Exhibit 10.60


SECOND
COLLABORATION AND LICENSE AGREEMENT


(Muscular Dystrophy and Beta Thalassemia)


This Collaboration and
License Agreement (the “Agreement”) between AVI BioPharma, Inc. of One S.W.
Columbia, Suite 1105, Portland OR 97258 (“AVI”) and Ercole Biotech, Inc., of
7030 Kit Creek RD, Suite 150, Morrisville, NC (“Ercole”) is entered into and
made effective this 1st day of May, 2007 (the “Effective Date”).


OVERVIEW


AVI
owns or controls certain patents related to morpholino chemistry (the “AVI
Patents”, as identified on Exhibit 4), including those licensed under
that certain Agreement between AVI and Anti-Gene Development Group effective
May 19, 1993 and amended March, 2000 (the “AGDG Agreement”).


Ercole
controls certain patents (the “Isis Splicing Patents”, as identified on Exhibit
3) related to RNA splicing licensed under that certain Collaboration
and License Agreement between Ercole and Isis Pharmaceuticals effective May 16,
2003 (the “Isis CLA”).


Ercole controls certain
patents (the “Ercole Splicing
Patents”) related to RNA splicing licensed under that certain License Agreement
between Ercole and The University of North Carolina at Chapel Hill effective
October 15, 2001 (the “UNC License”).


The
parties have entered into a Collaboration and License Agreement dated December
19, 2006 (the “First Collaboration Agreement”).


The
parties wish to expand their collaboration by engaging in joint activities
related to the discovery and development of pharmaceutical products that
utilize inventions covered by the AVI Patents, the Isis Splicing Patents and/or
the Ercole Splicing Patents to treat Muscular Dystrophy (“MD”) and Beta
Thalassemia (“BT”).


Capitalized terms
used in this Agreement have the meanings set forth in Exhibit 1.


In consideration of the premises and the mutual covenants contained
herein, the parties hereto agree as follows:


Article 1. Joint Steering Committee and Management
of the Collaboration


1.1                       Establishment of Joint
Steering Committee.  The parties
shall establish a Joint Steering Committee (“JSC”), which shall have a total of
four members, with two members appointed by each party.  Members of the JSC may be represented at any
meeting by a



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designee appointed by such party for such meeting, provided that
reasonable advance notice is provided to the other party and such designee, if
not an employee of the party, shall be subject to an appropriate
confidentiality agreement.  Each party
shall be free to change its members on prior written notice to the other
party.  Each party may, in its discretion
and upon reasonable notice to the other party, invite non-JSC employees and
consultants of such party to attend such meeting, provided that such non-JSC
employees and consultants shall be subject to appropriate confidentiality
agreements.  The JSC shall exist until
the expiration or termination of its responsibilities set forth in this
Agreement.


1.2                       Responsibilities of the Joint
Steering Committee.  In addition to
the responsibilities expressly described elsewhere in this Agreement, the JSC
shall:


(a)                    draft the R&D Plan and present it to
the parties for approval;


(b)                   monitor activities and execution of the
R&D Plan;


(c)                    develop updates or amendments to the
R&D Plan including, but not limited to, the annual updates specified in
Section 2.4, and recommend such updates or amendments to the parties for
approval;


(d)                   select compounds as candidates for
clinical development (“IND Candidates”);


(e)                    develop a plan related to the conduct of
clinical trials and commercialization of Products developed under this Agreement;


(f)                      attempt to settle disputes or
disagreements that are unresolved by the Primary Contact Persons; and


(g)                   perform any other activities related to
the R&D Plan as may be requested by the parties from time to time.


In no circumstance shall
the JSC (i) have any authority to make any determination that either party is
in breach of its obligations under the R&D Plan or this agreement; or (ii)
have the authority to amend either this Agreement or the R&D Plan, other
than the ability to recommend updates or amendments for approval by the
parties.


1.3                       Meetings and Minutes of the
Joint Steering Committee.  The JSC
shall meet on such dates and times as the parties shall agree, but no less
frequently than once every three months. 
The meetings shall alternate between the offices of the parties unless
the parties agree otherwise.  JSC
meetings may take place via teleconference, videoconference or similar
electronic or virtual media; provided, however, that the JSC shall meet in
person at least twice every calendar year during the course of implementing the
R&D Plan.  In addition to these
required meetings, the JSC may also be polled or consulted from time to time by
means of telecommunications, video conference or correspondence, as deemed
necessary or appropriate to fulfil its obligations under this Agreement.  The JSC will be chaired by an-ERCOLE
nominated member during odd-numbered years (2007, 2009, etc...) and by an
AVI-nominated member during even-numbered years (2008, 2010, etc...).  The chairperson shall convene and preside at
meetings of the JSC, but the chairperson shall not be entitled to prevent items
from being discussed or to cast any tie-breaking vote.  Not later than thirty (30) days after the
Effective Date, the JSC shall hold an organizational meeting.  Reasonably detailed written minutes will be
kept by the chairperson of all JSC meetings and will reflect material decisions
made at such meetings.  Draft meeting



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minutes will be sent to each member of the JSC for review and approval
within ten (10) business days after a meeting. 
Minutes will be deemed approved unless a member of the JSC objects to
the accuracy or completeness of such minutes within thirty (30) calendar days
of receipt.


1.4                       JSC Decision-Making and
Dispute Resolution.  The
representatives of each party shall collectively have one vote on behalf of
such party; provided however, that no such vote taken at a meeting shall be
valid unless a representative of each party is present and participates in the
vote.  The JSC may take actions only by unanimous
consent.  Should the JSC be unable to
reach unanimous consent on any matter within the JSC’s area of responsibility,
the matter shall be resolved in accordance with the following provisions:


(a)                    The JSC shall initially refer the matter
to the senior management of the parties for resolution in accordance with
Section 14.6.1.  Should the parties’
senior managements be unable to resolve the issue, then it shall be resolved as
specified in this Section 1.4 (b) through (d).


(b)                   If the matter relates solely or primarily
to the MD program or a MD Product, then AVI shall have the right to resolve the
matter in its discretion.


(c)                    If the matter relates solely or primarily
to the BT program or a BT Product, then Ercole shall have the right to resolve
the matter in its discretion.


(d)                   If the matter relates substantially to
both a MD Product and a BT Product, then the matter shall be resolved in
accordance with Section 14.6.2.


1.5                       Primary
Contact Persons.  Each party shall
designate a primary contact person (a “Primary Contact Person”) who shall be
responsible for the day-to-day interactions between the parties related to
activities pursued under the R&D Plan and the oversight of day-to-day
operations of these activities.  The
Primary Contact Persons shall attempt to resolve any disputes that arise during
the implementation of the R&D Plan. 
If the Primary Contact Persons cannot resolve any such dispute within
thirty (30) days (or such longer reasonable period of time as they may agree),
or if the Primary Contact Persons reasonably believe that they will not be able
to resolve any such dispute within such period, the Primary Contact Persons
shall refer the dispute to the Joint Steering Committee which shall attempt to
resolve the issue in accordance with Section 1.4.


1.6                       Expenses.  Each party shall bear all travel and related
costs and expenses for its members, designees and non-JSC invitees to attend
meetings of, and otherwise participate on, the JSC and such expenses shall not
be considered Shared Costs.


