Exhibit 10.56


Portions
of this document have been redacted. 
Redacted sections marked with “*****.”


COLLABORATION
AND LICENSE AGREEMENT


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 79 TW Alexander Dr., Bldg 4401, Suite 200, Research Triangle Park, NC 27709
(“Ercole”) is entered into and made
effective this 19th day of December 2006 (the “Effective
Date”).


OVERVIEW


Collaboration and Cross Licenses


AVI owns or controls certain patents related to morpholino
chemistry (the “AVI Patents”), 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
5) 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
wish to collaborate in the areas of drug discovery and medicinal chemistry, as
further described below and in the Research Plan. Each Party will choose a
fixed pool of exclusive Gene Targets for their research and development efforts
and will receive an exclusive license to practice under specified patents owned
or controlled by the other Party to discover and develop Products that modify
such exclusive Gene Targets (either “Ercole-AVI Exclusive Products” or “AVI
Exclusive Products,” each as further defined below). In exchange for these
exclusive licenses and the contribution of each Party to the other Party’s
efforts to develop Splicing Modulators, each Party will pay royalties and
milestones on the development and sale of Products.


Ercole and AVI will
design and identify morpholino and morpholino peptide conjugate splice
switching oligomers that modulate the splicing of Ercole-AVI Exclusive Targets
and the AVI Exclusive Targets.  For each
Ercole-AVI Exclusive Target, AVI will provide Splicing Modulators to be tested
for their ability to modulate splicing.


Ercole will
collaborate with AVI regarding AVI Exclusive Target drug discovery and
development as requested by AVI, including but not limited to: compound
identification, mRNA binding locations, in vitro assays and preclinical
testing.











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.               COLLABORATIVE
RESEARCH PLAN


1.1  General; Collaboration Term.


(a)                                  Ercole and AVI will work together under the
direction of the Steering Committee to execute the Research Plan to develop
Splicing Modulators.


(b)                                 The
Collaboration Term will begin on the Effective Date and will continue for three
(3) years unless earlier terminated due to termination of the Agreement under
Sections 8.2 or 8.3, or unless terminated or extended upon mutual agreement of
the Parties. Expiration or earlier termination of the Collaboration will not
affect the other provisions of this Agreement.


1.2  Targets: 
General.


Ercole and AVI will each select ***** exclusive Gene Targets
(“Exclusive Targets”) for their research and development efforts. The Exclusive
Targets selected by Ercole will be “Ercole-AVI Exclusive Targets” hereunder and
will be designated Ercole Exclusive Targets under the Isis CLA.  The Exclusive Targets selected by AVI will be
“AVI Exclusive Targets” hereunder and will also be designated Ercole Exclusive
Targets under the Isis CLA.  Exhibit 2
hereto contains a list of the initial Ercole-AVI Exclusive Targets and, subject
to the Isis CLA, the initial AVI Exclusive Targets as of the Effective Date.
Promptly following the Effective Date, Ercole will propose the initial AVI
Exclusive Targets as “Ercole Exclusive Targets” under the Isis CLA in
accordance with the procedures provided for in Article 1 of the Isis CLA and
will cooperate with AVI to select a replacement in the event that any such
proposed target is rejected by Isis. 
Gene Targets may be added to and removed from Exhibit 2 in
accordance with the terms of this Section and Section 1.3.


1.3  Targets: 
Designation, Approval and Replacement.


(a)                                  Number of Exclusive Targets. 
Pursuant to Section 1.3(b), each Party may increase its respective Gene
Target limit beyond the initial ***** Gene Targets by paying ***** per each
additional Gene Target. Subject to the Isis CLA, if AVI desires to increase its
Gene Target limit, it will pay Ercole ***** for each additional Gene Target,
which Ercole will pay to Isis in order to designate the additional Gene Target
as an Ercole Exclusive Target under the Isis CLA. If Ercole desires to increase
its Gene Target limit, Ercole will pay Isis as required by the Isis CLA for
each additional Gene Target in order to designate the additional Gene Target as
an Ercole Exclusive Target under the Isis CLA.


