Exhibit 10.40

SUPPLY AGREEMENT 1

             THIS SUPPLY AGREEMENT (the “Agreement”) is made and entered into as
of June 20, 2001, (the “Effective Date”) between AVI BIOPHARMA, INC. (as defined
below, “Supplier”), an Oregon corporation, and MEDTRONIC, INC. (as defined
below, “Medtronic”), a Minnesota corporation.

WITNESSETH:

             WHEREAS, Supplier is establishing manufacturing facilities to
manufacture drugs such as the Drug (as defined below);

             WHEREAS, Medtronic and Supplier have entered into a License and
Development Agreement of even date herewith with respect to the Drug (the
“License and Development Agreement”);

             WHEREAS, Supplier and Medtronic wish to enter into this Agreement
regarding Supplier’s supplying the Product (as defined below) to Medtronic; and

AGREEMENTS:

             NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and for other valuable consideration,
the receipt and adequacy of which is hereby acknowledged, the parties mutually
agree as follows:

ARTICLE 1
DEFINITIONS

             1.1        Specific Definitions.  As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:

             “Affiliate” of a specified person (natural or juridical) means a
person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.  “Control” shall mean ownership of more than 50% of the shares of
stock entitled to vote for the election of directors in the case of a
corporation, and more than 50% of the voting power in the case of a business
entity other than a corporation.

             “Agreement” means this Agreement and all Exhibits and Schedules
hereto.

             “Confidential Information” means know-how, trade secrets, and
unpublished information disclosed (whether before or during the term of this
Agreement) by one of the parties (the “disclosing party”) to the other party
(the “receiving party”) or generated under this Agreement, excluding information
which:

1 Information was omitted from this document pursuant to a request for
confidential treatment submitted to the SEC; omitted information is marked with
***. The omitted material has been filed separately with the SEC.

 

                           (a)         was already in the possession of
receiving party prior to its receipt from the disclosing party (provided that
the receiving party is able to provide the disclosing party with reasonable
documentary proof thereof and, if received from a third party, that such
information was acquired without any party’s breach of a confidentiality or
non-disclosure obligation to the disclosing party related to such information);

                           (b)        is or becomes part of the public domain by
reason of acts not attributable to the receiving party;

                           (c)         is or becomes available to receiving
party from a source other than the disclosing party which source, has rightfully
obtained such information and has no obligation of non-disclosure or
confidentiality to the disclosing party with respect thereto; or

                           (d)        has been independently developed by the
receiving party without breach of this Agreement or use of any Confidential
Information of the other party.

             “Drug” has the meaning given such term in the License and
Development Agreement.

             “FDA” means the United States Food and Drug Administration.

             “Force Majeure” means any event or condition, not existing as of
the date of this Agreement, not reasonably foreseeable as of such date and not
reasonably within the control of either party, which prevents in whole or in
material part the performance by one of the parties of its obligations
hereunder, such as an act of government, war or related actions, civil
insurrection, riot, sabotage, strike, epidemic, fire, flood, windstorm, and
similar events.

             “GMP” means Good Manufacturing Practices as defined in 21 CFR Parts
210 through 226 and Parts 600 through 680 and any successor provisions thereof
that apply to production of the Drug under this Agreement.

             “Intellectual Property” means U.S. and foreign patents and patent
applications, trademarks, service marks and registrations thereof and
applications therefor, copyrights and copyright registrations and applications,
mask works and registrations thereof, know-how, trade secrets, inventions,
discoveries, ideas, technology, data, information, processes, drawings, designs,
licenses, computer programs and software, and technical information including
but not limited to information embodied in material specifications, processing
instructions, equipment specifications, product specifications, confidential
data, electronic files, research notebooks, invention disclosures, research and
development reports and the like related thereto and all amendments,
modifications, and improvements to any of the foregoing.

             “Manufacturing Cost” means *     *     *

             “Medtronic” means Medtronic, Inc. and its Affiliates.

             “Product” means the Drug.

             “Product Liability Damages” means any liability, claim or expense,
including but not limited to reasonable attorneys’ fees and medical expenses,
arising in whole or in part out of claims of third parties for personal injury
or loss of or damage to property relating to or arising out of the Products,
whether based on strict liability in tort, negligent manufacture of product, or
any other allegation of liability arising from the design, testing, manufacture,
packaging, labeling (including instructions for use), or sale of the Products.

             “Specifications” means the specifications and formulations for the
Products as set forth on Exhibit A, as may be amended from time to time upon
mutual agreement of the parties with respect to the Product.  Specifications
specifically developed by Medtronic or included in any FDA approval of the Drug,
but excluding in either case Supplier Specifications (as defined herein), shall
be referred to as “Medtronic Specifications.”  “Supplier Specifications” shall
mean specifications developed by Supplier and incorporated into the
Specifications without modification by Medtronic.

             “Supplier” means AVI BioPharma, Inc. and its Affiliates.

             1.2        Other Terms.  Other terms may be defined elsewhere in
the text of this Agreement and shall have the meaning indicated throughout this
Agreement.

             1.3        Definitional Provisions.

             (a)         The words “hereof,” “herein,” and “hereunder” and words
of similar import, when used in this Agreement, shall refer to this Agreement as
a whole and not to any particular provisions of this Agreement.

             (b)        The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa.

             (c)         References to an “Exhibit” or to a “Schedule” are,
unless otherwise specified, to one of the Exhibits or Schedules attached to or
referenced in this Agreement, and references to an “Article” or a “Section” are,
unless otherwise specified, to one of the Articles or Sections of this
Agreement.

             (d)        The term “person” includes any individual, partnership,
joint venture, corporation, trust, unincorporated organization or government or
any department or agency thereof.

ARTICLE 2
SUPPLY

             2.1        Supply of Products.  Commencing upon the first
regulatory approval of the commercial sale of the Product, Supplier shall
manufacture, or have manufactured, and supply to Medtronic all of Medtronic’s
orders for Products made under Article 3, in accordance with the Specifications
in effect at the time of order for each Product and with Medtronic’s schedule
for deliveries.  In the event of any Product or material shortages or temporary
or long-term production capacity restraints or Force Majeure events, Supplier
may allocate production capacity among customers, but, in all events will supply
Medtronic on a priority basis over supplying any other customers.

