Document:

exv10w1

	 	 	 	 	 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This Employment Agreement (this “Agreement”), is executed and entered into on the 10th day of
June, 2008 (the “Transition Date”) by and between MDRNA, Inc. (the “Company”), a Delaware
corporation formerly known as Nastech Pharmaceutical Company Inc., having offices at 3450 Monte
Villa Parkway, Bothell, Washington, and Steven C. Quay, M.D., Ph.D. (“Executive”). This agreement
shall be effective as and to the extent specified in Section 1 hereof.

W I T N E S S E T H:

     WHEREAS, the Company and Executive have executed and entered into a number of prior employment
agreements, including an agreement dated December 16, 2005 (the “December 2005 Agreement”), which
specifies an employment term scheduled to end at the close of business on December 31, 2009; and

     WHEREAS, the Company and Executive desire to extend and modify the employment relationship
between them prospectively as set forth herein;

     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 Executive agree as follows:

     1. Application and Effectiveness of Agreements. This Agreement shall govern (i) the
employment relationship between the Company and Executive from and after the Transition Date and
(ii) other matters as set forth herein. Nevertheless, to the extent their provisions concern
matters not addressed in this Agreement, the December 2005 Agreement and, as applicable, prior
agreements between the Company and Executive shall continue to govern the employment of Executive
by the Company prior to the Transition Date and matters directly relating to such employment prior
to the Transition Date. Without limiting the foregoing, the prior agreements shall continue to
govern the continued vesting and effectiveness, after the Transition Date, of stock options for,
and restricted shares of, Company stock granted to Executive under those prior agreements.

     2. Employment; Responsibilities and Authority; Board Designees; Outside Activities

          (a) Subject to the terms and conditions of this Agreement, the Company shall continue to
employ Executive after the Transition Date and during the Employment Period (as defined in Section
3, below); and Executive shall have the positions and titles of Chairman of the Board of Directors
of the Company (the “Board”), Chairman of the Company’s Science Advisory Board, and Chief
Scientific Officer of the Company. In these positions, Executive (i) shall perform such acts and
duties and furnish such services to the Company and its Subsidiaries (as defined below) as the
Board shall from time to time reasonably direct and (ii) shall have general and strategic charge
and oversight of the scientific direction of the Company, including its research and development
initiatives and activities, subject to the authority and control of the Board. All scientific and
research personnel employed by the Company shall report to Executive. Until the appointment by
the Company of an executive as chief executive officer, Executive shall also hold the title of, and
act as, Chief Executive Officer. Executive agrees he

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shall resign such title upon the Company’s
appointment of another individual as chief executive officer.

          (b) During the Employment Period, the Company shall: (i) continue to take such actions as may
be necessary to cause the nomination and recommendation of Executive for election as a director and
as Chairman of the Board and (ii) use all best efforts to cause Executive to be elected to and
retained in those positions. Following termination of Executive’s employment, at such time as
Executive should own fewer than 400,000 shares of stock of the Company, Executive shall resign from
the Board and shall be deemed immediately for all purposes to have resigned from the Board.

          (c) Subject to the terms and conditions of this Agreement, Executive hereby accepts such
employment and agrees to devote his full time and best efforts to the duties provided herein,
subject to the further provisions and limited exception set forth below in Section 2(d).

          (d) Pursuant to Section 2(c) of the December 2005 Agreement and prior agreements, the
Executive could engage in certain business, research, professional, and other activities unrelated
to the Company (collectively, “Other Activities”), during his employment. All intellectual
property arising from Other Activities not currently owned by the Company is referred to as “Other
IP”. The Company and Executive hereby agree that, during the Employment Period, the Executive shall
not pursue any areas of research or development activities except solely for the Company and that
any inventions and developments made by him during the Employment Period are and shall be owned
solely by the Company. This Section 2(d) governs the disposition of Other IP.

          (i) Other IP that is not medical/health science in nature shall be owned by Executive. The
Executive shall not devote more than relatively de minimis time or efforts to such Other IP with
the objective, in any such time and efforts, of arranging for the licensing, further development,
and exploitation of such Other IP by others, with all net profits with respect thereto the property
of Executive.