Article 2.
R&D Plan


2.1                       General.  The parties shall engage in research
regarding the development of Products in accordance with the R&D Plan.  During the course of implementing the R&D
Plan, the parties shall communicate regularly and shall assume certain rights and
responsibilities for the development of the Products in accordance with the
R&D Plan.



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2.2                       Creation.  AVI shall provide a proposed R&D Plan for
the first year to the JSC regarding the research program for MD or an MD
Product within sixty (60) days after the Effective Date and Ercole shall
provide a proposed R&D Plan to the JSC for the first year regarding the
research program for BT or a BT Product within sixty (60) days after the
Effective Date.  The JSC shall use
reasonable efforts to adopt an initial R&D Plan covering both the BT
research program, MD research program and any MD Product or BT Product within
ninety (90) days after the Effective Date. 
Upon approval by the JSC, the initial R&D Plan will be attached as
Appendix A to this Agreement.


2.3                       Contents.  The R&D Plan shall set forth a strategy
and planned activities for the discovery and development of each product. The
R&D Plan shall also include an annual Budget.  The Budget shall set forth the budget for the
BT and MD research programs and development of each Product during the
applicable time period.  The Budget shall
also specifically allocate the costs to be incurred by ERCOLE and by AVI for
the period covered in the Budget.  Each
Budget shall be prepared on a cash basis and shall provide a level of detail
that is reasonably consistent with the initial Budget.


2.4                       Updates; Candidate Selection.  By September 30 of each year, the JSC shall
update the R&D Plan to reflect a strategy, plan and Budget for the next
calendar year (or other period agreed upon by the JSC) and shall submit such
R&D Plan for approval by the parties. 
Each party shall use commercially reasonable efforts to approve an
updated R&D Plan within thirty (30) days of receipt.  In addition, when the JSC designates a
compound as a candidate to be the subject of an IND filing as either a BT
Product or an MD Product, the responsible party (i.e., Ercole in the case of a
BT Product or AVI in the case of an MD Product) shall promptly prepare and
submit to the JSC for review and approval a proposed plan for the clinical
development of such Product, which will be incorporated into the Budget.


2.5                       Amending the Plan.  At any time during the course of research or
development, the parties may amend the R&D Plan upon mutual written
agreement.


2.6                       Shared Costs.  Unless otherwise set forth in an approved
Budget and except as otherwise provided in this Agreement, each party shall be
responsible for 50% of the Outside Research Costs and 50% of Direct Development
Costs. Within thirty (30) days after the end of each calendar quarter, each
party shall report to the other party, through the JSC, the aggregate Outside
Research Costs and Direct Development Costs (together sometimes referred to as “Shared
Costs”) incurred to date, along with such documentation as may be reasonably
requested by the other Party to support such expenses.  Within forty five (45) days of the end of
each calendar quarter, the Party which has incurred a lower aggregate amount of
such costs shall reimburse the other Party one-half (1/2) of the difference in
the Parties’ respective costs (net of prior reimbursement). The parties
anticipate that a substantial portion of the costs of performing the R&D
Plan will be funded by third parties through grants or other funding
arrangements.  With respect to third
party funding directed to supporting research and development of a MD Product,
Ercole agrees to take such actions as may be reasonably requested to
accommodate the requirements of entities providing funding for such MD Product,
provided that Ercole shall not be required to amend this



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Agreement in a manner that would conflict with any other legal
obligations of Ercole.  With respect to
third party funding directed to supporting research and development of a BT
Product, AVI agrees to take such actions as may be reasonably requested to
accommodate the requirements of entities providing funding for such BT Product,
provided that AVI shall not be required to amend this Agreement in a manner
that would conflict with any other legal obligations of Ercole.


2.7                       Disputed Costs and Opting
Out.


(a)                                  If the JSC cannot
reach agreement over Shared Costs proposed by a party to implement the R&D
Plan, the issue shall be referred to senior management as provided for in
Section 1.4(a).   If the senior management
reaches agreement, then the R&D Plan and Budget shall be modified
accordingly.  If the senior management
cannot reach agreement over such proposed costs (the “Disputed Costs”), such
dispute shall be resolved as provided for in Section 1.4(b)-(d).  If a party exercises its rights to resolve a
dispute related to Disputed Costs pursuant to Section 1.4(b) or (c) over the
objection of the other party, then the other party may either continue to fund
its 50% share of the Shared Costs related to the Product or may elect to reduce
its financial support for the Product (referred to as “Opting Out”).  If a party elects to Opt Out, then the other
party (the “Continuing Party”) shall be entitled to receive under Section
5.2(b) an amount that is calculated as follows: the amount of Shared Costs
incurred by the Continuing Party related to the Product that is not matched by
the party that Opts Out is multiplied by 1.4, and that amount is compounded
quarterly at the compounding rate of twenty percent (20%) per annum (the total
amount is called the “Compounded Disputed Costs”), for the period commencing on
the date the expense is incurred for so long as any portion of the Compounded
Disputed Costs remain outstanding.  If
the dispute related to costs is not resolved under 1.4(a)-(c), such dispute may
be resolved through arbitration in accordance with Section 14.6.2.  While the matter is in arbitration, the party
that proposed the Disputed Costs may, in its sole discretion, incur such costs,
in addition to those allocated to such party in the Budget, and the parties
otherwise would proceed in accordance with the then existing R&D Plan and
Budget until the matter is resolved.  If
the Disputed Costs, or any portion thereof, are determined through arbitration
in accordance with Section 14.6.2 to be Shared Costs that are reasonably
necessary to develop a Product and the proposing party has paid such costs,
then the proposing party shall be entitled to receive under Section 5.2(b)
Compounded Disputed Costs in the manner calculated above.  A party may at any time pay to the other
party all or any portion of the Compounded Disputed Costs that would otherwise
continue to compound at a 20% annual rate. 
If the Disputed Costs are determined pursuant to Section 14.6.2 not to
be Shared Costs that are reasonably necessary to develop the Product, and the
proposing party has paid such costs, then the proposing party shall bear such
costs and shall not be entitled to recover such costs under Section 5.2.   At any time that the cumulative amount of
Compounded Disputed Costs that the Continuing Party is entitled to recover
related to a Product exceeds    *   , such party may elect to treat the Opting
Out party as having abandoned that Product. 
The Continuing Party may make this



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election by providing written notice to the Opting Out party.  If a party makes this election, then the
Continuing Party shall thereafter be entitled to retain all proceeds from the
sublicensing or other commercial development of the Product, subject only to an
obligation to pay amounts described in Section 5.2(a) and an obligation to pay
the Opting Out party a royalty equal to   
*    of Net Sales of the Product.


(b)                                 In addition, either
party may elect at any time (regardless of whether any Disputed Costs or
Compounded Disputed Costs have arisen or accrued) to abandon a Product. The
party that elects to abandon a Product (the “Abandoning Party”) shall make this
election by providing written notice to the other party.  If a party makes this election, then the
other party shall thereafter be entitled to retain all proceeds from the
sublicensing or other commercial development of the Product, subject only to an
obligation to pay amounts described in Section 5.2(a) and an obligation to pay
the Abandoning Party a royalty equal to    *    of
Net Sales of the Product.