             2.2        Promotion and Training.  Upon a reasonable request by
Medtronic and subject to staff and support availability, Supplier will assist
Medtronic in preparing promotional, marketing and training literature and
instructions for the Products, including any artwork,  will conduct training
courses and seminars to educate medical professionals on the use of Products and
their use in connection with Medtronic’s medical devices and for training its
marketing, sales, and distribution groups, and will provide Medtronic with
training related to the sale of Products.  Medtronic shall reimburse Supplier
for travel and other out-of-pocket costs reasonably incurred by Supplier in
connection with such training upon submission by Supplier of appropriate
documentation thereof.

             2.3        Packaging and Labeling.  Supplier shall package and
label the Products in accordance with packaging and labeling specifications to
be mutually agreed upon by Medtronic and Supplier and approved by the FDA.

             2.4        Compliance With Laws and Regulations.

             (a)         Supplier shall be responsible for compliance with
present and future applicable statutes, laws, ordinances and regulations of
national, federal, state and local governments now or hereafter in effect
materially relating to its manufacture of the Products. If required or necessary
in connection with sales of Products by Medtronic, Supplier shall have its
manufacturing facilities become ISO 9001 certified.  Without limitation of the
foregoing, Supplier represents and warrants to Medtronic that all Products sold
and delivered to Medtronic under this Agreement will have been manufactured,
labeled and packaged in accordance with applicable FDA GMP  requirements and, if
applicable, Supplier’s ISO 9001 certifications, and that continually during the
term of this Agreement no Products delivered by Supplier to Medtronic shall be
adulterated or misbranded at the time of delivery within the meaning of the U.S.
Food, Drug and Cosmetic Act and regulations thereunder or any similar law or
regulation. Supplier shall cause Medtronic’s regulatory personnel to be provided
with reasonable access from time to time to the facilities and records of
Supplier for the purpose of confirming Supplier’s compliance with any applicable
FDA GMP and all other applicable requirements noted in this Article 2.  Supplier
agrees to provide Medtronic with reasonable prior written notice of any FDA
inspection of Supplier’s facilities or records prior to such FDA inspection, or
if such prior written notice is not feasible, then within three business days
thereafter.  Supplier also agrees to provide Medtronic with written notice of
its receipt of any claim by the FDA or other governmental agency of any actual
or alleged violation by Supplier of any GMP or other applicable requirements as
soon as practicable following receipt of such notice (but in no event more than
5 business days thereafter).  Medtronic shall have the right, at any time and
from time-to-time upon not less than 72 hours prior notice to the Supplier, to
inspect Supplier’s manufacturing facilities in order to examine all phases of
the manufacturing process and inspect or audit any or all of the Supplier’s data
and records related thereto and the Products compliance with the terms and
conditions hereunder or with respect to any applicable law, rule or regulation. 
In the event Supplier uses a sub-contractor or third party to perform any part
of the manufacturing, Supplier shall obtain the agreement of such sub-contractor
or third party that Medtronic shall have similar inspection rights.

             (b)        Medtronic and Supplier (except where Supplier has the
responsibility under Section 2.4(a) or elsewhere herein) shall comply with all
applicable laws, rules, regulations, codes, and standards of all federal, state,
local and municipal government agencies which affect their respective
performance and activities under this Agreement. Notwithstanding anything
contained herein, Medtronic shall be responsible for compliance with present and
future applicable statutes, laws, ordinances and regulations of national,
federal, state and local governments now or hereafter in effect including
applicable import and export laws materially relating to its purchase,
distribution or sale of the Products.

             2.5        Exclusivity.  During the term of this Agreement, or if
longer, the term of the License and Development Agreement, Supplier shall not
promote, market or sell the Drug for use in the Field (as defined in the License
and Development Agreement).  Prior to any sale, transfer or other disposition to
any third party of the Drug, Supplier shall obtain the agreement of such third
party that it will not use, promote, market or sell the Drug in the Field or
resell the Drug for use in the Field.  Supplier shall obtain the agreement of
such third party that Medtronic will be an express third party beneficiary of
such agreement.

             2.6        Complaints and Adverse Events.  Each party agrees to
inform the other party promptly (but in no event no later than forty-eight (48)
hours after becoming aware of same) of any information concerning any complaint
involving the Products or that might be applicable to the Products or adverse
drug experience (as defined in 21 C.F.R. § 314.80), injury, toxicity, or
sensitivity reaction associated with the use of the Products or that might be
applicable to the Products, provided that:

                           (a)         if the adverse drug experience is
serious, as defined in 21 C.F.R. § 314.80 (including any adverse drug reaction
that is fatal or life-threatening, is permanently disabling, requires inpatient
hospitalization, or is a congenital anomaly, cancer or overdose), then each
party shall notify the other party within twenty-four (24) hours;

                           (b)        all notifications to Medtronic shall be by
facsimile and on Medtronic’s designated adverse event forms; and

                           (c)         all notifications to Supplier shall be by
facsimile and on Supplier’s designated adverse event forms.

             2.7        Records and Recall.  Medtronic shall maintain complete
and accurate records of all Products sold by Medtronic in sufficient detail to
enable Supplier to conduct an effective recall of Products purchased by
Medtronic under this Agreement if Supplier determines that such a recall is
required or otherwise necessary or appropriate.  In the event of a recall of any
of the Products by Supplier, Medtronic will cooperate with and assist Supplier
in effecting such recall, including promptly contacting any purchasers that
Supplier reasonably desires to be contacted and promptly communicating to such
purchasers the information or instructions Supplier reasonably desires to be
transmitted relating to such recall.  Medtronic shall be responsible for all
costs of effecting such recall of Products, including any shipping costs related
to returning recalled Products to Supplier and replacing such recalled Products
with new Products, except, such costs shall instead be paid by Supplier
(directly or through reimbursement of Medtronic for costs reasonably incurred by
Medtronic) where the recall relates to a matter for which Supplier would be
required to indemnify Medtronic under Article 7 of this Agreement. 
Notwithstanding the foregoing, Medtronic shall control any recall of any
products sold by Medtronic to third parties that may incorporate the Product.