          (ii) Other IP that is medical/health science in nature shall be divided into two categories
in accordance with the procedures stated in clause (iii) below:

     (a) The first category is Other IP that is medical/health science in nature and
which is within the Business of the Company. Such Other IP shall be owned by and
developed solely by the Company for the Company’s benefit.

     (b) The second category is Other IP that is medical/health science in nature
and which is not within the Business of the Company. Such Other IP shall be owned
by Executive. The Executive shall not devote more than relatively de minimis time
or efforts to such Other IP with the objective, in any such time and efforts, of
arranging for the licensing, further development, and exploitation of such Other IP
by others, provided that if net profits are realized by Executive (after all
associated costs and expenses accrued, paid, or incurred have been recovered and any
on-going costs and expenses covered) from such licensing or similar arrangements as
to such Other IP, such net profits will be divided as

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follows: 60% to Executive and
40% to the Company; provided further that if (x) the Company
terminates the employment of Executive prior to December 31, 2013 without Cause (as
defined below), (y) Executive terminates his employment prior to December 31, 2013
for Good Reason (as defined below), or (z) a Change
in Control as stated in Section 21 takes place, such net profits will thereafter be
divided as follows: 100% to Executive and 0% to the Company or its successor.

               (iii) All determinations whether Other IP is (a) not medical/health science in nature, (b)
medical/health science in nature, and (c) if medical/health science in nature, within or without
the Business of the Company, shall be made by the IP Panel (as defined below) in good faith.
Executive shall disclose to the IP Panel all Other IP, and the IP Panel shall then make a prompt
determination whether such Other IP is medical/health science in nature, and within or without the
Business of the Company. The “IP Panel” shall mean a panel composed of Executive, the Lead
Independent Director of the Board, and a director chosen by the Lead Independent Director following
consultation with the Executive. The Company and the Executive acknowledge that all inventions and
developments made by Executive prior to the commencement of his employment by the Company on August
9, 2000 are the sole property of Executive (“Prior IP”). At the request of the Executive, from
time to time the IP Panel will confirm whether specified intellectual property constitutes Prior
IP. The IP Panel is not a committee of the board of directors nor a corporate governance
mechanism but simply a mechanism created by this Agreement. The determinations of the IP Panel
shall be final and non-appealable.

          (e) For purposes of the foregoing, the “Business of the Company,” from time to time means the
Company’s business as is described in Part I, Item 1 (“Description of Business”) of the Company’s
then most recent Annual Report on Form 10-K filed with the United States Securities and Exchange
Commission and the Company’s intended business(es) as determined by the Board or the IP Panel as
applicable; and 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 Transition Date and shall terminate at the close of business on December 31, 2013
unless it is (a) extended by written agreement between the parties or by continuing employment of
Executive by the Company as provided in the following sentence or (b) earlier terminated pursuant
to Section 11 hereof. If Executive shall remain in substantially full-time employment by the
Company beyond what would otherwise be the end of the Employment Period without any further written
agreement between the parties as to such employment, the Employment Period shall be deemed to
continue on a month-to-month basis and either party shall have the right to terminate Executive’s
employment hereunder at the end of any ensuing calendar month on written notice of at least 30
days.

     4. Salary. For services rendered to the Company during the Employment Period, the
Company shall compensate Executive with a base salary, payable in bi-weekly installments, which
shall be $500,000 per annum for the period from the Transition Date through the end of calendar
year 2008 and which shall be increased by up to five percent (5%) effective on January 1 of each
calendar year beginning with 2009 during the Employment Period, with the actual amount of such
increase to be determined by the Board or the Compensation Committee in good faith prior to the
beginning of each such calendar year.

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     5. Incentive Cash Compensation

          (a) For the Company’s fiscal year that began on January 1, 2008, Executive shall receive
incentive cash compensation for the period up to and including June 9, 2008 as and to the extent
provided for such prorated year in the December 2005 Agreement as if that agreement
remained in effect in all respects. For the remainder of the Company’s fiscal year that began
on January 1, 2008 and Company’s subsequent fiscal years or portions thereof during the remainder
of the Employment Period, Executive shall be eligible to receive incentive cash compensation of up
to fifty percent (50%) of Executive’s base salary for such year, as determined by the Board or the
Compensation Committee based on their good faith assessment of Executive’s performance in such year
in relation to the actual needs of the Company in such year and in relation to any performance
areas and/or performance targets as shall have been determined by the Board or the Compensation
Committee after consultation with Executive as described below, 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 Company and Executive shall periodically discuss and attempt in good faith to agree
upon performance criteria for determination of the incentive cash compensation that will be payable
to Executive with respect to each fiscal year of the Company, or portion thereof, beginning on or
after June 10, 2008. To the extent possible, such agreement shall be made, as to each such period,
prior to the end of the second month following such period.