(c)                                  For purposes of this
Section, the term “Product” means all Products that involve the use of the
active pharmaceutical ingredient(s) tested in experiments that the Opting Out
party elected not to fund or, in the case of an Abandoning Party, all Products
that involve the use of the active pharmaceutical ingredient(s) identified in
the notice of abandonment.


Article
3. License Grants


3.1                       AVI License Grants.  Subject to the AGDG Agreement, AVI grants
Ercole an (i) exclusive worldwide license to the AVI Patents to research,
develop, import and export, use, and sell BT Products and (ii) a non-exclusive
license to engage in all other research and development activities under the
R&D Plan.


3.2                       Sublicenses under AVI Patent
Rights.  Subject to the terms and
conditions of this Agreement and during the License Term, Ercole (subject to
review by the JSC as described in Section 5.1) will have the right to grant
sublicenses under the license from AVI set forth in Section 3.1 to third parties
solely for the purposes of enabling such third party to discover, develop and
commercialize the BT Products.  Any such
sublicense shall be subject to and consistent with the terms and conditions of
this Agreement.  In the event of a
material default by any such sublicensee of such AVI Patent Rights, Ercole will
(i) inform AVI of such default; (ii) hold AVI harmless; and (iii) take any
action reasonably necessary to prevent such default from giving AGDG the right
to terminate the AGDG Agreement.  Such
actions may include, but are not limited to, causing the sublicensee promptly
to cure the default and terminating the sublicense.


3.3                       Ercole License Grants.  Subject to the UNC License and Isis CLA,
Ercole grants to AVI (i) an exclusive worldwide license to the Splicing Patents
to research, develop,



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make and have made, import and export, use and sell MD Products and
(ii) a non-exclusive license to engage in all other research and development
activities under the R&D Plan.


3.4                       Sublicenses Under the Splicing
Patents.  Subject to the terms and
conditions of this Agreement and during the License Term, AVI (subject to
review by the JSC as described in Section 5.1) may grant a sublicense to a
third party collaborator under the Splicing Patents solely for the purposes of
enabling such third party to develop and commercialize the MD Products.   Any such sublicense granted by AVI under
this Agreement shall be subject to and will be consistent with the terms and
conditions of this Agreement, the Isis CLA and the UNC License.  Without limiting the generality of the
foregoing, as required by the Isis CLA, AVI shall not grant any sublicenses to
the MD Products until an IND has been submitted for such Product.   In the event of a material default by any
sublicense under an AVI sublicense, AVI will (i) notify Ercole of such default;
(ii) hold Ercole harmless; and (iii) take any action reasonably necessary to
prevent such default from giving UNC or Isis the right to terminate the UNC
License or the Isis CLA, as the case may be. 
Such actions may include, but are not limited to, causing the sublicense
promptly to cure the default and terminating the sublicense.


3.5                       General Sublicense Terms.  The grant of any sublicense under Sections
3.2 or 3.4 will not relieve either party of its obligations under this
agreement.  Upon the grant of a
sublicense, the sublicensing party shall promptly notify the other party of
such sublicense, and shall provide contact information for such sublicense to the
other party.


3.6                       Other Rights.  If the sale or use of a Product that bears a
royalty payable to the other party under this Agreement or under the First
Collaboration Agreement would infringe patent rights owned or controlled by the
other party (other than Patents expressly licensed hereunder), the party
controlling such patents covenants not to seek an injunction against
infringement or otherwise enforce such patents in a manner that would prevent
the other party or its affiliates or sublicensees from developing or
commercializing the relevant Product and will, upon request, negotiate a
commercially reasonable license to such patents.


3.7                       License Term.  The licenses granted under this Article 3
shall begin on the Effective Date and, unless earlier terminated in accordance
with the terms of this Agreement, shall end on the later of (i) the expiration
of the last to expire patent included in the Patents, or (ii) if all patents
listed in subpart (i) are found to be either invalid or unenforceable, ten (10)
years from the Effective Date (this time period being the “License Term”).


Article
4. Intellectual Property


4.1                       Ownership of Inventions and
Patents


4.1.1                        Rights to Pre-Existing
Inventions.  Nothing in this
Agreement shall be deemed to grant a license or any other right in any
inventions, technology, discoveries or other



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proprietary property (collective, “Inventions”) that were in existence
before the effective date of this Agreement except as specified in Article 3 or
this Article 4.


4.1.2                        Rights to Non-Mixed
Inventions.  Ercole shall own all
rights to any Inventions made under the R&D Plan which relate solely to the
Splicing Patents or are Covered solely by the Splicing Patents (each an “Ercole
Invention,” any patent claiming such an invention being an “Ercole Invention
Patent”).  AVI shall own all rights to
any Inventions made under the R&D Plan which relate solely to the AVI
Patents or are Covered solely by the AVI Patents (each an “AVI Invention,” any
patent claiming such an invention being an “AVI Invention Patent”).


4.1.3                        Rights to Mixed Inventions.  AVI and Ercole will jointly hold title to all
Inventions, whether or not patentable, that are made by either or both parties
under the R&D Plan that relate to or are Covered by both the AVI Patents
and the Splicing Patents (each a “Jointly Owned Invention”), as well as to any
Patents filed thereon (each a “Jointly Owned Invention Patent”).  AVI and Ercole will promptly provide each
other with notice whenever a Jointly Owned Invention is made or
identified.  The parties agree and
acknowledge that, except insofar as this Agreement provides otherwise, the
default rights conferred on joint owners under US patent law as of the
Effective Date, including the right of each party to independently practice,
license and use a joint patent, will apply in relation to the Jointly Owned
Invention Patents throughout the world as though US patent law applied
worldwide.


4.1.4                        Rights to Compound
Inventions.  Notwithstanding anything
else in this Article 4, any Invention of a Splicing Modulator or an analog
thereof or any Invention related to the use of such Splicing Modulator(s)
(either being a “Compound Invention”) which is related to the treatment of BT
and not to MD and that arises from activities under the R&D Plan shall be solely owned by Ercole.  All Compound Inventions related to the
treatment of MD and not to BT shall be solely owned by AVI.


4.1.5                        Cooperation. The parties
agree, upon reasonable request, to execute any documents reasonably necessary
to effect and perfect each other’s ownership of any Invention.


4.2                       Various Patent-Related
Matters


4.2.1                        Filing, Prosecution,
Enforcement, Maintenance and Defense of Patents.  AVI shall have the sole and exclusive right,
in its sole discretion and at its sole expense, to file, prosecute, maintain,
enforce and defend the AVI Patents and the AVI Invention Patents.  Ercole shall have the sole and exclusive
right, in its sole discretion and at its sole expense, to file, prosecute,
maintain, enforce and defend the Ercole Patents and the Ercole Invention
Patents.  Should a party (the “Pursuing
party”) pursuing such actions reasonably request the other party’s assistance
in such pursuit, such other party shall provide such assistance at the Pursuing
party’s expense.


4.2.2                        Disposition of Damages and
Monetary Awards.    In the event of
the successful enforcement of patents under Section 4.2.1, then each party
shall be entitled first to recover its expenses associated with the enforcement
action and the remaining



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proceeds shall be treated as proceeds from a sublicense and disbursed in
accordance with Section 5.2.