(b)                                 Exclusive Target Substitutions or
Additions.  The Parties will designate any additional or
substitute Exclusive Targets as follows:











(1)           Target
Request.  The Party who wishes to
designate a new Gene Target as one of its Exclusive Targets (the “Requesting
Party”) will provide the other Party (the “Reviewing Party”) with written
notice (the “Request Notice”) of the Gene Target it wishes to designate as an
Exclusive Target (the “Proposed Exclusive Target”).  The Request Notice will include the gene name
and the NCBI accession number, ENSEMBL number or nucleic acid sequence for the
Proposed Exclusive Target.


(2)           Target Review.  Within thirty (30) days of receiving the
Request Notice, the Reviewing Party will notify the Requesting Party in good
faith and in writing regarding (A) whether the Proposed Exclusive Target is
subject to the Reviewing Party’s own Active Program and (B) the nature of any
contractual obligations to a Third Party, including under the Isis CLA, in
effect at the time of the Request Notice that would preclude the Reviewing
Party from granting a license under Section 2 or collaborating with the
Requesting Party with respect to the Proposed Exclusive Target (the “Review
Notice”).


(3)           Target Rejection due to Active
Program.  If the Proposed Exclusive
Target is subject to the Reviewing Party’s own Active Program, the Proposed
Exclusive Target will be rejected and will not become an Exclusive Target of
the Requesting Party. If the Proposed Exclusive Target is not rejected under
this subsection (3), the Proposed Exclusive Target will become an Exclusive
Target of the Requesting Party and will be added to the Requesting Party’s list
of Exclusive Targets on Exhibit 2.


(4)           Target Acceptance; Limitations.  If the Proposed Exclusive Target is subject
to contractual limitations as identified in the Review Notice under Section
1.3(b)(2), then within fifteen (15) days of receiving the Review Notice, the
Requesting Party must notify the Reviewing Party whether or not it accepts the
Proposed Exclusive Target subject to the contractual limitations set forth in
the Review Notice.  If the Requesting
Party accepts the Proposed Exclusive Target, then the accepted Proposed
Exclusive Target will become an Exclusive Target of the Requesting Party and
will be added to the Requesting Party’s list of Exclusive Targets on Exhibit
2; provided, however that, with respect to
such accepted Exclusive Target, the licenses granted under Section 2 below will
be limited as described in the Review Notice.


(c)   Exclusive Target Removal.


(1)           After the Effective Date, a Party may
remove Gene Targets from its list of Exclusive Targets on Exhibit 2, by
(i) providing the other Party written notice of its election to do so and (ii)
updating the list on Exhibit 2 to remove the Gene Target; provided, however, that each Party may only remove up to
***** Gene Targets from its list of Exclusive Targets in any six month
period.  In addition, once a Party
removes a Gene Target from its list of Exclusive Targets, such Party cannot
attempt to re-designate the removed Gene Target as an Exclusive Target until
two years have passed from the date such Gene Target was removed other than by operation
of Section 1.3(b)(3).


(2)           The
Parties shall use commercially reasonable efforts to develop and commercialize
Products against each of its Exclusive Targets. If a Party is not making











such an effort, it must provide a
sufficient written justification to the other Party or enter into discussions
with the other Party, if requested, regarding surrender of its license
hereunder to such Exclusive Targets.


1.4  Collaborative Research Plan.


General Overview.  Ercole and AVI will identify and develop Splicing Modulators that modulate the
splicing of Ercole-AVI Exclusive Targets and AVI Exclusive Targets, as more
specifically described in the Research Plan. All data and information generated
as a result of either Party’s identification of Splicing Modulators that
modulate the splicing of Ercole-AVI Exclusive Targets shall be owned by Ercole.
All data and information generated as a result of either Party’s identification
of Splicing Modulators that modulate the splicing of AVI Exclusive Targets
shall be owned by AVI. Ownership of Splicing Modulators and any resultant
patents will be determined pursuant to Section 4.1(d).