          (c) As soon as practical, and in any event no later than ninety (90) days, after the end of
each fiscal year of the Company, the Compensation Committee or the Board, in consultation with
Executive, shall determine, reasonably and in good faith, the amount of incentive cash compensation
for Executive for such year and shall cause such amount to be paid to Executive forthwith. If
unforeseen developments shall have occurred that made any performance areas and/or performance
targets previously determined unachievable, infeasible, or inadvisable — and therefore
inappropriate as a measure of the performance of Executive — the Compensation Committee or the
Board shall consider in good faith the extent to which the incentive cash compensation shall
nevertheless be paid to Executive based on his performance.

          (d) Except as otherwise provided herein or in a future agreement between Executive and the
Company, for any fiscal year that begins before, but ends after, the end of the Employment Period,
a pro-rated annual bonus shall be payable to Executive based on the portion of such fiscal
year that shall have elapsed to the end of the Employment Period, the methodology referred to
above, and the reasonable, good faith determination of the Compensation Committee or the Board of
Executive’s performance during such period.

     6. New Stock Options. As further compensation, and in addition to the stock options
and restricted shares that have been granted to Executive under prior agreements with the Company
(which are not affected by this Agreement, remain outstanding, and, to the extent not vested as of
the Transition Date, shall continue to vest and become exercisable in accordance with their terms
after the Transition Date), the Company hereby grants to Executive, as incentive compensation for
service on and after the Transition Date, new options to purchase additional shares of common stock
of the Company (the “New Options”) as follows:

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          (a) All of the New Options are granted on the Transition Date and have a term of 10 years,
running from the Transition Date.

          (b) Among the New Options, options for the maximum permissible number of shares are Incentive
Stock Options (“ISOs”) for purposes of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (together, the “Tax Laws”). Those ISOs are among the New Options referred
to as vesting in each of the five installments provided for in Section 6(d), below, with the numbers
of shares for which such ISOs in each of those installments will
be exercisable having been determined in such a manner as to maximize the total number of shares as
to which such tax advantaged treatment is available; and the ISOs shall vest and become first
exerciseable at the times and under the conditions for each such installment, respectively. The
remainder of the New Options in each of the five installments are non-statutory stock options.

          (c) The exercise prices of the New Options included in each of the five installments provided
for in Section 6(d) below and the numbers of shares that may be purchased upon exercise of such New
Options (i) are set forth in the respective sub-paragraphs of Section 6(d) and (ii) will be subject
to the anti-dilution adjustments provided for by the option granting documents.

          (d) The New Options, in the aggregate, grant the right to purchase a total of One Million
Seven Hundred Thousand (1,700,000) shares of common stock of the Company (subject to potential
adjustments as provided for above), and they shall vest and become exerciseable as follows (or as
expressly stated elsewhere in this Agreement in the event of certain circumstances and events
provided for herein):

	 	-	 	New Options for Four Hundred Twenty Thousand (420,000) shares (some of which are ISOs and
some of which are non-statutory stock options, as provided above) will vest and become
exercisable on June 10, 2009 and all of those New Options have a per-share exercise price
equal to the fair market value of a share of the Company’s stock on the Transition Date (the
“Execution Strike Price”);
	 
	 	-	 	New Options for 105,000 shares (some of which are ISOs and some of which are
non-statutory stock options, as provided above) shall vest and become 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 Execution Strike Price plus $1.00, if
Executive’s employment by the Company or by an affiliate of the Company continues on such
date; and
	 
	 	-	 	New Options for 105,000 shares (some of which are ISOs and some of which are
non-statutory stock options, as provided above) shall vest and become exercisable on each
of September 10, 2010, December 10, 2010, March 10, 2011 and June 10, 2011 (for an
aggregate 420,000 options during such period) at the Execution Strike Price plus $2.00, if
Executive’s employment by the Company or by an affiliate of the Company continues on such
date; and
	 