4.2.3                        Filing, Prosecution,
Enforcement, Maintenance and Defense of Jointly Owned Patents.  Ercole and AVI will, in good faith, negotiate
an appropriate arrangement for the use, prosecution, maintenance and
enforcement of any Jointly Owned Invention Patents.  Such arrangement shall address the
disposition of any damages or monetary awards resulting from any enforcement of
the Jointly Owned Patents.


4.3                       Third Party Patents.


4.3.1                        Notice and Control.  If either party becomes aware of a patent
assigned to a third party that includes one or more claims which could
potentially be infringed by activities conducted by either party under this
Agreement, it will immediately inform the other party, and representatives of
AVI and Ercole will meet to discuss whether any action is warranted and, if so,
possible courses of action.  If the third
party patent claim relates primarily to AVI technology, AVI will take the lead
in any negotiations or legal actions with the third party, taking into consideration
suggestions made by Ercole and Ercole’s counsel, and AVI shall have final say
in any settlement or business arrangement with the third party.  If the third party patent claim relates
primarily to Ercole technology, Ercole will take the lead in any negotiations
or legal actions with the third party, taking into consideration suggestions
made by AVI and AVI’s counsel, and Ercole shall have final say in any
settlement or business arrangement with the third party.   Each party will be responsible for its own
legal expenses related to such actions.


4.3.2                        New Third Party Royalty
Payments.  If any license agreement
or settlement is entered into pursuant to Section 4.3.1 that establishes a
royalty or other payment obligation to a third party on sales of Products, such
obligation will be equally shared by the parties as either Shared Costs or, if
commercial or sublicense proceeds are available, pursuant to Section 5.2(a).


Article
5. Commercialization and Compensation


5.1                       Commercialization.  The JSC shall be responsible for developing a
commercialization plan for the Products, it being understood that the parties
anticipate that a substantial portion of clinical development and
commercialization activities for Products will be conducted by one or more third
parties under sublicense(s) granted by one or both of the parties.  The parties shall cooperate and keep the JSC
fully informed regarding potential commercial sublicenses.  The JSC shall review any proposed grant to a
third party of commercial rights with respect to a Product.  In the event that the JSC is unable to reach
agreement regarding whether to grant a particular sublicense or the appropriate
terms thereof, if the arrangement relates solely or primarily



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to an MD Product for which an IND has been filed, then AVI shall have
the right to grant the license or sublicense in its discretion and if the
arrangement relates solely or primarily to a BT Product for which an IND has
been filed then Ercole shall have the right to grant the license or sublicense in
its discretion.


5.2                       Proceeds.  The parties intend for the net proceeds from
sublicensing and commercialization of Products to be divided equally between
the parties.   Accordingly, except as
provided in Section 2.7 related to a Product abandoned by a party, the proceeds
from any license or sublicense related to a Product shall be disbursed in the
following order:


(a)                                  to satisfy any
obligations under the AGDG Agreement, the Isis CLA, the UNC License or any
other bona fide obligation to a third party related to rights covered by the
sublicense;


(b)                                 to a party for
Compounded Disputed Costs that have accrued under Section 2.7 related to
Product(s) covered by that sublicense; and


(c)                                  to reimburse each
party for all Shared Costs incurred under this Agreement related to Product(s)
covered by that sublicense to the extent such costs have not previously been
reimbursed;  and


(d)                                 50% of the remaining
proceeds shall be paid to each party.


5.3                       Production. If Ercole
desires to make or have made any BT Product that involves the use of one or
more chemical compounds Covered by the AVI Patents, Ercole will so notify AVI, and Ercole and AVI will negotiate and execute
a supply agreement covering the manufacture of that particular compound to
support Ercole’s development and commercial needs (“Supply Plan”).  The supply agreement will provide for either:
a) the supply of material to Ercole by AVI (with financial terms for cost
recovery but no manufacturing margins); or b) the transfer of the manufacturing
process to a third-party reasonably acceptable to Ercole and AVI.


5.4                       Compensation Waiver.  The
parties acknowledge that the joint activities contemplated by this Agreement
involve substantial sharing of risk and that the collaboration contemplated by
this Agreement requires mutual trust and cooperation.  The parties further acknowledge that an
essential element of the collaboration is an agreement to respect the
intellectual property rights of the other party.  Accordingly, each party agrees that if it
directly or through a third party
contests the validity, scope or enforceability of any patent rights licensed or
sublicensed to it by the other party under this Agreement or assists any third
party in doing so, the party that engages in or assists in the conduct of such
contest or challenge (the “Challenging Party”): (i) irrevocably waives all
rights to any payment from the other party under this Agreement; (ii) agrees
that the other party may immediately terminate any and all licenses granted to
the Challenging Party under this Agreement or under any other agreement; (iii)
agrees to disburse all proceeds from any license or sublicense related to a
Product to the other party, after satisfying any third party obligations
pursuant to Section 5.2(a); and (iv) agrees to reimburse the other party for
all costs incurred in connection with the applicable legal proceedings.  In the event that all or any portion of this
Section 5.4 is



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invalid, illegal or unenforceable, then the
parties will use their best efforts to replace the invalid, illegal or
unenforceable provision(s) with valid, legal and enforceable provision(s)
which, insofar as practical, gives effect to the intent of this Section 5.4.


Article
6. Limited Exclusivity


From the Effective Date
until the termination of the R&D Plan, neither party shall engage in
research regarding or undertake development of a Product except in accordance
with this Agreement.   Except as
specified in this Article 6 and as provided for in the licenses granted under
Article 3, nothing in this Agreement shall be construed to prevent either party
from developing or commercializing any treatment for either MD or BT alone or
in collaboration with any third party.


Article
7. Confidentiality


7.1                       Nondisclosure Obligation. All Confidential Information disclosed by one
party to the other party hereunder will be maintained in confidence by the
receiving party and will not be disclosed to a third party or Affiliate or used
for any purpose except as set forth below.


7.2                       Permitted Disclosures.  Except
as otherwise provided herein, a party may disclose Confidential Information
received from the other party:


(a)                    to governmental or other regulatory
agencies in order to obtain Patents or approval to conduct clinical trials, or
to gain marketing approval; provided that such disclosure may be made only to
the extent reasonably necessary to obtain such patents or approvals;


(b)                   to Affiliates, sublicensees, agents,
consultants, and/or other third parties for the development, manufacturing
and/or marketing of the Product (or for such parties to determine their
interest in performing such activities) in accordance with this Agreement on
the condition that such Affiliates, sublicensees and third parties agree to be
bound by confidentiality obligations substantially similar to those contained
in this Agreement; or


(c)                    if such disclosure is required by law or
court order.


7.3                       Disclosure of This Agreement.  Either party may disclose (i) a copy of this
Agreement on a confidential basis to prospective investors or sublicensees and
(ii) a mutually agreed upon redacted copy of this Agreement on a confidential
basis to prospective collaborators.


Article
8. Publication and Publicity


8.1                       Publication of Clinical Trials and other Studies. Each party may publish such results obtained
from clinical trials and other studies of a Product as is customary in the
industry.