1.5  Steering Committee.


(a)           Members. The
Parties shall establish a Steering Committee within thirty (30) calendar days
from the Effective Date. The Steering Committee will be the key management,
decision making and liaison body in relation to the Research Plan and shall:


(i)            consist of two (2)
representatives of Ercole and two (2) representatives of AVI, as notified by
such Party to the other Party from time to time in writing. Each representative
of a Party shall have one vote;


(ii)           be chaired by a
representative chosen by AVI;


(iii)          hold meetings in
person or over the telephone as frequently as the members of the Steering
Committee may agree shall be necessary during the period of the Research
Program or more frequently upon the reasonable request of either Party but in
no event less than once every six (6) months. Dates of meetings to be held in
person shall be agreed by the Parties not less than thirty (30) days
beforehand. Responsibility for arranging the meetings, including providing
notice and an agenda shall rest with the chairman;


(iv)          appoint a secretary
who shall be responsible for sending draft minutes of each meeting without
undue delay (but in no event more than thirty (30) days after the applicable
meeting).


(b)           Duties. The
Steering Committee shall be in charge of the matters described below:


(i)            managing, reviewing
and/or amending the Research Plan, provided however, that the Steering
Committee shall have no authority to decide any substantial change in the scope
of the Research Plan which would materially increase the costs thereof. Such
change shall require a written agreement between the Parties;











(ii)           managing, reviewing
and/or amending the development plan for each AVI Exclusive Product until an
IND is filed, after which time the Steering Committee will no longer have
oversight responsibility for that AVI Exclusive Product;


(iii)          managing, reviewing
and/or amending the development plan for each Ercole-AVI Exclusive Product
until an IND is filed, after which time the Steering Committee will no longer
have oversight responsibility for that Ercole-AVI Exclusive Product;


(iv)          making proposals to
the Parties to review and approve regarding amendment of the terms of this
Agreement;


(v)           shall perform such
other functions and responsibilities as are given to it under the express
provisions of this Agreement or as it shall determine for the purpose of
performing the duties set forth above.


(c)   Operation.


(i)            The
Steering Committee shall form a quorum when two (2) representatives of each
Party are present. Decisions of the Steering Committee require unanimous
consent. If any issue is unresolved after formal consideration by the Steering
Committee, either Party may by written notice to the other refer that issue for
dispute resolution pursuant to Section 12.6.


(ii)           For
the avoidance of doubt, notwithstanding any failure of the Steering Committee
and/or the respective officers of each Party to reach an agreement pursuant to
Section 12.6, and until such disagreement is finally resolved, the provisions
of this Agreement shall continue to be in full force and effect and the Parties
shall be obligated to perform their respective obligations and be entitled to
their respective rights under this Agreement.


(iii)          Each
Party shall be responsible for its own expenses incurred in connection with
Steering Committee meetings. The location of the meetings of Steering Committee
shall alternate at sites selected by each Party. Unless one Party objects in
writing, the Steering Committee may conduct their meetings via teleconference
or videoconference.


Article 2.               License Grants and Other Rights


2.1  License
Term.  As used herein,
“License Term” shall begin on the Effective Date and, unless earlier terminated
as herein provided, shall end on the later of (i) the expiration of the last to
expire patent included in the Patents, or (ii) if all the patents listed in
subpart (i) are found to be either invalid or unenforceable, ten (10) years
from the Effective Date.


2.2  AVI
License Grants. 
Subject to the AGDG Agreement and the limitations set forth in Section
1.3(b)(4) and termination provisions set forth in Sections 2.2(b) below, AVI
grants Ercole the following licenses:











(a)                                  License
Grants. AVI grants Ercole an exclusive worldwide license to the AVI Patents
solely to research, develop, offer for sale, sell, import and export Ercole-AVI
Exclusive Products.


(b)                                 Termination
of Licenses.  The licenses granted
under Section 2.2(a) shall automatically terminate with respect to any
Ercole-AVI Exclusive Target which has been removed from the Ercole-AVI
Exclusive Targets pursuant to Section 1.3(c).