	 	-	 	New Options for 55,000 shares (some of which are ISOs and some of which are
non-statutory stock options, as provided above) shall vest and become exercisable on each
of

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	 	 	 	September 10, 2011, December 10, 2011, March 10, 2012 and June 10, 2012 (for an
aggregate 220,000 options during such period) at the Execution Strike Price plus $3.00, if
Executive’s employment by the Company or by an affiliate of the Company continues on such
date; and
	 
	 	-	 	New Options for 55,000 shares (some of which are ISOs and some of which are
non-statutory stock options, as provided above) shall vest and become exercisable on each
of September 10, 2012, December 10, 2012, March 10, 2013 and June 10, 2013 (for an
aggregate 220,000 options during such period) at the Execution Strike Price plus $4.00, if
Executive’s employment by the Company or by an affiliate of the Company continues on such
date.

          (e) The New Options that are non-statutory stock options are transferable by Executive to
members of his immediate family or to a trust for the benefit of Executive and/or member(s) of his
immediate family and/or to a partnership, limited liability company, and/or other entity owned by
Executive and/or by member(s) of his immediate family.

          (f) The New Options shall allow Executive the ability (and provide for the cooperation of the
Company), if Executive so chooses, among other things: (A) to pay the exercise price for the
options via a same-day-sale exercise arrangement and/or (B) to surrender shares (either previously outstanding shares or shares being purchased by exercise of options)
to the Company at fair market value for payment of the minimum amount required to satisfy all
withholding requirements, and/or (C) to pay all or a part of the exercise price by surrender to the
Company, at fair market value, of shares of the Company’s common stock that shall then have been
owned for at least six months (or such shorter period as is permissible under applicable law) by
Executive and/or by a trust, partnership, limited liability company, or other entity for the
benefit of, or owned by, Executive and/or member(s) of his immediate family.

          (g) The shares of Common Stock issuable upon the exercise of the New Options shall be fully
vested in the hands of Executive immediately upon such exercise.

     The obligations of the Company in this Section 6 are subject to compliance with applicable law
and regulation. Each of the Company and Executive (in the case of the Executive, as requested by
the Company and with the Company bearing any associated expense) shall use diligent best efforts at
all times to achieve such compliance on a timely basis in accordance with the provisions of this
Agreement.

     7. Restricted Shares. No additional restricted shares beyond those issued to
Executive under prior agreements shall be issued to Executive pursuant to this Agreement, but the
restricted shares provided for in prior agreements between Executive and the Company shall remain
outstanding and vested or vesting, as the case may be, in accordance with such prior agreements
respectively.

     8. Registration. The Company shall use its best efforts: (a) to cause the shares of
Common Stock issuable upon the exercise of the New Options to be registered and qualified for
public resale on a registration statement and re-offer prospectus filed with the U.S. Securities
and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), and
under any applicable state securities laws, within ninety (90) days after the Transition Date;

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(b) to maintain in effect all such registrations and qualifications, or substantially similar
registrations and qualifications, until Executive and any family member(s) and any entity(ies)
related to him shall be free of any and all restrictions on any such sales under the Securities Act
and any applicable state securities law(s); and (c) if such effectiveness should lapse or be
interrupted before that time, to restore the effectiveness thereof as soon as reasonably possible.
These registrations and qualifications are in addition to the registrations and qualifications that
may be required as to other securities of the Company that are owned by Executive or that may be
issuable pursuant to securities or options heretofore granted or issued to him which other
registration and qualification obligations are not amended or waived hereby).

     9. Benefits. During the Employment Period, the Company shall provide or cause to be
provided to Executive at least such employee benefits as are provided to other senior officers of
the Company. Without limiting the preceding sentence, the benefits provided to Executive shall
include at least family medical and dental, disability, and life insurance.

     10. Vacation. Executive shall be entitled to annual vacations in accordance with the
Company’s vacation policies in effect from time to time for executive officers of the Company.