 11
 









8.2                       Publication of Results of the R&D Plan and
Product Details.  Except as provided otherwise herein, the
parties will be entitled to publish or present on the results of the R&D
Plan hereunder and any Product, provided that the party seeking to publish will
deliver to the other party for its review a copy of any proposed publication,
poster or an abstract of any oral presentation at scientific meetings involving
any Product hereunder, or the Confidential Information of the other party, at
least 45 days prior to submission of scientific publications or abstracts of
oral presentations.  The reviewing party
will have the right to request that any of its Confidential Information be
deleted from such publication or presentation, and the disclosing party will
comply with that request.  If the
disclosing party does not receive any feedback from the reviewing party within
that 45-day period, the disclosing party will be free to proceed with the publication
or presentation except that neither party may publish on the other party’s
Products without the prior written approval
of the other party, which may be given at that party’s sole discretion.


8.3                       Publicity.  Except as otherwise provided herein or
required by law, neither party will originate any publication, news release or
other public announcement, written or oral, whether in the public press, or
stockholders’ reports, or otherwise, relating to this Agreement or activities
conducted as part of the R&D Plan, and neither party will use the name,
trademark, trade name, logo or likeness of the other party or its employees in
any publicity, news release or disclosure relating to this Agreement, or its
subject matter, without the prior permission of the other party.   Notwithstanding the foregoing, a Continuing
Party may make such public disclosures as it deems appropriate related to the
Product without consent of the party that Opts Out with respect to that Product,
so long as such disclosure does not involve the trademark, trade name, logo or
likeness of the party that Opts Out.


8.4                       Quiet Period.  In the event that either party (the “Registering
Party”) seeks to register any of its securities with the Securities and
Exchange Commission, then upon the request of the Registering Party, the other
party shall refrain from identifying the Registering Party in any press
release, advertisement, speech or any other communication which might be deemed
a prospectus under Section 5(b) of the Securities Act of 1933 until such time
that the Registering party communicates to the other party that it has
registered such securities.


Article
9. Indemnification


9.1                       Indemnification by Ercole.  Ercole will indemnify, defend and hold AVI
and its agents, employees, officers and directors (the “AVI Indemnitees”)
harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorneys’ fees) arising out of third party claims or
suits related to (a) Ercole’s performance of its obligations under this
Agreement; or (b) breach by Ercole of its representations and warranties set
forth in Article 11;  provided, however,
that Ercole’s obligations pursuant to this Section 9.1 will not apply to the
extent such claims or suits result from (y) the gross negligence or willful
misconduct of any of the AVI Indemnitees or (z) a



 12
 









breach by AVI of its representations and warranties set forth in
Article 11. Ercole shall also indemnify AGDG to the extent required by the AGDG
Agreement.


9.2                       Indemnification by AVI.  AVI will indemnify, defend and hold Ercole
and its agents, employees, officers and directors (the “Ercole Indemnitees”)
harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorney’s fees) arising out of third party claims or
suits related to (a) AVI’s performance of its obligations under this Agreement;
or (b) breach by AVI of its representations and warranties set forth in Article
11; provided however, that AVI’s obligations pursuant to this Section 9.2 will
not apply to the extent that such claims or suits result from (y) the gross
negligence or willful misconduct of any of the Ercole Indemnitees or (z) a
breach by Ercole of its representations and warranties set forth in Article 11.   AVI shall also indemnify UNC and Isis to the
extent required by the UNC License or the Isis CLA, as the case may be.


9.3                       Notification of Claims;
Conditions to Indemnification Obligations. 
As a condition to a party’s right to receive indemnification under this
Article 9, it will (i) promptly notify the other party as soon as it becomes
aware of a claim or action for which indemnification may be sought pursuant to
this Article, (ii) cooperate with the indemnifying party in the defense of such
claim or suit, and (iii) permit the indemnifying party to control the defense
of such claim or suit, including without limitation the right to select defense
counsel. In no event, however, may the indemnifying party compromise or settle
any claim or suit in a manner which admits fault or negligence on the part of
the indemnified party without the prior written consent of the indemnified
party. The indemnifying party will have no liability under this Article 9 with
respect to claims or suits settled or compromised without its prior written consent.


Article
10. Term and Termination


10.1                 Termination
of Agreement. This Agreement shall
continue in full force and effect for the License Term unless terminated as set
forth in this Article 10.


10.2                 Termination upon Breach.  If one party is in breach of this Agreement
and has not cured such breach within ninety (90) days after receipt of written
notice requesting cure of the breach, then the non-breaching party may upon
written notice to the breaching party terminate the rights and licenses granted
hereunder to the breaching party.  In
such event, if Ercole is the terminating party, the rights and licenses granted
to Ercole with respect to BT Products shall remain exclusive, such that AVI
upon such termination grants to Ercole an exclusive, royalty-free (as to AVI),
worldwide license, with the right to sublicense, to practice AVI’s Patents as
described under Sections 3.1 and 3.2. In such event, if AVI is the terminating
party, the rights and licenses granted to AVI with respect to MD Products shall
remain exclusive, such that Ercole upon such termination grants to AVI an
exclusive, royalty-free (as to Ercole), worldwide license, with the right to
sublicense, to practice Ercole’s Patents as described under Sections 3.3 and
3.4.  Any royalty, milestone or other
payment obligations of the non-breaching party to the breaching party shall
cease as of the date of such termination except to the



 13
 









extent such payments are required under a third party license agreement
(e.g., the AGDG Agreement, the UNC License, the Isis CLA or a license entered
into pursuant to Section 4.3). 
Alternatively, if one party breaches this Agreement and such breach
jeopardizes the rights of the other party under a third party license agreement
(e.g., the AGDG Agreement, the UNC License, the Isis CLA or a license entered
into pursuant to Section 4.3), then the non-breaching party may, at its sole
discretion, elect in writing to terminate only those third party rights granted
to the other party hereunder, without terminating the remainder of this
Agreement.  In such instance, the
breaching party shall have only such cure rights as are expressly provided for
in the applicable third party license agreement.  For clarification, failure to pay undisputed
Shared Costs constitutes a breach of this Agreement, but Opting Out or
otherwise electing not to fund Shared Costs that are proposed but are not
agreed upon does not constitute a breach.


10.3                 Termination upon Bankruptcy; Rights
in Bankruptcy.  This Agreement may be
terminated with written notice by either party at any time during the License
Term upon the filing or institution of bankruptcy, reorganization, liquidation
or receivership proceedings by the other party or upon an assignment of a
substantial portion of the assets for the benefit of creditors by the other
party; provided, however, in the case of any involuntary bankruptcy proceeding
such right to terminate will only become effective if the party consents to the
involuntary bankruptcy or such proceeding is not dismissed within 90 days of the
filing thereof.


All rights and licenses
granted under or pursuant to this Agreement by AVI or Ercole are, and will
otherwise be deemed to be, for purposes of Section 365(n) of the U.S.
Bankruptcy Code, licenses of right to “intellectual property” as defined under
Section 101 of the U.S. Bankruptcy Code. The parties agree that the parties, as
licensees of such rights under this Agreement, will retain and may fully
exercise all of their rights and elections under the U.S. Bankruptcy Code.