2.3  Sublicenses Under AVI Patent Rights.


(a)                                  Subject to the terms and conditions of this
Agreement and during the License Term, Ercole will have the right to grant
sublicenses under the licenses from AVI set forth in Section 2.2 to Third
Parties solely for the purposes of enabling
such Third Party to discover, develop and commercialize Ercole-AVI Exclusive
Products.


(b)                                 Any
sublicense granted by Ercole under this Agreement is subject to and will be
consistent with the terms and conditions of this Agreement.  The grant of any such sublicense hereunder
will not relieve Ercole of its obligations under this Agreement. Ercole will
promptly notify AVI of all sublicenses granted by Ercole, as well as
sublicensee contact information.


(c)                                  In the event of a material default by any
sublicensee under an Ercole sublicense, Ercole will (i) inform AVI, (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.


2.4  Ercole License Grants.
Subject to the UNC License and Isis CLA and the limitation set forth in Section
1.3(b)(4), Ercole grants AVI the following licenses:


(a)                                  License
Grants. Ercole grants to AVI an exclusive worldwide license to the Splicing
Patents solely to research, develop, make and have made, offer for sale, sell,
import and export AVI Exclusive Products.


(b)                                 Termination
of Licenses.  The licenses granted
under Section 2.4(a) shall automatically terminate with respect to any AVI
Exclusive Target which has been removed from the AVI Exclusive Targets pursuant
to Section 1.3(c).


2.5  Sublicenses Under Splicing Patents.


(a)                                  Subject to the terms and conditions of
this Agreement and during the License Term, AVI 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 AVI Exclusive Products.


(b)                                 Any sublicense granted by AVI under this
Agreement is 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 be permitted to grant any sublicenses
to an AVI Exclusive Product until an IND has been submitted for that AVI
Exclusive Product. The grant of any such sublicense hereunder will not relieve
AVI of its obligations under this Agreement. AVI will promptly notify Ercole of
all sublicenses granted by AVI, as well as sublicensee contact information.


(c)                                  In the event of a material default by any
sublicensee under an AVI sublicense, AVI will (i) hold Ercole harmless and (ii)
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 sublicensee
promptly to cure the default and terminating the sublicense.


2.6  Other
Rights.


If the sale or use of a
Product that bears a royalty payable to the other Party under this 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.


Article 3.               ROYALTIES
AND PAYMENTS


3.1  Royalties Payable to AVI by Ercole on Sales of
Products by Ercole.


(a)           Ercole-AVI Exclusive
Products.  The royalty payable
to AVI by Ercole for sales by Ercole, its Affiliates or sublicensees of any
Ercole-AVI Exclusive Products shall be equal to ***** percent of Net Sales plus
an amount equal to the royalty payable by AVI under the AGDG Agreement as a
result of the sale of such Ercole-AVI Exclusive Products, provided that in no
event shall Ercole be responsible for royalties payable under the AGDG
Agreement in excess of the amounts specified in this subsection 3.1(a).  Royalties shall be payable on a
country-by-country basis until the later of expiration of the AVI Patents and
Ercole Invention Patents Covering a particular Ercole-AVI Exclusive Product or
the tenth anniversary of first commercial sale (the “AVI Royalty Period”) of such Ercole-AVI
Exclusive Product. On a country-by-country basis, if the last AVI Patent and
Ercole Invention Patent Covering a particular Ercole-AVI Exclusive Product
expires prior to the tenth anniversary of first commercial sale of such
Ercole-AVI Exclusive Product, then the applicable royalty shall be reduced by
***** percent for the remainder of the AVI Royalty Period.  As of the
Effective Date, the applicable royalty rate payable under the AGDG Agreement on
Ercole-AVI Exclusive Products is ***** percent ***** of Net Sales once
cumulative net sales of “Therapeutic Products” (as defined in the AGDG
Agreement) by AVI and its licensees exceed ***** dollars *****. Ercole’s
royalty payment obligation will be reduced by the amount of any future
reduction in AVI’s royalty obligation under the AGDG Agreement. AVI will
provide Ercole with information reasonably requested related to current and cumulative
net sales of PMO Products.  This payment
obligation shall survive any expiration or earlier termination of this
Agreement or any of the licenses granted hereunder.