             2.8        Certain Responsibilities.  Notwithstanding anything
contained herein, Supplier shall not be responsible for any loss or damage,
including Products Liability Damages, from the use or performance of the
Products manufactured under this Agreement where (a) such use or performance did
not result from a breach of this Agreement by Supplier, including, without
limitation, Supplier’s warranties, (b) the Products complied with the
description and form described in any documents used for all governmental
approvals, applications, submissions, and approvals filed by Medtronic with the
FDA, or given to Medtronic by the FDA,and (c) the Products complied with the
packaging, shipping, and labeling for the Products.  Medtronic further agrees
that no Products will be released for public use or consumption until all
requisite governmental approvals therefore have been obtained for such use and
consumption.

             2.9        *     *     * Supply.  Supplier agrees to have in place
prior to the first regulatory approval of the commercial sale of the Product and
maintain during the term of this Agreement *     *     * supply for the Drug (in
addition to and independent of *     *      *) *     *     * to produce
commercially reasonable quantities of the Drug in compliance with FDA GMP
requirements and other regulatory requirements.  Supplier agrees to store in a
safe and secure off-site location a *      *     * supply of the Product (based
upon Medtronic forecasts delivered pursuant to Section 3.1) and Supplier agrees
to exercise commercially reasonable efforts to replenish such supply if it is
used.  The Products shall be stored in compliance with the Specifications and
any applicable law or regulation.

ARTICLE 3
FORECASTS, ORDERS AND DELIVERY

             3.1        Forecasts.  Medtronic agrees to provide Supplier, to the
extent practicable, at least *     *     * prior to the date of anticipated
first commercial release of the Product, a rolling *     *     * forecast of
Medtronic’s purchase of such Product from Supplier, specifying quantities and
shipping dates.  Such forecast shall be updated by Medtronic on a *     *     *
basis which updated forecast must be received by Supplier no later than *    
*     * prior to the first day of each succeeding *     *     * period.  Such
rolling forecasts by Medtronic shall be used for purposes of facilitating
Medtronic’s clinical, sales and marketing plans and meeting the lead times
required by certain of Supplier’s suppliers, but they are not legally binding on
Medtronic in any manner.

             3.2        Purchase Orders. Medtronic shall submit purchase orders
for the Products to Supplier in writing, whether by mail, facsimile, email or
otherwise, which shall, at a minimum, set forth the product numbers, quantities,
delivery dates, and shipping instructions and shipping addresses for all
Products ordered.  Each purchase order shall give rise to a contract between
Medtronic and Supplier for the sale of the Products ordered and shall be subject
to and governed by the terms of this Agreement.  The terms and conditions of
this Agreement shall so govern and supersede any additional or contrary terms
set forth in Medtronic’s purchase order or any Supplier or Medtronic acceptance,
confirmation, invoice or other document unless duly signed by an officer of
Medtronic and an executive officer of Supplier and expressly stating and
identifying which specific additional or contrary terms shall supersede the
terms and conditions of this Agreement.  With respect to all purchase orders
submitted at least *     *     * in advance of the earliest scheduled delivery
date set forth in such order, Supplier shall fill such orders in accordance with
the scheduled delivery dates set forth therein , and with respect to all other
purchase orders, Supplier shall exercise commercially reasonable efforts to fill
such orders in accordance with the scheduled delivery dates set forth therein .

             3.3        Modification of Orders.  No purchase order shall be
modified or canceled except upon the mutual agreement of the parties; provided,
however, that Medtronic may cancel a purchase order based upon actions of a
regulatory authority and Medtronic may make changes to a purchase order in
quantities that do not exceed *     *     * of such outstanding order, provided
that Medtronic will reimburse for costs incurred on any such cancelled orders to
the extent Supplier is not able, after reasonable effort, to recover its costs
in connection therewith.  Mutually agreed change orders shall be subject to all
provisions of this Agreement, whether or not the change order so states. 
Notwithstanding the foregoing, any purchase order may be cancelled by Medtronic,
without any liability to Medtronic, as to any Product that is not delivered
within *     *     * after the delivery date requested by Medtronic, and any
such cancellation shall not limit or affect any contract remedies available to
Medtronic with respect thereto.  Any such cancellation by Medtronic must be by
written notice to Supplier given within *     *     * business days after *    
*     * day.

             3.4        Delivery Terms.  All deliveries of Products shall be
F.O.B. Supplier’s manufacturing facility.  Supplier shall have no further
responsibility for risk of damage to or loss or delay of Products upon delivery
by Supplier at the F.O.B. location to the common carrier specified by Medtronic
or, in the event that no carrier shall have been specified by Medtronic on or
before the date fifteen (15) days prior to the requested shipment date, a common
carrier reasonably selected by Supplier.  Medtronic shall be responsible for all
shipping, handling, and insurance costs.

             3.5        Product Changes.  Supplier shall not, without
Medtronic’s prior written consent, materially alter the Specifications for
Products.  Supplier shall not, without Medtronic’s prior written consent, modify
the manufacturing processes, methods or procedures for the Product in any manner
that increases the Manufacturing Costs.  Such consent will not be unreasonably
withheld by Medtronic if specifications, processes, methods, or procedures must
be changed based upon demands by regulatory authority or changes in applicable
law.

ARTICLE 4
PRICES AND PAYMENTS

             4.1        Prices.

                           (a)         Unless and until otherwise mutually
agreed by the parties in writing, the purchase priceforProductmanufactured by
Supplier for Medtronic under this Agreement (the “Transfer Price”) shall be
determined under the definition of “Manufacturing Cost” and  Exhibit B.

                           (b)        If Supplier subcontracts for the
manufacturing of the Product, Manufacturing Cost shall be determined based on
*     *      *.

             4.2        Payment Terms.  Payments made by Medtronic for Products
purchased hereunder shall be due and payable in full within *     *     * after
the date of invoice by Supplier.