10.4                 Accrued
Rights and Surviving Obligations.


10.4.1                  Surviving Obligations. 
Expiration or termination of the Agreement will not relieve the parties
of any obligation accruing prior to such expiration or termination, including,
but not limited to, Sections 1.6, 2.6 (relating to Shared Costs incurred prior
to termination), 2.7, 4.1, and Articles 7-14


10.4.2                  Sublicenses.  The rights of any sublicensee under any
permitted sublicense granted pursuant to Section 3.2 or 3.4 will survive the
termination of this Agreement to the extent provided in the sublicense, and the
licensor therein agrees to assign all such sublicenses to the other party
hereto.  All payments then or thereafter
due to such licensor from each surviving sublicense shall become owed directly
to the other party hereto; provided that such party shall remit to the other
party the amount by which any such payments exceed the corresponding amount
that would have been payable hereunder.



 14
 









Article
11. Representations and Warranties; Disclaimer


11.1                 Representations and Warranties of
Both parties.  Each party represents
and warrants to the other party that, as of the Effective Date:


(a)                    Such party is duly organized and validly
existing under the laws of the state of its incorporation and has full
corporate power and authority to enter into this Agreement and to carry out the
provisions hereof;


(b)                   Such party has taken all corporate action
necessary to authorize the execution and delivery of this Agreement and the
performance of its obligations under this Agreement;


(c)                    This Agreement is a legal and valid
obligation of such party, binding upon such party and enforceable against such
party in accordance with the terms of this Agreement.  The execution, delivery and performance of
this Agreement by such party does not conflict with any agreement, instrument
or understanding, oral or written, to which such party is a party or by which
such party may be bound, and does not violate any law or regulation of any
court, governmental body or administrative or other agency having authority
over such party. All consents, approvals and authorizations from all
governmental authorities or other third parties required to be obtained by such
party in connection with this Agreement have been obtained;


(d)                   Such party has the full and exclusive right,
power and authority to enter into this Agreement, to perform its obligations
under this Agreement (including the R&D Plan) and to grant the licenses
granted hereunder;


11.2                 Representations and Warranties of
Ercole.  Ercole represents and
warrants that, as of the date of this Agreement:


(a)                    Other than the Isis CLA and that UNC
License, there are no agreements between Ercole and any third parties which
would preclude or otherwise limit its ability to conduct its tasks and
obligations under the R&D Plan or otherwise fulfill its obligations under
this Agreement;


(b)                   The Isis CLA and the UNC License are in
full force and effect, and the copies attached in the First Collaboration
Agreement are accurate and complete.


(c)                    Ercole shall not amend the Isis CLA or
UNC License in a way that would adversely affect the rights of AVI hereunder to
practice the sublicensed technology without AVI’s express written consent.


11.3                 Representations and Warranties of
AVI.  AVI represents and warrants
that, as of the date of this Agreement:


(a)                    Other than the AGDG Agreement, there are
no agreements between AVI and any third parties which would preclude or
otherwise limit AVI’s ability to conduct its tasks and obligations under the
R&D Plan or otherwise fulfill its obligations under this Agreement;


(b)                   The AGDG Agreement is in full force and
effect, and the copy attached in the First Collaboration Agreement is accurate
and complete. AVI may not amend the AGDG Agreement in a way that would
adversely affect the rights of Ercole hereunder to practice the sublicensed
technology without Ercole’s express written consent.



 15
 









(c)                    AVI expressly acknowledges the
limitations and restrictions that apply to sublicensees under the UNC License
and Isis CLA and warrants that it will adhere to such limitations and
restrictions.


11.4                 Disclaimers.


THE
SPLICING MODULATORS AND SERVICES PROVIED UNDER THE R&D PLAN ARE PROVIDED “AS
IS” AND WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR
ANY PARTICULAR PURPOSE OR ANY WARRANTY THAT THE USE OF THE MATERIALS WILL NOT
INFRINGE OR VIOLATE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.


THE
PARTIES EXPRESSLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR NON-INFRINGEMENT OF THIRD PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY
PROVIDED IN THIS AGREEMENT.


Article
12. Notice


All
notices which are required or permitted hereunder will be in writing and
sufficient if delivered personally, sent by facsimile (and promptly confirmed
by personal delivery, registered or certified mail or overnight courier), sent
by nationally-recognized overnight courier or sent by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:


if to AVI,
to:


One S.W. Columbia,
Suite 1105


Portland OR 97258


Attention:  President


Fax No: 503-227-0751


if to
Ercole, to:


PO Box 12295


Research Triangle
Park, NC 27709


Attention:  CEO


Fax
No:  617-245-9757 


with a copy to:


Hutchison Law Group PLLC


5410 Trinity Road, Suite 400


Raleigh, North Carolina  27607


Attn:  William N. Wofford


Fax No:  1
(919) 829 9696


or
to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any such notice
will be deemed to have been given when delivered if personally delivered or
sent by facsimile on a business day,



 16
 









on
the business day after dispatch if sent by nationally-recognized overnight
courier and on the third business day following the date of mailing if sent by
mail.


Article
13. Records


Each
party will maintain records, in sufficient detail and in good scientific
manner, which will fully and properly reflect all work done and results
achieved in the performance of its responsibilities under the R&D Plan
hereunder.  Each party will have the
right, during normal business hours and upon reasonable prior notice, to
inspect and copy those records of the other party referred to herein that are
necessary or useful to the inspecting party for the purposes of making any
required filings with Regulatory Authorities in order to obtain manufacturing
approvals and/or marketing approvals. Each party will maintain such records and
the information disclosed therein in confidence in accordance with Article 7.


Article
14. Miscellaneous Provisions


14.1                 Relationship
of the parties. It is expressly agreed
that AVI and Ercole will be independent contractors and that the relationship
between the two parties will not constitute a partnership, joint venture or
agency. Neither AVI nor Ercole will have the authority to make any statements,
representations or commitments of any kind, or to take any action, which will
be binding on the other, without the prior consent of the other party.


14.2                 Successors
and Assigns.  Neither this Agreement
nor any interest hereunder may be assigned
or otherwise transferred, nor, except as expressly provided hereunder, may any
right or obligations hereunder be assigned or transferred by either party
without the prior written consent of the other party; provided, however, that
either party may, without such consent, assign the Agreement and its rights and
obligations hereunder to an Affiliate or in connection with the transfer or
sale of all or substantially all of its business to which this Agreement
relates (whether by sale of stock, sale of assets or merger).  Any permitted assignee will assume all
obligations of its assignor under the Agreement.  This Agreement will be binding upon
the successors and permitted assigns of the parties.  Any
attempted assignment not in accordance with this Section 14.2 will be void. For
clarification, in no event will any proper assignment or other transfer of this
Agreement cause an increase in the obligations of the assigning party or its
successor or assign (e.g., no intellectual property rights owned or controlled
by such successor or assign shall be licensed or assigned under this Agreement
except as expressly provided for in Section3.6).


14.3                 Entire Agreement; Amendments. This Agreement contains the entire understanding
of the parties with respect to the license and development of Products
hereunder. All express or implied agreements and understandings, either oral or
written, heretofore made by the parties on the same subject matter are
expressly superseded by this Agreement. The Agreement may be amended, or any
term hereof modified, only by a written instrument duly executed by both
parties hereto. This Agreement shall not be



 17
 









deemed to amend or terminate the First
Collaboration Agreement, but in the event of any conflict related to a MD
Product or a BT Product between this Agreement and the First Collaboration
Agreement, this Agreement shall prevail.