     11. Termination

          (a) Executive’s employment by the Company shall be “at will.” In other words, either the
Company or 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, Executive’s employment by the Company shall be terminated by his death
or disability. Termination of 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 Executive’s employment
hereunder by Executive, the term “Good Reason” shall have the meaning set forth for it below; in
the case of a termination of 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 Chairman of the Board, Chairman of the Company’s Science Advisory Board, and Chief
Scientific Officer of 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 2(b), 6, 7, 8, 9, 10, 14 and/or 16 hereof, or to honor promptly any of its
other material obligations hereunder, or under any prior agreement with Executive, to the extent
such agreement remains in force; or (iii) a demotion in the Executive’s title (other than the
relinquishment of the title “Chief Executive Officer”) or status, provided that, 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 such condition and thereby eliminate the Good Reason.

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               (ii) “Cause” shall mean: (A) Executive’s willful and repeated failure reasonably to perform
his duties hereunder or to comply with any reasonable and proper direction given by the Board if
such failure of performance or compliance is not cured within thirty (30) days following receipt by
Executive of written notice from the Company containing a description of such failures and
non-compliance and a demand for immediate cure thereof; (B) Executive being found guilty in a
criminal court of an offense involving moral turpitude; (C) Executive’s commission of any material
act of fraud or theft against the Company; or (D) Executive’s material violation of any of the
material terms, covenants, representations or warranties contained in this Agreement if such
violation is not cured within thirty (30) days following receipt by Executive of written notice
from the Company containing a description of 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 period of not less than twelve (12)
months.

          (d) “Termination Date” shall mean (A) if Executive’s employment is terminated on account of
death, the date of death; (B) if Executive’s employment is terminated for Disability, the date that
such Disability is established; (C) if Executive’s employment is terminated by the Company or by
Executive prior to December 31, 2013, the effective date of the termination as provided in Section
11(a) hereof; or (D) if Executive’s employment expires by its terms, December 31, 2013.

     12. Severance

          (a) Subject to Section 21 hereof, if (i) the Company terminates the employment of Executive
prior to December 31, 2013 without Cause, or (ii) Executive terminates his employment prior to
December 31, 2013 for Good Reason, then (A) Executive shall be entitled to receive base salary,
incentive cash compensation (determined at the maximum annual rate for incentive cash compensation
provided for in Section 5 above but on a pro-rated basis for the portion of the fiscal year that
shall have elapsed when the termination occurs), pay for accrued but unused vacation time, and
reimbursement for expenses pursuant to Sections 13 and 22 hereof through the Termination Date,
plus the lesser of (x) the balance of Executive’s specified base salary hereunder to December 31,
2013, and (y) payment of the equivalent of 36 months of Executive’s specified base salary, and (B)
notwithstanding the vesting and exercisability provisions otherwise applicable to the New Options
and the restrictions applicable to any restricted shares issued to Executive under prior
agreements, all of such options shall be fully vested and exercisable upon such termination and
shall remain exercisable for the remainder of their terms, and any unvested restricted shares
issued to Executive under prior agreements shall thereon become immediately and fully vested. The
Company shall pay the cash amounts provided for in this paragraph 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). Notwithstanding the foregoing, the
Company shall not be required to pay any severance pay for any period following the Termination
Date if Executive shall have materially violated the provisions of Section 18, 19, or 20 of this
Agreement and such violation is not 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.

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          (b) Subject to Section 21 hereof, if (A) Executive voluntarily terminates his employment
prior to December 31, 2013 other than for Good Reason or (B) Executive’s employment is terminated
by the Company prior to December 31, 2013 for Cause, then Executive shall be entitled to receive
salary, pay for accrued but unused vacation time, and reimbursement of expenses pursuant to
Sections 13 and 22 hereof through the Termination Date only; vesting of the New Options and of any
unvested restricted shares issued to Executive under prior agreements shall cease on such
Termination Date; any then un-vested New Options shall terminate (with the then-vested New Options
and then-vested options issued pursuant to prior agreements remaining vested and exerciseable for
the remainder of their respective terms); and this occurrence may be a triggering event for
purposes of the Forfeiture/Repurchase Right as to any then unvested restricted shares issued to
Executive under prior employment agreements. The Company shall pay the cash amounts provided for
in this paragraph 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 vacation time 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 paragraph, 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 Executive’s employment is terminated prior to December
31, 2013 due to death or Disability, Executive (or his estate or legal representative as the case
may be) shall be entitled to receive (i) salary, reimbursement of expenses pursuant to Sections 13
and 22 hereof, and pay for any unused vacation time accrued through the Termination Date; (ii) a
pro-rated amount of incentive cash compensation for the fiscal year in which the
Termination Date occurs (at the maximum annual rate for incentive cash compensation provided for in
Section 5 above but on a pro-rated basis for the elapsed portion of the fiscal year prior to the
Termination Date); 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 amount of time remaining from
the Termination Date through December 31, 2013. In such case, vesting of the New Options and any
then-unvested restricted shares shall cease on such Termination Date, and any then un-vested New
Options shall terminate (with the then-vested New Options and options issued pursuant to prior
agreements remaining vested and exerciseable for the remainder of their terms); and this occurrence
may be a triggering event for purposes of the Forfeiture/Repurchase Right as to any then un-vested
restricted shares issued to Executive under prior employment agreements. The Company shall pay the
cash amounts provided for in this paragraph on the thirtieth (30th) day following
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 paragraph 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).