3.2  Royalties
Payable to Ercole by AVI on Sales of Products by AVI.


(a)           AVI Exclusive Products.  The royalty payable to Ercole by AVI for
sales by AVI, its Affiliates or sublicensees of any AVI Exclusive Products
shall be equal to ***** percent of Net Sales plus an amount equal to the
royalties payable by Ercole under the UNC License and the Isis CLA as a result
of the sale of such AVI Exclusive Products, provided that in no event shall AVI
be responsible for royalties payable under the UNC License or the Isis CLA in
excess of the amounts specified below in this subsection 3.2(a).  Royalties shall be payable on a
country-by-country basis until the later of expiration of all Splicing Patents
and AVI Invention Patents Covering a particular AVI Exclusive Product or the
tenth anniversary of first commercial sale (the “Ercole Royalty Period”) of such AVI Exclusive Product. On a
country-by-country basis, if the last Splicing Patent and AVI Invention Patent
Covering a particular AVI Exclusive Product expires prior to the tenth
anniversary of first commercial sale of such AVI Exclusive Product, then the
applicable royalty shall be reduced by ***** for the remainder of the Ercole Royalty Period.  As of the Effective Date, the applicable
royalty rate payable under the UNC License on AVI Exclusive Products is *****
percent ***** and the applicable royalty rate payable under the Isis CLA on AVI
Exclusive Products is ***** percent *****. This amount will be reduced by the
amount of any future reduction in Ercole’s royalty obligation under the UNC
License or the Isis CLA. This payment obligation shall survive any expiration
or earlier termination of this Agreement or any of the licenses granted
hereunder.


3.3  Development
Milestones.


(a)           Ercole-AVI Exclusive
Products.  Ercole will pay or
will cause its Affiliates or sublicensees to pay to AVI the following milestone
payments for each Ercole-AVI Exclusive Product within sixty (60) days after
achievement of each of the following events in the specified jurisdiction, or
where no jurisdiction is specified, in the first Major Market Country:


	
  Milestone Event

  	
   

  	
  Milestone Payment

  	
   

  
	
  Start of IND-Enabling GLP Tox

  Studies

  	
   

  	
  US
  $*****

  	
   

  
	
  Filing of IND



  	
   

  	
  US
  $*****

  	
   

  
	
  First Initiation of Phase II Trial



  	
   

  	
  US
  $*****

  	
   

  
	
  US NDA Approval



  	
   

  	
  US
  $*****

  	
   

  
	
  EC Approval



  	
   

  	
  US
  $*****

  	
   

  
	
  Japanese
  Approval



  	
   

  	
  US $*****

  	
   

  



 


(b)           AVI Exclusive Products.  AVI will pay or will cause its Affiliates or
sublicensees to pay to Ercole the following milestone payments for each AVI
Exclusive Product within sixty (60) days after achievement of each of the
following events in the specified jurisdiction, or where no jurisdiction is
specified, in the first Major Market Country:











 


	
  Milestone Event

  	
   

  	
  Milestone Payment

  	
   

  
	
  Start of IND-Enabling GLP Tox

  Studies

  	
   

  	
  US
  $*****

  	
   

  
	
  Filing of IND



  	
   

  	
  US
  $*****

  	
   

  
	
  First Initiation of Phase II Trial



  	
   

  	
  US
  $*****

  	
   

  
	
  US NDA Approval



  	
   

  	
  US
  $*****

  	
   

  
	
  EC Approval



  	
   

  	
  US
  $*****

  	
   

  
	
  Japanese
  Approval



  	
   

  	
  US $*****

  	
   

  



 


3.4  Commercial
Success Milestones.


In order to
satisfy Ercole’s obligation under the Isis CLA, AVI, its Affiliates or
sublicensees will pay Ercole a one-time milestone payment equal to *****
dollars ***** for each AVI Exclusive Product that has Net Sales of *****
dollars ***** or more in a Calendar Year. 
For clarity, such payment shall only be due once per AVI Exclusive
Product in the first Calendar Year in which Net Sales total or exceed *****
dollars ***** and not in any subsequent years when Net Sales meet or exceed
this amount.  Any commercial success
milestone due hereunder will be payable in quarterly installments of *****
dollars ***** over the ***** years following the year in which the milestone
was met.