             4.3        *     *     *

ARTICLE 5
WARRANTY AND SERVICE

             5.1        Warranty.

                           (a)         Supplier represents and warrants to
Medtronic that all Products sold under this Agreement will have been
manufactured, labeled and packaged in accordance with all applicable laws and
regulations, including (as applicable) FDA GMP requirements and, if applicable,
ISO 9001 certifications, or successor requirements, and all other applicable
manufacturing requirements, as well as the Specifications.  Supplier represents,
warrants and covenants that it will have, or will contract for, the facilities,
equipment, licenses, permits and personnel to manufacture and supply the Product
in accordance with the current expected requirements of Medtronic.

                           (b)        Supplier represents and warrants to
Medtronic that Products shall, when delivered to Medtronic, meet the
Specifications and warranties set forth herein and shall be free from defects in
materials and workmanship.  Medtronic shall invoice Supplier for, and Supplier
shall promptly pay, all shipping, transportation, insurance and other expenses
actually incurred in replacing defective Products where either the defect arises
from a breach of any representation or warranty of Supplier herein or from a
matter for which Supplier would be required to indemnify Medtronic hereunder. 
Supplier will, at Medtronic’s option, replace or credit Medtronic’s account for
any Product that Medtronic reasonably determines was defective at the time of
shipment to Medtronic or that does not conform to the express warranties of
Supplier herein; provided, however, that Supplier shall have no obligation under
this warranty to make replacements or grant credits necessitated in whole or in
part by accidents; failure to maintain in accordance with any transportation,
storage, handling, or maintenance, instructions supplied by Supplier; damage due
to Medtronic Specifications where  Supplier followed such specifications and the
damage was due to defects in such Medtronic Specifications; where Medtronic is
specifically liablefor such damages or defect under the terms of Article 7;
damage by acts of nature, vandalism, burglary neglect or misuse; or other fault
or negligence of Medtronic or (except for any strict liability of Supplier) the
customer or user (collectively, “Warranty Exclusions”).

             5.2        Limited Warranty.  THE EXPRESS WARRANTIES SET FORTH
ABOVE ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH ARE HEREBY
SPECIFICALLY DISCLAIMED, INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.

             5.3        Inspection of Product.  In the event of any shortage,
damage or discrepancy in or to a shipment of Products or in the event any of the
Products fail to comply with the then current Specifications (excluding Warranty
Exclusions) or Supplier warranties for the Products, Medtronic shall report the
same to Supplier within *     *     * after delivery thereof to Medtronic and,
if requested in writing by Supplier, furnish such written evidence or other
documentation as Supplier reasonably may deem appropriate in connection
therewith.  In any such event, or if the Products are not delivered within the
time periods required, Medtronic may reject the Product and return the Products
to Supplier, at Supplier’s expense (including handling, insurance and shipping
charges), unless the Products’ defect results from matters that are Medtronic’s
responsibility under Article 7 or constitute Warranty Exclusions.  Any Products
not rejected by Medtronic by written notice given to Supplier within such *    
*     * period shall be deemed to have been accepted by Medtronic.  Following
any such acceptance, the sole remedies of Medtronic with respect to damage to or
defects in the Products shall be those set forth in Sections 5.1 and 7.1. 
Medtronic shall not be obligated to conduct any tests or inspections of the
Products prior to or after its acceptance.  Supplier shall promptly notify
Medtronic in writing if it has reason to believe that any delivery of the
Products fails to meet the Specifications, fails to satisfy the representations
and warranties made under this Article 5, or is otherwise not free from defects
in material and workmanship.

ARTICLE 6
CERTAIN REPRESENTATIONS AND WARRANTIES

             6.1        Representations and Warranties.

             (a)         Supplier represents and warrants to Medtronic that the
execution and delivery by Supplier of this Agreement and the performance by
Supplier of its obligations hereunder have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order of any
court or other agency of government, the Articles of Incorporation or Bylaws of
Supplier, as amended, or any provision of any indenture, agreement or other
instrument to which Supplier or any of its properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature whatsoever upon any of the properties or assets of
Supplier.  This Agreement has been duly executed and delivered by Supplier and
constitutes the legal, valid and binding obligation of Supplier, enforceable in
accordance with its terms, subject, as to the enforcement of remedies, to the
discretion of the courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws affecting
the rights of creditors generally.

             (b)        Medtronic represents and warrants to Supplier that the
execution and delivery by Medtronic of this Agreement and the performance by
Medtronic of its obligations hereunder have been duly authorized by all
requisite corporate action and will not violate any provision of law, any order
of any court or other agency of government, the Articles of Incorporation or
Bylaws of Medtronic, as amended, or any provision of any indenture, agreement or
other instrument to which Medtronic or any of its properties or assets is bound,
or conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of Medtronic.  This Agreement has been duly executed and
delivered by Medtronic and constitutes the legal, valid and binding obligation
of Medtronic, enforceable in accordance with its terms, subject, as to the
enforcement of remedies, to the discretion of the courts in awarding equitable
relief and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally.

ARTICLE 7
INDEMNIFICATION

             7.1        Supplier’s Liability.

                           (a)         Supplier shall indemnify, defend and hold
harmless Medtronic and its subsidiaries, and their respective officers,
directors, employees, shareholders and distributors from and against and in
respect of any and all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, interest and penalties, costs and
expenses (including, without limitation, reasonable legal fees and disbursements
incurred in connection therewith and in seeking indemnification therefor, and
any amounts or expenses required to be paid or incurred in connection with any
action, suit, proceeding, claim, appeal, demand, assessment or judgment) finally
awarded (“Indemnifiable Losses”), resulting from, arising out of, or imposed
upon or incurred by any person to be indemnified hereunder by reason of:  (i)
any breach of representation, warranty or agreement on the part of Supplier
under this Agreement (collectively, “Supplier Breach”); (ii) Product Liability
Damages with respect to the Products arising from or related to a Supplier
Breach; (iii) any charges of patent or other intellectual property infringement
due to the manufacture of the Products, the sale of the Products for use in the
Field (as defined in the License and Development Agreement) or the formulation
of the Product, except to the extent such formulation is required specifically
for the Medtronic Specifications, and such infringement would have been avoided
by compliance with Supplier Specifications (which indemnity shall be in addition
to, and not in lieu of, Supplier’s indemnity made in the License and Development
Agreement), or (iv) other negligence or intentional misconduct of Supplier;
provided that in no event shall Supplier be liable for matters for which
Medtronic is responsible under Section 7.2 below or for punitive or exemplary
damages.