14.4                 Force
Majeure.  Neither party will be held liable or responsible to the other party nor
be deemed to have defaulted under or breached the Agreement for failure or
delay in fulfilling or performing any term of the Agreement when such failure
or delay is caused by or results from causes beyond the reasonable control of
the affected party including, without limitation, embargoes, acts of war
(whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, or acts of nature. The affected
party will notify the other party of such force majeure circumstances as soon
as reasonably practical and will make every reasonable effort to mitigate the
effects of such force majeure circumstances.


14.5                 Applicable Law.
The Agreement will be governed by and
construed in accordance with the laws of the State of Delaware without regard to its conflicts of law
principles.


14.6                 Dispute Resolution.


14.6.1                  The parties recognize
that disputes may from time to time arise between the parties during the term of
this Agreement.  The parties agree to
follow the dispute resolution mechanisms provided for in Sections 1.1 and
1.4.  In the event that such procedures
do not resolve the dispute, either party, by written notice to the other party,
may refer such dispute to the parties’ respective executive officers designated
below, for attempted resolution by good faith negotiations within 30 days after
such notice is received.  Said executive
officers are as follows:


	
  

  	
  For AVI:

  	
  President

  
	
   

  	
  For Ercole:

  	
  Chief Executive Officer

  



 


14.6.2  If the
executives are not able to resolve the dispute within thirty (30) days of their
first meeting or within such extended period as they agree upon, either party
may submit the matter to binding arbitration in accordance with this Section
14.6.2.  Except as specified below, the
arbitration shall be conducted in accordance with the rules of, and under the
auspices of, the American Arbitration Association (the “AAA”).  The arbitration will be conducted by a single
independent arbitrator with relevant technical expertise who is selected by the
AAA administrator.  If Ercole is the
claimant, the location of the arbitration shall be in Portland, Oregon and if
AVI is the claimant, the location of the arbitration shall be in Raleigh, North
Carolina. This Agreement shall remain in effect pending completion of the
proceedings brought under this Section. 
Within ten (10) business days after the arbitrator is selected, each
party shall submit to the arbitrator that party’s proposed resolution of the
dispute and justification therefor.  All
arbitration proceedings must be completed within 30 days after the arbitration
is convened.  The parties hereby agree
that the arbitrator has authority to issue rulings and orders regarding all procedural and evidentiary matters
that the arbitrator deems reasonable and necessary with or without petition
therefor by the parties as well as the final ruling and judgment.  Rulings shall be issued by written



 18
 









order summarizing the
arbitration proceedings.  Any judgment or
award by the arbitrator in any dispute shall have the same force and effect as
the final judgment of a court of competent jurisdiction.  Nothing in this arbitration clause shall
prevent either party from seeking a pre-award attachment of assets or
preliminary relief to enforce its rights in intellectual property or
confidentiality obligations under this Agreement, or to enjoin any event that
might cause irreparable injury, in a court of competent jurisdiction prior to
an award on the merits by the arbitrator.


14.7                 No Consequential Damages.


IN NO EVENT WILL EITHER
PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY
OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE,
INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF
CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES.  


Notwithstanding
the foregoing, if Ercole materially breaches its obligations with respect to
the AGDG Agreement, then Ercole may be liable for damages arising as a
consequence of such breach and if AVI materially breaches its obligations with
respect to the UNC License or the Isis CLA, then AVI may be liable for damages
arising as a consequence of such breach.


14.8                 Captions.  The
underlined captions to the various Articles, Sections and Subsections hereof
are not a part of the Agreement, but are provided as a convenience to assist in
locating and reading parts of the Agreement.


14.9                 Waiver.  The
waiver by either party of any right under this Agreement, or the failure to
perform, or a breach by the other party will not be deemed a waiver of any
other right under this Agreement or of any other breach or failure by said
other party whether of a similar nature or otherwise.


14.10           Compliance with Law.  Nothing in this Agreement will be deemed to
permit a party to export, re-export or otherwise transfer any Product sold
under this Agreement without compliance with applicable laws.


14.11           Severability.  In the
event any one or more of the provisions contained in this Agreement should be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein will not in any
way be affected or impaired thereby, unless the absence of the invalidated
provision(s) adversely affect the substantive rights of the parties. The
parties will in such an instance use their best efforts to replace the invalid,
illegal or unenforceable provision(s) with valid, legal and enforceable
provision(s) which, insofar as practical, maintains the balance of the rights
and obligations of the parties under this Agreement.


14.12           Construction.  Each party has had the opportunity
to consult with counsel in connection with the review, drafting and negotiation
of this Agreement. Accordingly, the rule of construction that any ambiguity in
this Agreement will be construed against the drafting party will not apply.



 19
 









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


In
witness whereof, the parties have executed this Agreement as of the Effective
Date.


	
  Ercole Biotech, Inc.

  	
  AVI BioPharma, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
										



 



 20















Exhibit 1. Definitions


AGDG Agreement means that certain agreement between
AVI and Anti-Gene Development Group effective May 19, 1993 and amended in
March, 2000.


Affiliate                              with respect
to either party means any person, organization, corporation or other business
entity (collectively, “Person”) controlling, controlled by, or under common
control with such party.  For purposes of
this definition, “control” refers to the possession, directly or indirectly, of
the power to direct the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, of a Person.


AVI Invention has the meaning
set forth in Section 4.1.2.


AVI Invention Patent has the meaning set forth in Section 4.1.2.


AVI Patents means the Patents
listed in Exhibit 4.


BT Product means (I) a
product that includes a Compound Invention owned by Ercole under Section 4.1.4
or (II) any product that meets all of the following criteria: (a) it is
designed, intended or labeled for the treatment of thalassemia in humans; (b)
it is discovered or developed with the use of any of the inventions Covered by
claims in the Splicing Patent; and (c) it involves the use of one or more
chemical compounds Covered by the AVI Patents.


Confidential Information means
information which is (a) of a confidential and proprietary nature; and (b) not
readily available to that party’s competitors and which, if known by a
competitor of that party, might lessen any competitive advantage of that party
or give such competitor a competitive advantage.


For the purposes
of this Agreement, “Confidential Information” includes, without limitation, (a)
information that is proprietary or confidential or which is treated by that
party as confidential and which relates either directly or indirectly to the
business of that party regardless of the form in which that information is
constituted, and which is not lawfully in the public domain; and (b) any
confidential information in relation to Patents, technology, know-how, or any
improvements owned or controlled by a party hereto.


“Confidential
Information” will not include any information that the receiving party can
establish by written records: (i) was known by it prior to the receipt of
Confidential Information from the disclosing party; (ii) was disclosed to the
receiving party by a third party having the right to do so; (iii) was, or
subsequently became, in the public domain through no fault of the receiving
party, its officers, directors, employees or agents; (iv) was concurrently or
subsequently developed by personnel of the receiving party without having had
access to the disclosing party’s Confidential Information; (v) was disclosed
with the prior written consent of the disclosing party; or (vi) was disclosed
by the receiving party pursuant to any judicial or governmental request,
requirement or order.