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          (d) In addition to the benefits provided for in this Section 12, the Company shall promptly
arrange for and provide, at its expense, continued family medical and dental insurance
substantially equivalent to that provided for senior officers of the Company, for the period of
time during which the Executive would be entitled to COBRA coverage if the Executive had elected
such coverage and had paid the applicable premiums. Executive shall be entitled to other or further
continuation of group health plan benefits for the periods provided by law following the
Termination Date if Executive makes the appropriate election and payments.

          (e) 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 in this
Agreement.

     13. Expenses. The Company shall pay or reimburse Executive for all expenses that
are reasonably incurred by him by reason of his employment relationship with the Company or in
furtherance of his duties hereunder and such further expenses as may be authorized and approved by
the Company from time to time.

     14. Facilities and Services. The Company shall furnish 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, Executive
shall not be required to mitigate his losses or the amounts otherwise payable hereunder by seeking
other employment or otherwise. Executive’s acceptance of any other employment shall not diminish
or impair the amounts otherwise payable to Executive hereunder.

     16. Place of Performance. Executive shall perform his duties at such locations as
Executive may reasonably choose. The Company shall reimburse Executive for the lease of 4105 East
Madison Street, Suite 320, Seattle, Washington 98112, and should such lease terminate shall provide
reimbursement for a similar lease entered into following consultation with 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 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
Executive 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 Executive, to the fullest extent permitted by law, from and against any liability
asserted against or incurred by Executive (a) by reason of the fact that 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 Executive’s employment
hereunder and any termination of this Agreement.

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     18. Non-Competition

          (a) 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 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, Executive agrees that, for a period of six months after the end of
Executive’s employment by the Company (unless such employment is terminated due to a breach of the
terms hereof by the Company in failing to pay to Executive all sums due him under the terms hereof
or to honor any of its other obligations under this Agreement, in which event the following shall
be inapplicable), 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 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 Executive’s
employment at the Company.

          (c) Executive further agrees, for twelve months following the end of Executive’s employment
by the Company (unless such employment is terminated due to a breach of the terms hereof by the
Company in failing to pay to Executive all sums due him under the terms hereof or to honor any of
its other obligations under this Agreement, in which event the following shall be inapplicable), to
refrain from directly or indirectly soliciting 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 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 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 Executive, and 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.

11

 

     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 either (a) after the Transition Date but during the Employment Period or (b) during the period
of six months after the end of the Employment Period provided that, for this clause “b,”
such discovery(ies), idea(s), concept(s) and/or invention(s) 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, 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 provided below.
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. To the extent Executive’s actions referred
to in this paragraph are performed after the end of Executive’s employment by the Company, the
Company shall promptly compensate Executive for his time spent in or because of such activities at
the rate of Five Hundred Dollars ($500.00) per hour; and such activities shall be scheduled in a
manner reasonably convenient to Executive.

     20. Trade Secrets

          (a) In the course of the term of this Agreement, it is anticipated that 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 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”). 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 drug delivery
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, 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, Executive shall promptly deliver to the Company all Confidential
Material (including all copies thereof, whether prepared by Executive or others) which are in the
possession or under the control of Executive. Executive shall not be deemed to have breached this
Section 20 if

12

 

Executive is compelled by legal process or order of any judicial, legislative, or
administrative authority or body to disclose any Confidential Material.