                           (b)        During the term of this Agreement,
Supplier shall maintain, at its expense, a policy of comprehensive general
liability insurance sufficient to honor the indemnity made herein, with products
liability endorsement, but in no event less than *     *      * per occurrence
and in the annual aggregate.  Said policy shall name Medtronic and its
Affiliates as additional beneficiaries.  Supplier shall furnish Medtronic with a
certificate of insurance evidencing such coverage within thirty (30) days of the
execution of this Agreement, which certificate shall provide for not less than
thirty (30) days notice to Medtronic prior to material change in coverage or
policy cancellation.

             7.2        Medtronic’s Liability.  Medtronic shall indemnify,
defend and hold harmless Supplier and its subsidiaries and their respective
officers, directors, employees, shareholders and suppliers from and against and
in respect of any and all Indemnifiable Losses resulting from, arising out of,
or imposed upon or incurred by any person to be indemnified hereunder by reason
of: (a) any breach of representation, warranty or agreement on the part of
Medtronic under this Agreement; (b) Product Liability Damages with respect to
the Products other than those arising from or related to a Supplier Breach;  (c)
any charges of patent or other intellectual property infringement that does not
relate to a claim described in Section 7.1(a)(iii) and involves the marketing,
distribution and sale of the Product by Medtronic; or (d)  negligent handling by
Medtronic of the Products or changes, additions or modifications to the Products
by Medtronic (other than changes, additions or modifications made to the
Products by Medtronic in connection with or related to the incorporation of the
Products into or onto, or the utilization of the Products in connection with, a
medical device, such as a balloon, catheter or stent), or (e) other negligent or
intentional misconduct of Medtronic; provided that in no event shall Medtronic
be liable for matters for which Supplier is responsible under Section 7.1 above
or under the License and Development Agreement, or for punitive or exemplary
damages.

             7.3        Procedure.  If a claim by a third party is made and a
party (the “Indemnitee”) intends to claim indemnification under this Article 7,
the Indemnitee shall promptly notify the other party (the “Indemnitor”) in
writing of any claim in respect of which the Indemnitee or any of its
subsidiaries, directors, officers, employees, shareholders, suppliers or
distributors intends to claim such indemnification.  If the Indemnitor accepts
liability for indemnifying Indemnitee hereunder, Indemnitor shall have sole
control of the defense and/or settlement thereof; provided that the Indemnitee
may participate in any such proceeding with counsel of its choice at its own
expense.  The indemnity agreement in this Article 7 shall not apply to amounts
paid in settlement of any Indemnifiable Losses if such settlement is effected
without the consent of the Indemnitor, which consent shall not be withheld
unreasonably.  The failure to deliver written notice to the Indemnitor within a
reasonable time after the commencement of any such action, if adversely
prejudicial to its ability to defend such action, shall relieve such Indemnitor
of any liability to the Indemnitee under this Article 7 but the omission to so
deliver written notice to the Indemnitor shall not relieve the Indemnitor of any
liability that it may otherwise have to any Indemnitee other than under this
Article 7.  If the Indemnitor fails to provide defense of the claim, and
diligently defend or settle the same after receipt of notice from Indemnitee of,
and a reasonable opportunity to cure, such failure, the Indemnitee may defend or
settle the claim without prejudice to its rights to indemnification hereunder,
provided that the Indemnitee does so diligently and in good faith and further
does not enter into any settlement or agree to any stipulation that would
adversely affect the rights of the Indemnitor or impose any additional
obligation on the Indemnitor without the Indemnitor’s prior written consent
(which consent will not be unreasonably withheld).  The Indemnitee under this
Article 7, its employees and agents, shall cooperate fully with the Indemnitor
and its legal representatives and provide full information in the investigation
of any Indemnifiable Losses covered by this indemnification.

ARTICLE 8
TERM AND TERMINATION

             8.1        Term.  This Agreement shall take effect as of the date
hereof and shall continue in force until *     *      * (the “Term”).  Nothing
contained in this Agreement will be interpreted as requiring either party to
renew or extend this Agreement beyond the initial term or any renewal term
hereof.

             8.2        Termination.  Notwithstanding the provisions of Section
8.1 above, this Agreement may be terminated in accordance with the following
provisions:

             (a)         A party may terminate this Agreement by giving notice
in writing to the other party if the other party is in material breach of any
representation, warranty or covenant of this Agreement and, except as otherwise
provided herein, shall have failed to cure such breach within *     *     *
after receipt of written notice thereof from the first party;

             (b)        Either party may terminate this Agreement at any time by
giving notice in writing to the other party, which notice shall be effective
upon dispatch, if the other party  (i) becomes insolvent; (ii) commences any
action or proceeding under any bankruptcy or insolvency law for the
reorganization, arrangement, composition or similar relief, (iii) has commenced
against it any action or proceeding under any bankruptcy or insolvency law that
remains undismissed or unstayed for a period of *     *     *, or (iv) makes an
assignment for the benefit of creditors, goes into liquidation or receivership
or otherwise loses legal control of its business; or

             (c)         Medtronic may terminate this Agreement upon *     *    
* prior written notice to Supplier if Supplier has been in material breach of
the representations, warranties and covenants contained herein on three or more
occasions within any *     *     * period.  In order to exercise such
termination right, Medtronic must provide Supplier with written notice of such
termination within *     *     * after the end of any applicable *     *     *.

             8.3        Rights and Obligations on Termination.  In the event of
termination of this Agreement for any reason, the parties shall have the
following rights and obligations:

             (a)         Termination of this Agreement shall not release either
party from the obligation to make payment of all amounts previously due and
payable.

             (b)        The terminating party shall have the right, at its
option, to cancel any or all purchase orders that provide for delivery after the
effective date of termination.

             (c)         Upon termination of this Agreement for any reason,
nothing herein shall be construed to release either party from any obligation
that matured prior to the effective date of such termination.

             (d)        Upon any termination of this Agreement, the parties will
return and deliver to the other party all of such party’s materials and
documents developed during the performance of this Agreement provided that a
party may retain one copy of such materials and documents for legal purposes.

