, upon the Executive’s death; except (A) to the
extent of amounts that do not constitute a deferral of compensation within the meaning of
Treasury regulation Section 1.409A-1(b) (including without limitation by reason of the safe
harbor set forth in Section 1.409A-1(b)(9)(iii), as determined by the Company in its
reasonable good faith discretion); (B) benefits which qualify as excepted welfare benefits
pursuant to Treasury regulation Section 1.409A-1(a)(5); or (C) other amounts or benefits
that are not subject to the requirements of Section 409A of the Internal Revenue Code
(“Section 409A”).

     (ii) For purposes of this Agreement, all references to “termination of employment” and
correlative phrases shall be construed to require a “separation from service” (as defined in
Section 1.409A-1(h) of the Treasury regulations after giving effect to the presumptions
contained therein), and the term “specified employee” means an individual determined by the
Company to be a specified employee under Treasury regulation Section 1.409A-1(i).

     (iii) Each payment made under this Agreement shall be treated as a separate payment and
the right to a series of installment payments under this Agreement is to be treated as a
right to a series of separate payments.

     (iv) The Executive’s right to reimbursement for business expenses hereunder shall be
subject to the following additional rules: (i) the amount of expenses eligible for
reimbursement during any calendar year shall not affect the expenses eligible for
reimbursement in any other taxable year, (ii) reimbursement shall be made not later than
December 31 of the calendar year following the calendar year in which the expense was
incurred, and (iii) the right to reimbursement is not subject to liquidation or exchange for
any other benefit.

-7-

 

     (v) In no event shall the Company have any liability relating to any payment or benefit
under this Agreement failing to comply with, or be exempt from, the requirements of Section
409A.

          (g) Post-Agreement Employment. In the event the Executive remains in the employ of
the Company or any of its Affiliates following termination of this Agreement, by the expiration of
the term or otherwise, then such employment shall be at will.

     6. Effect of Termination. The provisions of this Section 6 shall apply to any
termination of the Executive’s employment hereunder:

          (a) The Company shall pay to the Executive: (i) any Base Salary earned but not paid during
the final payroll period of the Executive’s employment through the date of termination, (ii) pay
for any paid time off earned but not used through the date of termination, (iii) any bonus
compensation awarded for the year preceding that in which termination occurs, but unpaid on the
date of termination and (iv) any business expenses incurred by the Executive but un-reimbursed on
the date of termination, provided that such expenses and required substantiation and documentation
are submitted within sixty (60) days of termination and that such expenses are reimbursable under
Company policy (all of the foregoing, “Final Compensation”). The Company shall have no
further obligation to the Executive hereunder. Any Base Salary or pay for earned but unused paid
time off shall be payable at the time provided by applicable law. Any bonus due for the preceding
year shall be payable at the time provided for at the time such bonus is awarded. Any business
expenses shall be payable not later than ninety (90) days following the date of termination.

          (b) Payment by the Company of Final Compensation and any Base Salary and contributions to the
cost of the Executive’s continued participation in the Company’s group health and dental plans that
may be due the Executive in each case under the applicable termination provision of Section 5 shall
constitute the entire obligation of the Company to the Executive hereunder. The Executive shall
promptly give the Company notice of all facts necessary for the Company to determine the amount and
duration of its obligations in connection with any termination pursuant to Section 5(d) hereof.

          (c) Except for any right of the Executive to continue medical and dental plan participation in
accordance with applicable law, benefits shall terminate pursuant to the terms of the applicable
benefit plans based on the date of termination of the Executive’s employment without regard to any
continuation of Base Salary or other payment to the Executive following such date of termination.

          (d) Provisions of this Agreement shall survive any termination if so provided herein or if
necessary or desirable to accomplish the purposes of other surviving provisions, including without
limitation the obligations of the Executive under Sections 7, 8 and 9 hereof. The obligation of
the Company to make payments to or on behalf of the Executive under Section 5(d) hereof is
expressly conditioned upon the Executive’s continued full performance of obligations under Sections
7, 8 and 9 hereof. The Executive recognizes that, except as expressly provided in Section 5(d), no
compensation is earned after termination of employment.