          (b) 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 Executive, and 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) No Cause, etc. In the event Executive’s employment with the Company is terminated
either by the Company or by Executive (other than because of 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 prior to January
1, 2014 and within one year following the occurrence of such Change of Control, then 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 vacation time
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 lesser of (x) the balance of Executive’s specified base salary hereunder to December 31, 2013,
and (y) payment of the equivalent of 36 months of Executive’s specified base salary;

               (ii) Incentive Cash Compensation: The amount of Executive’s incentive cash
compensation for the fiscal year in which the date of termination occurs (determined at the maximum
annual rate provided for above but on a pro-rated basis based on the portion of the fiscal year
elapsed prior to the termination) plus an additional lump-sum amount equal to the maximum annual
incentive cash compensation provided for in Section 5 above; and

               (iii) Other Benefits. Notwithstanding the vesting and/or exerciseability provisions
otherwise applicable to the New Options and/or to any unvested stock options issued pursuant to any
prior agreement(s) between Executive and the Company and the vesting and restriction provisions
applicable to any then unvested restricted shares, all such stock options shall be fully vested and
exercisable, and all such restricted shares shall be fully vested upon a Change of Control and, in
the case of the options, shall remain exercisable for the remainder(s) of their term(s); and

               (iv) Medical. The Company shall promptly arrange for and provide, at its expense,
continued family medical and dental insurance substantially equivalent to that provided for senior
officers of the Company, for the period of time during which the Executive would be entitled to
COBRA coverage if the Executive had elected such coverage and had paid the applicable premiums.
Executive shall be entitled to other or further continuation of group health plan benefits for the
periods provided by law following the Termination Date if Executive makes the appropriate election
and

13

 

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) Cause, etc. In the event Executive’s employment with the Company is terminated
either by the Company or by Executive (other than because of Executive’s death or Disability)
following the occurrence of a Change of Control and such termination is for Cause if by the
Company, or without Good Reason if by Executive, and the date of such termination is prior to
January 1, 2014 and within one year following the occurrence of such Change of Control, then
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 vacation
time through the termination date and, in addition, the following:

               (i) Incentive Cash Compensation: The amount of Executive’s incentive cash
compensation for the fiscal year in which the date of termination occurs (determined at the maximum
annual rate provided for above but on a pro-rated basis based on the portion of the fiscal year
elapsed prior to the termination); and

               (ii) Other Benefits. Notwithstanding the vesting and/or exerciseability provisions
otherwise applicable to the New Options and/or to any unvested stock options issued pursuant to any
prior agreement(s) between Executive and the Company and the vesting and restriction provisions
applicable to any then unvested restricted shares, all such stock options shall be fully vested and
exercisable, and all such restricted shares shall be fully vested upon a Change of Control and, in
the case of the options, shall remain exercisable for the remainder(s) of their term(s).

The Company shall pay the cash amounts provided for in this Section 21(b) 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).

          (c) Definition. 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 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 40% or more of the Voting Securities or (3) any corporation with respect to
which, following such acquisition, more than 60% of both the then outstanding shares of common
stock of such corporation and the

14

 

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 Transition 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 Transition 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 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 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
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.

          (d) Gross-Up. In the event that (i) Executive becomes entitled to any payments or
benefits in connection with a change in the ownership or effective control of the Company, or in
the ownership of a substantial portion of the assets of the Company (as defined in Section 409A of
the Internal Revenue Code of 1986 and the regulations promulgated thereunder, as amended, or a
substantially similar successor provision) (a “409A Change in Control”) or the termination of
Executive’s employment, whether pursuant to the terms of this Agreement or otherwise (collectively,
the “Total Benefits”), and (ii) any of the Total Benefits will be subject to the excise tax imposed
under Section 4999 of the Internal Revenue Code of 1986, as amended, or a substantially similar
successor provision (the “Excise Tax”), the Company shall pay to Executive