             (e)         The parties’ obligations pursuant to Articles 5, 6, 7
and 8 and Sections 2.5, 2.6 and 2.7 hereof and any and all other terms and
provisions hereof intended to be observed and performed by the parties after the
termination hereof, shall survive termination of this Agreement.  All other
provisions of this Agreement shall terminate upon termination of this Agreement.

ARTICLE 9
FORCE MAJEURE; LICENSE

             9.1        Notice of Force Majeure.  Upon giving notice to the
other party, a party affected by an event of Force Majeure shall be released
without any liability on its part from the performance of its obligations under
this Agreement, except for the obligation to pay any amounts due and owing
hereunder, but only to the extent and only for the period that its performance
of such obligations is prevented by the event of Force Majeure.

             9.2        Suspension of Performance.  During the period that the
performance by one of the parties of its obligations under this Agreement has
been suspended by reason of an event of Force Majeure, the other party may
likewise suspend the performance of all or part of its obligations hereunder
(except for the obligation to pay any amounts due and owing hereunder) to the
extent that such suspension is commercially reasonable.

             9.3        Exercise of License.

                           (a)         Notwithstanding the terms hereof,
Medtronic shall have the right to exercise its license to make or have made the
Drug granted by, and subject to the terms of, the License and Development
Agreement at any time.

                           (b)        In connection with Medtronic’s exercise of
the license to make or have made the Drug, and upon Medtronic’s request,
Supplier shall promptly provide to Medtronic, or a third party designated by
Medtronic, as applicable, copies of such technical documentation and related
know-how and trade secrets, and training as is reasonably necessary for a
skilled manufacturer to make such Product; provided that any such third party
shall agree to maintain the confidentiality of all such information to the same
extent that Medtronic is obligated to do so under this Agreement.

ARTICLE 10
MISCELLANEOUS

             10.1      Nondisclosure.  The parties agree not to disclose or use
(except as permitted or required for performance by the party receiving such
Confidential Information of its rights or duties hereunder or under other
agreement between the parties or their Affiliates) any Confidential Information
of the other party obtained during the term of this Agreement until the
expiration of *     *      *.  Each party further agrees to take appropriate
measures to prevent any such prohibited disclosure of Confidential Information
by its present and future employees, officers, agents, subsidiaries, or
consultants during such period.

             10.2      Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of the parties hereto and the successors or
assigns of the parties hereto; provided, that (i) the rights and obligations of
Supplier herein may not be assigned except to any person who succeeds to
substantially all of the assets and business of Supplier to which this Agreement
relates, and (ii) the rights and obligations of Medtronic herein may not be
assigned except to any person who succeeds to substantially all of that portion
of Medtronic’s business to which this Agreement relates. The Supplier may enter
into agreements with third parties to provide for performance by third parties
of any or all of its obligations to manufacture and supply the Products;
provided that such agreement is consistent with this Agreement in all material
respects. Notwithstanding the provisions of any such agreement, the Supplier
shall remain obligated and liable to Medtronic for the performance of its
obligations and duties hereunder.

             10.3      Complete Agreement.  This Agreement and the License and
Development Agreement, and the Schedules and Exhibits hereto and thereto,
constitute the entire agreement between the parties hereto with respect to the
subject matter hereof and supersede all prior agreements whether written or oral
relating hereto.

             10.4      Governing Law.  The formation, legality, validity,
enforceability and interpretation of this Agreement shall be governed by the
laws of the State of Minnesota, without giving effect to the principles of
conflict of laws; provided, however, that nothing in Minnesota procedural law
shall be deemed to alter or affect the applicability of the rules of the Federal
Arbitration Act as governing arbitration of disputes as provided in Section
10.15 and, provided further, that no Minnesota laws or rules of arbitration
shall be applicable.  Subject to Section 10.15, the parties hereto hereby submit
to the exclusive jurisdiction of the United States federal and state courts
located in the county in which arbitration is conducted with respect to any
dispute arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby, and irrevocably
consent to the exclusive jurisdiction and venue of such courts and waive any
objections they may have at any time to such exclusive jurisdiction and venue.

             10.5      Waiver, Discharge, Amendment, Etc.  The failure of any
party hereto to enforce at any time any of the provisions of this Agreement
shall not, absent an express written waiver signed by the party making such
waiver specifying the provision being waived, be construed to be a waiver of any
such provision, nor in any way to affect the validity of this Agreement or any
part thereof or the right of the party thereafter to enforce each and every such
provision.  No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach.  Any amendment to this Agreement shall
be in writing and signed by the parties hereto.

             10.6      Notices.  All notices or other communications to a party
required or permitted hereunder shall be in writing and shall be delivered
personally or by facsimile (receipt confirmed electronically) to such party (or,
in the case of an entity, to an executive officer of such party) or shall be
sent by a reputable express delivery service or by certified mail, postage
prepaid with return receipt requested, addressed as follows:

             if to Medtronic, to:

                           Medtronic, Inc.
                           710 Medtronic Parkway NE
                           Minneapolis, MN 55432-5604

             with separate copies thereof addressed to

Attention: General Counsel     Mail Stop LC400     Telecopier No.:  (763)
572-5459         and           Attention: Vice President and Chief Development
Officer     Mail Stop LC390     Telecopier No.:  (763) 505-2542  

 

             if to Supplier to:

                           AVI BioPharma, Inc.
                           One SW Columbia
                           Portland, OR 97258
                           Attn: President, Alan P. Timmins

             With a copy to:

                           Hurley, Lynch & Re, PC
                           747 SW Industrial Way
                           Bend, OR 97702
                           Attn: Robert A. Stout, Esq.

Any party may change the above–specified recipient and/or mailing address by
notice to all other parties given in the manner herein prescribed.  All notices
shall be deemed given on the day when actually delivered as provided above (if
delivered personally or by facsimile) or on the day shown on the return receipt
(if delivered by mail or delivery service).

             10.7      Expenses.  Except as expressly provided herein, Supplier
and Medtronic shall each pay their own expenses incident to this Agreement and
the preparation for, and consummation of, the transactions provided for herein.