-8-

 

     7. Confidential Information.

          (a) The Executive acknowledges that the Company and its Affiliates continually develop
Confidential Information, that the Executive may develop Confidential Information for the Company
or its Affiliates and that the Executive may learn of Confidential Information during the course of
employment. The Executive will comply with the policies and procedures of the Company and its
Affiliates for protecting Confidential Information and shall not disclose to any Person or use,
other than as required by applicable law or for the proper performance of her duties and
responsibilities to the Company and its Affiliates, any Confidential Information obtained by the
Executive incident to her employment or other association with the Company or any of its
Affiliates. The Executive understands that this restriction shall continue to apply after her
employment terminates, regardless of the reason for such termination. The confidentiality
obligation under this Section 7 shall not apply to information which is generally known or readily
available to the public at the time of disclosure or becomes generally known through no wrongful
act on the part of the Executive or any other Person having an obligation of confidentiality to the
Company or any of its Affiliates.

          (b) All documents, records, tapes and other media of every kind and description relating to
the business, present or otherwise, of the Company or its Affiliates and any copies, in whole or in
part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the
sole and exclusive property of the Company and its Affiliates. The Executive shall safeguard all
Documents and shall surrender to the Company at the time her employment terminates, or at such
earlier time or times as the Board or its designee may specify, all Documents then in the
Executive’s possession or control.

     8. Assignment of Rights to Intellectual Property. The Executive shall promptly and
fully disclose all Intellectual Property to the Company. The Executive hereby assigns and agrees
to assign to the Company (or as otherwise directed by the Company) the Executive’s full right,
title and interest in and to all Intellectual Property. The Executive agrees to execute any and
all applications for domestic and foreign patents, copyrights or other proprietary rights and to do
such other acts (including without limitation the execution and delivery of instruments of further
assurance or confirmation) requested by the Company to assign the Intellectual Property to the
Company and to permit the Company to enforce any patents, copyrights or other proprietary rights to
the Intellectual Property. The Executive will not charge the Company for time spent in complying
with these obligations. All copyrightable works that the Executive creates shall be considered
“work made for hire” and shall, upon creation, be owned exclusively by the Company. The
Executive’s obligation to assist the Company in obtaining and enforcing patents for Intellectual
Property in any and all countries shall continue beyond the termination of the Executive’s
employment with the Company, but the Company shall compensate the Executive at a reasonable,
standard hourly rate following such termination for time directly spent by Employee at the
Company’s request for such assistance.

     9. Restricted Activities. The Executive agrees that the following restrictions on her
activities during and after her employment are necessary to protect the good will, Confidential
Information, trade secrets and other legitimate interests of the Company and its Affiliates:

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          (a) During the Term, the Executive will not undertake any outside activity, whether or not
Competitive with the business of the Company or its Affiliates that could reasonably give rise to a
conflict of interest or otherwise interfere with her duties and obligations to the Company or any
of its Affiliates.

          (b) During the Term and for the Restricted Period (defined below), the Executive shall not,
directly or indirectly, whether as owner, partner, investor, consultant, agent, employee,
co-venturer or otherwise: (i) engage in any Competitive activity within the United States or any
other country in which the Company has conducted discovery, development or commercialization
activities for any Product or has sought patent protection for any Product, in either case as of
the date of such termination; or (ii) undertake any planning for any Competitive business.
Specifically, but without limiting the foregoing, the Executive agrees not to engage in any manner
in any activity that is directly or indirectly Competitive or potentially Competitive and further
agrees not to work or provide services, in any capacity, whether as an employee, independent
contractor or otherwise, whether with or without compensation, to any Person who is engaged in any
business that is Competitive. For the purposes of this Section 9, the Executive’s foregoing
obligations to not engage in any Competitive activity shall encompass all drugs and drug candidates
being discovered, developed or commercialized for the same biological target or for the treatment
of the same diseases, disorders or conditions targeted by any Product. The foregoing, however,
shall not prevent the Executive’s passive ownership of one percent (1%) or less of the equity
securities of any publicly traded company. For purposes of this Agreement: (A) the
“Restricted Period” shall be twelve (12) months if Executive’s employment terminates on or
prior to the first anniversary of the Effective Date, and six (6) months if Executive’s employment
terminates after the first anniversary of the Effective Date; and (B) the term
“Competitive” shall mean either the discovery, development or commercialization of any
human therapeutics or human diagnostics utilizing RNA interference, or the discovery, development
or commercialization of any Products.

