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):
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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”); |
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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 |
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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 |
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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 |
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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
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(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
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