Covered, Covering or Cover mean
any process, method, organism or part thereof, composition of matter,
biological compound or part thereof which when made, used, practiced or



 21
 









sold would, but for the applicable license granted
pursuant to this Agreement constitute an infringement of any Valid Claim, or
Claims, in the referenced Patent.


Direct Development Costs means, on a
cash basis, the following costs incurred by either party with respect to an MD
Product or a BT Product after such Product has been designated as an IND
Candidate:  (a) direct costs of labor
(including only salaries, wages and current period employee benefits (but
specifically excluding expenses associated with stock options or other equity-based
or deferred compensation)), raw materials, supplies, services, fees, and other
resources, directly and exclusively consumed or used in the conduct of the
applicable activity, (b) payments required to be made by either party under a
third party license agreement (e.g., the AGDG Agreement, the UNC License, the
Isis CLA or a license entered into pursuant to Section 4.3); provided, however,
that the following costs shall not be deemed Direct Development Costs:
(i) corporate overhead expenses, including, but not limited to, general
administration, business development, travel, entertainment, executive
management, facilities, finance, information system and data management
services, investor relations, human resources, legal, payroll, purchasing, and corporate
supervisory services; (ii) amortization and depreciation expenses, interest
expenses, taxes, extraordinary or nonrecurring losses customarily deducted by a
party in calculating and reporting consolidated net income and capital
expenditures (including, but not limited to, purchases of facilities, property
or equipment), and inventory write-offs (to the extent not attributable to a
Product); (iii) consulting (including legal) fees unless set forth in a
mutually approved budget; (iv) costs to prosecute or maintain patent rights;
and (v) payments made to any related party or Affiliates unless set forth in a
mutually approved budget.  For
clarification, if a party incurs costs that are reimbursed or otherwise paid for
by a third party (e.g., by a governmental grant), such costs shall not
constitute Direct Development Costs.


Ercole Invention has the meaning
set forth in Section 4.1.2.


Ercole Invention Patent has the
meaning set forth in Section 4.1.2.


Ercole Splicing Patents means the
Patents listed in Exhibit 2.


Invention                       has the
meaning set forth in Section 4.1.1 herein.


Isis CLA                            means that
certain Collaboration and License Agreement between Ercole and Isis
Pharmaceuticals effective May 16, 2003, as amended.


Isis Splicing Patents shall mean
the Patents listed in Exhibit 3.


Jointly Owned Invention has the
meaning set forth in Section4.1.3.


Jointly Owned Invention Patent has the
meaning set forth in Section Error! Reference
source not found.4.1.3.


License Term                     has the
meaning set forth in Section 3.7.


MD Product means (I) a
product that includes a Compound Invention owned by AVI under Section 4.1.4 or
(II) any product that meets all of the following criteria: (a) it is designed,
intended or labeled for the treatment of muscular dystrophy in humans; (b) it is
discovered or developed with the use of any of the inventions Covered by claims




 22
 









in
the Splicing Patent; and (c) it involves the use of one or more chemical
compounds Covered by the AVI Patents.


Net Sales                           means the
gross amount invoiced for sales, leases and other dispositions of Products by a
Party, its Affiliates, and sublicensees, to an independent Third Party in an
arms-length transaction,  less: (a)
trade, quantity and cash discounts allowed; (b) discounts, refunds, rebates,
chargebacks, retroactive price adjustments, and any other allowances which
effectively reduce the net selling price; (c) credits for actual Product
returns; (d) any tax imposed on the production, sale, delivery or use of the
Product, including, without limitation, sales, use, excise or value added
taxes; (e) allowance for bad debt expense that are more than ninety (90) days
old and that the party reasonably believes are uncollectible.


“Net Sales” excludes: (i) the transfer of reasonable
and customary quantities of free samples of Product(s) and the transfer of
Product(s) as clinical trial materials, other than for subsequent resale; (ii)
sales or transfers of Product(s) among Ercole or AVI and their respective
Affiliates, unless the receiving Party is the consumer or user of the Product;
and (iii) use by Ercole or AVI or their respective Affiliates or sublicensees
of Product for any use connected with the securing of regulatory approval or
validating of a manufacturing process or the obtaining of other necessary
approvals for Product (unless such Product is subsequently sold).


Notwithstanding the foregoing, if (i) royalties are
payable by AVI or Ercole under a third party license agreement (e.g., the AGDG
Agreement, the UNC License, the Isis CLA or a license entered into pursuant to
Section 4.3)_and  (ii) Net Sales are
required to be calculated differently under such agreement, then, the Parties
will use the definition described in the third party license for the
calculation of royalties hereunder.


Outside Research Costs means, on a cash
basis, the following costs incurred by either party with respect to an MD
Product or a BT Product after the Effective Date and before such Product has
been designated as an IND Candidate:  (a)
payments made to third parties to engage in pre-clinical research or regulatory
consulting related to such Product, and (b) payments required to be made by
either party under a third party license agreement (e.g., the AGDG Agreement,
the UNC License, the Isis CLA or a license entered into pursuant to Section 4.3);
provided, however, that the following costs shall not be deemed Outside
Research Costs: (i) consulting (including legal) fees unless set forth in a
mutually approved budget; and (ii) payments made to any related party or
Affiliates unless set forth in a mutually approved budget.  For clarification, if a party incurs costs
that are reimbursed or otherwise paid for by a third party (e.g., by a
governmental grant), such costs shall not constitute Outside Research Costs.


Patent or Patents means the AVI Patents, Isis
Patents, UNC Patents, AVI Invention Patents, and Ercole Invention Patents,
together with any (a) patent applications (including provisional
applications) included therein; (b) any patents issuing from such patent
applications; (c) any continuations-in-part, but only to the extent that they
Cover the same invention claimed in the foregoing, (d) all patents and
patent applications



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worldwide
based on, corresponding to, or claiming the priority date(s) of any of the
foregoing; (e) any reissues, substitutions, confirmations, registrations,
validations, re-examinations, additions, continuations, continued prosecution
applications, requests for continued examination, or divisions of or to any of
the foregoing; and (f) term extension or other governmental action which
provide exclusive rights to a Product beyond the original patent expiration
date.


Product                                means the BT
Product or the MD Product, or both.


Splicing Modulator  means an oligonucleotide or analog thereof
that selectively modulates RNA Splicing or polyadenylation by a non-Rnase
dependent mechanism at the nucleic acid level by specifically binding to the
sequence of a selected messenger or viral ribonucleic acid (RNA) by
base-pairing, thus causing a selective pattern of gene expression.


Splicing Patents means the
Isis Splicing Patents and the Ercole Splicing Patents.


UNC License means that certain
License Agreement between Ercole and The University of North Carolina at Chapel
Hill effective October 15, 2001, as amended.


Valid Claim
means a claim of an issued patent or pending patent
application included within the Patents, which claim has not (a) lapsed, been canceled or become
abandoned, (b) been declared invalid or unenforceable by a non-appealable
decision or judgment of a court or other appropriate body or authority of
competent jurisdiction, or (c) been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.



 24
 









Exhibit 2. Ercole
Splicing Patents


[Redacted]



 25
 









Exhibit 3. Isis
Splicing Patents


Isis Splicing Patents


[Redacted]



 26
 









Exhibit
4.  AVI Patents


[Redacted]



 27