3.5  Payment of Royalties and Milestones; Reports.


Each Party will make royalty payments to the other Party for each
Product sold during a Calendar Quarter within sixty (60) days of the last day
of that Calendar Quarter.  Each royalty
payment will be accompanied by a written
report for that Calendar Quarter showing the calculation of Net Sales of the
Product sold by such Party, its Affiliates and its sublicensees worldwide
during the quarterly reporting period and the calculation of the royalties and
Milestones payable under this Agreement, all on a country-by-country and
Product-by-Product basis.


3.6  Payment
Modalities; Foreign Currency Conversion; Late Payment Charges; Offset.


(a)                                  Payments.  All payments by a Party under this Agreement
will be made in United States Dollars by bank wire transfer in next day
available funds to such bank account in the United States designated in writing
by Ercole or AVI, from time to time.


(b)                                 Late
Payments; Collections.  In the event
that any payment, including royalty or milestone payments, due hereunder is not
made when due, the payment will bear interest from the date due at the lesser
of (i) one and one-half percent (1.5%) per month,











compounded monthly, or (ii) the highest rate permitted
by law.  If a Party disputes in writing
the amount of an invoice presented by the other Party within thirty (30) days
of receipt of such invoice, the late fees will only apply to the correct amount
as later determined or agreed.  The
payment of such interest will not limit a Party from exercising any other
rights it may have as a consequence of the lateness of any payment.  In addition, each Party agrees to pay all
costs of collection, including reasonable attorneys’ fees, incurred by the
other Party in enforcing the payment obligations after a due date has passed
under this Agreement.


(c)                                  Conversion.  If
a Party receives any revenues in currency other than U.S. dollars, then for
purposes of making royalty payments required hereunder, such revenues shall be
converted into U.S. dollars at the conversion rate for the foreign currency as
published in the eastern edition of The Wall Street Journal as of the last
business day of the applicable calendar quarter in which the corresponding
sales of Products were made.


(d)                                 Offset.  If a Party
suffers a loss as a result of a breach of this Agreement by the other Party,
the non-breaching Party may offset such loss against any amounts payable
hereunder.


3.7  Audits Rights.


(a)                                  Upon
the written request of AVI or Ercole, as the case may be, and not more than
once in each Calendar Year, AVI or Ercole will permit the other Party’s
independent certified public accountant to have access during normal business
hours to its records as may be reasonably necessary to verify the accuracy of
the royalty reports and the Party’s compliance in other respects with this
Agreement for the current year and the preceding three years prior to the date
of such request, provided however that any given calendar year will be subject
to audit no more than once.  The
accounting firm will disclose to the auditing Party only whether the royalty
reports are correct or incorrect, the specific details concerning any
discrepancies or other non-compliance, and the corrected amount of Net Sales
and royalty payments.  No other
information will be provided to the auditing Party.


(b)                                 If
such accounting firm concludes that additional royalties were owed during such
period, the delinquent Party will pay the additional royalties within sixty
(60) days of the date such Party receives the accounting firm’s written
report.  The fees charged by such
accounting firm will be paid by the auditing Party unless the additional
royalties, milestones or other payments owed by the audited Party exceed five
percent (5%) of the royalties, milestones or other payments paid for the time
period subject to the audit, in which case the audited Party will pay the
reasonable fees and expenses charged by the accounting firm.


(c)                                  Each
Party will treat all financial information subject to review under this
Section 3.7 or under any sublicense agreement in accordance with the
confidentiality provisions of Article 5, and will cause its accounting firm to
enter into an acceptable confidentiality agreement obligating such firm to
retain all such financial information in confidence pursuant to such
confidentiality agreement. Notwithstanding the foregoing, it is expressly











agreed that a royalty report provided hereunder may be
provided, in whole or in pertinent part, to UNC or Isis by Ercole to the extent
required by the UNC License or the Isis CLA, as the case may be, or to AGDG by
AVI to the extent required by the AGDG Agreement.