             10.8      Titles and Headings; Construction.  The titles and
headings to the Articles and Sections herein are inserted for the convenience of
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.  This Agreement shall be construed without
regard to any presumption or other rule requiring construction hereof against
the party causing this Agreement to be drafted.

             10.9      Severability.  If any provision of this Agreement is held
invalid, illegal or unenforceable, such provision shall be enforced to the
maximum extent permissible and the remaining provisions shall nonetheless be
enforceable according to their terms.

             10.10    Relationship.  This Agreement does not make either party
the employee, agent or legal representative of the other for any purpose
whatsoever. Neither party is granted any right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or in
the name of the other party. In fulfilling its obligations pursuant to this
Agreement, each party shall be acting as an independent contractor.

             10.11    Benefit.  Nothing in this Agreement, expressed or implied,
is intended to confer on any person other than the parties hereto or their
respective successors or assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

             10.12    Survival.  All of the representations, warranties, and
covenants made in this Agreement, and all terms and provisions hereof intended
to be observed and performed by the parties after the termination hereof, shall
survive such termination and continue thereafter in full force and effect,
subject to applicable statutes of limitations.

             10.13    Counterparts.  This Agreement may be executed in any
number of counterparts, each of which shall be deemed as original and all of
which together shall constitute one instrument.

             10.14    Execution of Further Documents.  Each party agrees to
execute and deliver without further consideration any further applications,
licenses, assignments or other documents, and to perform such other lawful acts
as the other party may reasonably require to fully secure and/or evidence the
rights or interests herein.

             10.15    Arbitration.  Any dispute arising out of or relating to
this Agreement, including the formation, interpretation or alleged breach
hereof, shall be settled in accordance with the Exhibit C attached hereto.  The
results of such arbitration proceedings shall be binding upon the parties
hereto, and judgment may entered upon the arbitration award in any court having
jurisdiction thereof.  Notwithstanding the foregoing, either party may seek
interim injunctive relief from any court of competent jurisdiction.

             10.16    Public Announcement.  In the event any party proposes to
issue any press release or public announcement concerning any provisions of this
Agreement or the transactions contemplated hereby, such party shall so advise
the other parties hereto, and the parties shall thereafter use their best
efforts to cause a mutually agreeable release or announcement to be issued. 
Neither party will publicly disclose or divulge any provisions of this Agreement
nor the transactions contemplated hereby without the other party’s written
consent, except as may be required by applicable law or stock exchange
regulation, and except for communications to such party’s employees or customers
or investors or prospective investors (subject to appropriate confidentiality
obligations); provided that, prior to disclosure of any provision of this
Agreement that either party considers particularly sensitive or confidential to
any governmental agency or stock exchange, the parties shall cooperate to seek
confidential treatment or other applicable limitations on the public
availability of such information.  In particular, prior to such disclosure, each
party shall use its best efforts to redact the payment terms specified herein
and each party shall provide the other the opportunity to redact other
information and seek confidential treatment of any such disclosure.

             IN WITNESS WHEREOF, each of the parties has caused this Supply
Agreement to be executed in the manner appropriate to each, as of the date first
above written.

 

AVI BIOPHARMA, INC.   MEDTRONIC, INC.             By: /s/ Denis Burger   By: 
/s/ Michael D. Ellwein  

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  Its:           CEO   Its:           VP & COO  

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Attachments:

             Exhibit A – Specifications
             Exhibit B – Pricing
             Exhibit C – Alternative Dispute Resolution

EXHIBIT A

Specifications

 

*     *      *

EXHIBIT B

Pricing

 

*     *      * 

 

*     *      *

EXHIBIT C

ALTERNATIVE DISPUTE RESOLUTION

 

             1)          Negotiations.  If any dispute arises between Supplier
and Medtronic with respect to the Supply Agreement or the License and
Development Agreement (the “Agreements”), or any alleged breach thereof, any
party may, by written notice to the other party, have such dispute referred to
their respective designees listed below or their successors for attempted
resolution by good faith negotiations within 30 days after such notice is
received.  Such designees are as follows:

             For Supplier -  the President of Supplier or his/her designee

For Medtronic - the President of Medtronic, Inc.’s business unit to which the
Agreements relate, or his/her designee

Any settlement reached by the parties under this Section 1 shall not be binding
until reduced to writing and signed by the above-specified designees of
Medtronic and Supplier.  When reduced to writing, such settlement agreement
shall supersede all other agreements, written or oral, to the extent such
agreements specifically pertain to the matters so settled.  If the designees are
unable to resolve such dispute within such 30-day period, any party may invoke
the provisions of Section 2 below.

             2)          Arbitration.  All claims, disputes, controversies, and
other matters in question arising out of or relating to the Agreements,
including claims for Indemnifiable Losses and disputes regarding the making of
the Agreements, including claims of fraud in the inducement, or to the alleged
breach hereof, shall be settled by negotiation between the parties as described
in Section 1 above or, if negotiation is unsuccessful, by binding arbitration in
accordance with procedures set forth in Section 3 and 4 below.

             3)          Notice.  Notice of demand for binding arbitration shall
be given in writing to the other party and shall be delivered personally or by
facsimile (receipt confirmed) to an executive officer of such party or shall be
sent by a reputable express delivery service or by certified mail, postage
prepaid with return receipt requested, addressed as follows:

             Medtronic Asset Management, Inc.
             710 Medtronic Parkway NE
             Minneapolis, MN 55432-5604

             with separate copies thereof addressed to

Attention: General Counsel     Mail Stop LC400     Telecopier No.:  (763)
572-5459         and           Attention: Vice President and Chief Development
Officer     Mail Stop LC390     Telecopier No.:  (763) 505-2542  

if to Supplier to:

             AVI BioPharma, Inc.
             One SW Columbia
             Portland, OR 97258
             Attn: President, Alan P. Timmins

With a copy to:

             Hurley, Lynch & Re, PC
             747 SW Industrial Way
             Bend, OR 97702
             Attn: Robert A. Stout, Esq.