          (c) During the Restricted Period, the Executive will not directly or indirectly (a) solicit or
encourage any customer of the Company or any of its Affiliates to terminate or diminish its
relationship with them; or (b) seek to persuade any such customer or prospective customer of the
Company or any of its Affiliates to conduct with anyone else any business or activity which such
customer or prospective customer conducts or could conduct with the Company or any of its
Affiliates; provided that these restrictions shall apply (y) only with respect to those Persons who
are or have been a customer of the Company or any of its Affiliates at any time within the
immediately preceding two year period or whose business has been solicited on behalf of the Company
or any of the Affiliates by any of their officers, employees or agents within said two year period,
other than by form letter, blanket mailing or published advertisement, and (z) only if the
Executive has performed work for such Person during her employment with the Company or one of its
Affiliates or been introduced to, or otherwise had contact with, such Person as a result of her
employment or other associations with the Company or one of its Affiliates or has had access to
Confidential Information which would assist in the Executive’s solicitation of such Person.

          (d) During the Restricted Period, the Executive will not, and will not assist any other Person
to, (a) hire or solicit for hiring any employee of the Company or any of its Affiliates or seek to
persuade any employee of the Company or any of its Affiliates to

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discontinue employment or (b) solicit or encourage any independent contractor providing
services to the Company or any of its Affiliates to terminate or diminish its relationship with
them. For the purposes of this Agreement, an “employee” of the Company or any of its Affiliates is
any person who was such at any time within the preceding two years.

     10. Notification Requirement. Until forty-five (45) days after the conclusion of the
Restricted Period, the Executive shall give notice to the Company of each new business activity she
undertakes, at least ten (10) days prior to beginning any such activity. Such notice shall state
the name and address of the Person for whom such activity is undertaken and the nature of the
Executive’s business relationship(s) and position(s) with such Person. The Executive shall provide
the Company with such other pertinent information concerning such business activity as the Company
may reasonably request in order to determine the Executive’s continued compliance with her
obligations under Sections 7, 8 and 9 hereof.

     11. Enforcement of Covenants. The Executive acknowledges that she has carefully read
and considered all the terms and conditions of this Agreement, including the restraints imposed
upon her pursuant to Sections 7, 8 and 9 hereof. The Executive agrees without reservation that
each of the restraints contained herein is necessary for the reasonable and proper protection of
the good will, Confidential Information, trade secrets and other legitimate interests of the
Company and its Affiliates; that each and every one of those restraints is reasonable in respect to
subject matter, length of time and geographic area; and that these restraints, individually or in
the aggregate, will not prevent her from obtaining other suitable employment during the period in
which the Executive is bound by these restraints. The Executive further agrees that she will never
assert, or permit to be asserted on her behalf, in any forum, any position contrary to the
foregoing. The Executive further acknowledges that, were she to breach any of the covenants
contained in Sections 7, 8 or 9 hereof, the damage to the Company would be irreparable. The
Executive therefore agrees that the Company, in addition to any other remedies available to it,
shall be entitled to preliminary and permanent injunctive relief against any breach or threatened
breach by the Executive of any of said covenants, without having to post bond and to recover its
reasonable attorneys’ fees and costs incurred in securing such relief. The Executive agrees that
the Restricted Period shall be tolled, and shall not run, during any period of time in which she is
in violation of the terms thereof, in order that the Company and its Affiliates shall have all of
the agreed-upon temporal protection recited herein. The parties further agree that, in the event
that any provision of Section 7, 8 or 9 hereof shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a
geographic area or too great a range of activities, such provision shall be deemed to be modified
to permit its enforcement to the maximum extent permitted by law.

     12. Conflicting Agreements. The Executive hereby represents and warrants that the
execution of this Agreement and the performance of her obligations hereunder will not breach or be
in conflict with any other agreement to which the Executive is a party or is bound and that the
Executive is not now subject to any covenants against competition or similar covenants or any court
order or other legal obligation that would affect the performance of her obligations hereunder.
The Executive will not disclose to or use on behalf of the Company any proprietary information of a
third party without such party’s consent.

-11-

 

     13. Definitions. Words or phrases which are initially capitalized or are within
quotation marks shall have the meanings provided in this Section and as provided elsewhere herein.
For purposes of this Agreement, the following definitions apply:

          (a) “Affiliates” means all persons and entities directly or indirectly controlling,
controlled by or under common control with the Company, where control may be by management
authority, contract or equity interest.