15

 

an additional amount (the “Gross-Up Payment”) such that the net amount retained by Executive
from the Gross-Up Payment, after the payment of all taxes on the Gross-Up Payment (including but
not limited to income, excise and employment taxes and any interest and penalties imposed with
respect to all such taxes), is equal to the Excise Tax on the Total Benefits. For purposes of this
Section 21(d), Executive shall be deemed to pay federal income taxes at the highest marginal rate
of federal income taxation in the calendar year in which the Excise Tax is (or would be) payable
and state and local income taxes at the highest marginal rate of taxation in the state and locality
of Executive’s residence (or of such jurisdiction(s) as may apply income taxation to Executive’s
income) at the time the Gross-Up Payment is made. Any Gross-Up Payment made pursuant to this
paragraph solely on account of a 409A Change in Control shall be made on the thirtieth
(30th) day following the date of such 409A Change in Control, and any Gross-Up Payment
made pursuant to this paragraph due to the termination of Executive’s employment shall be made
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). Executive
hereby acknowledges that there are no payments which are to be made to Executive pursuant to this
Agreement upon a Change of Control (other than any Gross-Up Payment payable pursuant to this
Section 21) unless Executive’s employment with the Company is terminated as described in Section
21(a) and 21(b) hereof.

          (e) Determinations. All determinations required to be made under Section 21(d)
shall be made by tax counsel selected by Executive and reasonably acceptable to the Company (“Tax
Counsel”), which determinations shall be conclusive and binding on the Company and on Executive
absent manifest error. Prior to any determination of the amount of any Gross-Up Payment payable
pursuant to Section 21(d), Tax Counsel shall provide Executive and the Company with a report
setting forth its calculations and containing related supporting information. All fees and
expenses of Tax Counsel shall be borne solely by the Company. In the event that, after a Gross-Up
Payment is made pursuant to Section 21(d), it is determined that the Excise Tax on the Total
Benefits and/or the taxes on the Gross-Up Payment exceeds the amount theretofore taken into account
hereunder, the Company shall, on the thirtieth (30th) day following the date of such
determination, make an additional Gross-Up Payment (which shall be calculated by Tax Counsel as set
forth herein) to Executive in respect of such excess (plus any associated interest, penalties or
additions payable by Executive to the Internal Revenue Service or any other federal, state, local
or foreign taxing authority).

     22. Payment of Certain Costs of Executive. Promptly from time to time the Company
shall pay directly (or promptly reimburse Executive to the extent Executive shall have paid) all
reasonable actual legal, accounting, and other fees and expenses that are or shall have been:

          (a) Incurred by Executive in connection with his employment arrangements with the Company,
including, without limitation, in the preparation, revision, and/or negotiation of this Agreement
and/or

          (b) Incurred by Executive as a result of a bona fide dispute regarding the application of
any provision of this Agreement or other aspect of the employment relationship, including all such
fees and expenses, if any, incurred in seeking to obtain or enforce any right or benefit provided
by this Agreement or in connection with any tax audit or proceeding to the extent attributable to
the application of Section 280G of the Tax Laws to any payment or benefit provided to Executive.

16

 

Such payments shall be made within thirty (30) business days after delivery to the Company of
Executive’s respective written requests for payment accompanied by evidence of fees and expenses
incurred by Executive.

     23. 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 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 paragraph. Such notices shall be
effective upon personal delivery or three days after mailing.

     24. Entire Agreement; Waiver. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof (it being acknowledged, however, that other
agreements between Executive and the Company remain effective as to closely related matters). 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. Waiver of or
failure to exercise any rights provided by this Agreement in any respect or in any instance shall
not be deemed a waiver of any further or future rights or of such rights in other instances.

     25. 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. Executive’s rights hereunder are personal to and shall not be transferable nor
assignable by Executive.

     26. Headings. The headings contained in this Agreement are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.

     27. 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. 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 judgement 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.

     28. 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, instruments, 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.

     29. 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,

17

 

covenants and restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

     30. 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 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 such 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

     31. Counterparts. This Agreement may be executed in counterparts, and both
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.

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

	 	 	 	 	 	 	 
	     Company:	 	MDRNA, INC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Bruce R. Thaw 	 	 
	 
	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	Print name: Bruce R. Thaw	 	 
	 
	 	 	 	 	 	 
	 	 	Print title: Lead Independent Director and Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	     Executive:
	 	 	/s/ Steven C. Quay, M.D., Ph.D. 	 	 
	 	 	 	 	 	 
	 	 	 	Steven C. Quay, M.D., Ph.D.	 	 

18exv10w2

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

2

 

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.

3

 

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

4

 

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

5

 

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.

6

 

          (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

7

 

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

8

 

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

9

 

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

10

 

(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

11

 

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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