             Any party may change the above–specified recipient and/or mailing
address by notice to the other party given in the manner herein prescribed.  All
notices shall be deemed given on the day when actually delivered as provided
above (if delivered personally or by facsimile (upon appropriate electronic
confirmation of successful transmission)) or on the day shown on the return
receipt (if delivered by mail or delivery service).   In no event may a notice
of demand of any kind be filed more than two years after the date the claim,
dispute, controversy, or other matter in question was asserted by one party
against another, and if such demand is not timely filed, the claim, dispute,
controversy, or other matter in question referenced in the demand shall be
deemed released, waived, barred, and unenforceable for all time, and barred as
if by statute of limitations.

             4)          Binding Arbitration.  Upon filing of a notice of demand
for binding arbitration by any party hereto, arbitration shall be commenced and
conducted as follows:

             (a)         Arbitrators.  All claims, disputes, controversies, and
other matters (collectively “matters”) in question shall be referred to and
decided and settled by a standing panel of three independent arbitrators, one
selected by each of Supplier and Medtronic’s representative and the third by the
two arbitrators so selected; provided, if the amount in controversy (including
reasonably anticipated future amounts or payments under the Agreement affected
by such arbitrated matter) is under $300,000, a single arbitrator will be used. 
The third (or the single arbitrator, if applicable) shall be a former judge of
one of the U.S. District Courts or one of the U.S. Court of Appeals or such
other classes of persons as the parties may agree.  Selection of arbitrators
shall be made within 30 days after the date of the first notice of demand given
pursuant to Section 3 and within 30 days after any resignation, disability or
other removal of such arbitrator.  Following appointment, each arbitrator shall
remain a member of the standing panel, subject to removal for just cause or
resignation or disability; provided, however, an arbitrator can be removed by
the party who appointed the arbitrator, or in the case of the third arbitrator,
by either party for any reason at any time when no matter is in arbitration.

             (b)        Cost of Arbitration.  The cost of each arbitration
proceeding, including without limitation the arbitrators’ compensation and
expenses, hearing room charges, court reporter transcript charges etc., shall be
borne by the party whom the arbitrators determine has not prevailed in such
proceeding, or borne equally by the parties if the arbitrators determine that
neither party has prevailed.  The arbitrators shall also award the party that
prevails substantially in its pre-hearing position its reasonable attorneys’
fees and costs incurred in connection with the arbitration.  The arbitrators are
specifically instructed to award attorneys’ fees for instances of abuse of the
discovery process.

             (c)         Location of Proceedings.  An  arbitration proceeding
initiated by Supplier shall be held in Hennepin County, Minnesota and an
arbitration proceeding initiated by Medtronic shall be held in Multnomah County,
Oregon, unless the parties agree otherwise.

             (d)        Pre-hearing Discovery.  The parties shall have the right
to conduct and enforce pre-hearing discovery in accordance with the then current
Federal Rules of Civil Procedure, subject to these limitations:  Document
discovery and other discovery shall be under the control of and enforceable by
the arbitrators.  The arbitrators shall permit and facilitate such other
discovery as they shall determine is appropriate under the circumstances, taking
into account the needs of the parties and the desirability of making discovery
expeditious and cost effective.  The arbitrators shall decide discovery
disputes.  The arbitrators are empowered:

             (i)          to issue subpoenas to compel pre-hearing document or
deposition discovery;

             (ii)         to enforce the discovery rights and obligations of the
parties; and

             (iii)        to otherwise control the scheduling and conduct of the
proceedings.

             Notwithstanding any contrary foregoing provisions, the arbitrators
shall have the power and authority to, and to the fullest extent practicable
shall, abbreviate arbitration discovery in a manner that is fair to all parties
in order to expedite the arbitration proceeding and render a final decision
within six months after the pre-hearing conference.

             (e)         Pre-hearing Conference.  Within 45 days after filing of
notice of demand for binding arbitration, the arbitrators shall hold a
pre-hearing conference to establish schedules for completion of discovery, for
exchange of exhibit and witness lists, for arbitration briefs, for the hearing,
and to decide procedural matters and all other questions that may be presented.

             (f)         Hearing Procedures.  The hearing shall be conducted to
preserve its privacy and to allow reasonable procedural due process.  Rules of
evidence need not be strictly followed, and the hearing shall be streamlined as
follows:

             (i)          Documents shall be self-authenticating, subject to
valid objection by the opposing party;

             (ii)         Expert reports, witness biographies, depositions, and
affidavits may be utilized, subject to the opponent’s right of a live
cross-examination of the witness in person;

             (iii)        Charts, graphs, and summaries shall be utilized to
present voluminous data, provided (i) that the underlying data was made
available to the opposing party 30 days prior to the hearing, and (ii) that the
preparer of each chart, graph, or summary is available for explanation and live
cross-examination in person;

             (iv)       The hearing should be held on consecutive business days
without interruption to the maximum extent practicable; and

             (v)        The arbitrators shall establish all other procedural
rules for the conduct of the arbitration in accordance with the rules of
arbitration of the Center for Public Resources.

             (g)        Governing Law.  This arbitration provision shall be
governed by, and all rights and obligations specifically enforceable under and
pursuant to, the rules of the Federal Arbitration Act and the laws of the State
of Minnesota shall be applied, without reference to the choice of law principles
thereof, in resolving matters submitted to such arbitration.

             (h)        Consolidation.  No arbitration shall include, by
consolidation, joinder, or in any other manner, any additional person not a
party to this Agreement (other than affiliates of any such party, which
affiliates may be included in the arbitration), except by written consent of the
parties hereto containing a specific reference to this Agreement.

             (i)          Award.  The arbitrators shall be required to render
their final decision within six months after the pre-hearing conference.  The
arbitrators are empowered to render an award of general compensatory damages and
equitable relief (including, without limitation, injunctive relief), but are not
empowered to award punitive or presumptive damages.  The award rendered by the
arbitrators (1) shall be final; (2) shall not constitute a basis for collateral
estoppel as to any issue; and (3) shall not be subject to vacation or
modification, except in the event of fraud or gross misconduct on the part of
the arbitrators.

             (j)          Confidentiality.  The parties hereto will maintain the
substance of any proceedings hereunder in confidence and make disclosures to
others only to the extent necessary to properly conduct the proceedings.