          (b) “Confidential Information” means any and all information of the Company and its
Affiliates that is not generally known by those with whom the Company or any of its Affiliates
competes or does business, or with whom the Company or any of its Affiliates plans to compete or do
business and any and all information, publicly known in whole or in part or not, which, if
disclosed by the Company or any of its Affiliates would assist in competition against them.
Confidential Information includes without limitation such information relating to (i) the
development, research, testing, manufacturing, marketing and financial activities of the Company
and its Affiliates, (ii) the Products, (iii) the costs, sources of supply, financial performance
and strategic plans of the Company and its Affiliates, (iv) the identity and special needs of the
customers of the Company and its Affiliates and (v) the people and organizations with whom the
Company and its Affiliates have business relationships and the nature and substance of those
relationships. Confidential Information also includes any information that the Company or any of
its Affiliates has received, or may receive hereafter, belonging to customers or others with any
understanding, express or implied, that the information would not be disclosed.

          (c) “Intellectual Property” means inventions, discoveries, developments, methods,
processes, compositions, works, concepts and ideas (whether or not patentable or copyrightable or
constituting trade secrets) conceived, made, created, developed or reduced to practice by the
Executive (whether alone or with others, whether or not during normal business hours or on or off
Company premises) during the Executive’s employment and during the period of six (6) months
immediately following termination of her employment that relate to either the Products or any
prospective activity of the Company or any of its Affiliates or that make use of Confidential
Information or any of the equipment or facilities of the Company or any of its Affiliates.

          (d) “Person” means an individual, a corporation, a limited liability company, an
association, a partnership, an estate, a trust and any other entity or organization, other than the
Company or any of its Affiliates.

          (e) “Products” mean all products and product candidates planned, researched,
developed, tested, manufactured, sold, licensed, leased or otherwise distributed or put into use by
the Company or any of its Affiliates, together with all related services provided or planned by the
Company or any of its Affiliates, during the Executive’s employment with the Company or any of its
Affiliates.

     14. Withholding. All payments made by the Company under this Agreement shall be
reduced by any tax or other amounts required to be withheld by the Company under applicable law.

-12-

 

     15. Assignment. Neither the Company nor the Executive may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the prior written
consent of the other; provided, however, that the Company may assign its rights and obligations
under this Agreement without the consent of the Executive in the event that the Executive is
transferred to a position with any of the Affiliates or in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any Person or transfer all or
substantially all of its properties or assets to any Person. This Agreement shall inure to the
benefit of and be binding upon the Company and the Executive, their respective successors,
executors, administrators, heirs and permitted assigns.

     16. Severability. If any portion or provision of this Agreement shall to any extent
be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of
this Agreement, or the application of such portion or provision in circumstances other than those
as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.

     17. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require the performance of
any term or obligation of this Agreement, or the waiver by either party of any breach of this
Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed a
waiver of any subsequent breach.

     18. Notices. Any and all notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be effective when delivered in person,
consigned to a reputable national courier service or deposited in the United States mail, postage
prepaid, registered or certified, and addressed to the Executive at her last known address on the
books of the Company or, in the case of the Company, at its principal place of business, attention
of the Chief Executive Officer, or to such other address as either party may specify by notice to
the other actually received.

     19. Entire Agreement. This Agreement constitutes the entire agreement between the
parties and supersedes all prior communications, agreements and understandings, written or oral,
with respect to the terms and conditions of the Executive’s employment with the Company, other than
any obligations owed to the Company or its predecessor with respect to confidentiality,
non-competition, intellectual property, and proprietary information, all of which shall continue in
force.

     20. Amendment. This Agreement may be amended or modified only by a written instrument
signed by the Executive and by an expressly authorized representative of the Company.

     21. Headings. The headings and captions in this Agreement are for convenience only
and in no way define or describe the scope or content of any provision of this Agreement.

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     22. Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be an original and all of which together shall constitute one and the same instrument.

     23. Governing Law. This is a Massachusetts contract and shall be construed and
enforced under and be governed in all respects by the laws of the Commonwealth of Massachusetts,
without regard to the conflict of laws principles thereof.

[Signature page follows immediately.]

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     IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by
its duly authorized representative, and by the Executive, as of the date first above written.

	 	 	 	 	 	 	 

	THE EXECUTIVE:	 	THE COMPANY
	 
	/s/ Pamela Pavco	 	By: 	 /s/ Mark J. Ahn
	 	 	 	 	 	Name: 	 Mark J. Ahn
	 	 	 	 	 	Title:	  President and Chief Financial Officer

[Signature Page to Pamela Pavco Employment Agreement]

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