3.8  Taxes.


If
laws, rules or regulations require withholding of income taxes or other taxes
imposed upon payments set forth in this Article 3, each Party will make such
withholding payments as required and subtract such withholding payments from
the payments set forth in this Article 3. 
Each Party will submit appropriate proof of payment of the withholding
taxes to the other Party within a reasonable period of time.


Article 4.               INTELLECTUAL
PROPERTY


4.1  Ownership of
Inventions.


(a)                                  Neither Party hereto will be deemed by
this Agreement to have been granted any license or other rights to the other
Party’s rights in any inventions, technology, discoveries, or other proprietary
property (collectively, “Inventions”) existing as of the Effective Date of this
Agreement, except as expressly provided herein.


(b)                                 Subject to Section 4.1(d), any Inventions
made under the Research Plan, either solely by Ercole or jointly with AVI,
which (i) relate to the Splicing Patents and do not relate to the AVI Patents
or (ii) are Covered by the Splicing Patents and are not Covered by the AVI
Patents, will be assigned to Ercole.  Any
Inventions made under the Research Plan, either solely by AVI or jointly with
Ercole, which (x) relate to the AVI Patents and do not relate to the Splicing
Patents or (y) are Covered by the AVI Patents and are not Covered by the
Splicing Patents, will be assigned to AVI. Such an Invention will be an “Ercole
Invention” or an “AVI Invention,” as the case may be, and Patents claiming such
Inventions will be “Ercole Invention Patents” or “AVI Invention Patents,”
respectively.


(c)                                  Subject to Section 4.1(d), AVI and Ercole
will jointly hold title to all Inventions, whether or not patentable, that are
made by either or both Parties under the Research Plan that relate to or are
Covered by both the AVI Patents and the Splicing Patents, as well as to Patents
filed thereon.  Such Inventions will be
“Jointly Owned Inventions,” and Patents claiming such Jointly Owned Inventions
will be “Jointly Owned Invention Patents.” 
AVI and Ercole will promptly provide each other with notice whenever a
Jointly Owned Invention is made.  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.


(d)                                 Any invention claiming the composition of
matter of a Splicing Modulator or an analog thereof and any invention related
to the use of such compounds shall be referred to as a “Compound
Invention”.  All Compound Inventions
arising from activities under the Research Plan and related to a Splicing
Modulator designed to modulate the splicing of











an Ercole-AVI Exclusive Target shall be solely owned
by Ercole and shall be designated as Ercole Inventions.  All Compound Inventions arising from
activities under the Research Plan and related to a Splicing Modulator designed
to modulate the splicing of an AVI
Exclusive Target shall be solely owned by AVI and shall be designated as AVI
Inventions.


(e)                                  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  Filing, Prosecution,
Maintenance, Enforcement and Defense of Patents Owned or Controlled by AVI.


(a)                                  AVI
will have the sole and exclusive right, in its sole discretion and at its
expense, to file, prosecute, maintain, enforce and defend any Patents within
the AVI Patents and the AVI Invention
Patents.  Ercole shall provide
such assistance, at AVI’s expense, as AVI may reasonably request in pursuing
such legal action.


(b)                                 Ercole
will promptly advise AVI if Ercole becomes aware of any suspected or actual infringement
of the AVI Patents and the AVI Invention
Patents by any person.


(c)                                  AVI
will be entitled to all damages and monetary awards recovered as a result of
its enforcement of the AVI Patents and the
AVI Invention Patents. Notwithstanding the foregoing, if AVI’s enforcement of
the AVI Patents and AVI Invention Patents results from a Third Party’s
unauthorized development, sale or other commercialization of a Splicing
Modulator that targets an Ercole-AVI Exclusive Target, then Ercole shall be
entitled to receive ***** percent of any damages or monetary awards recovered
and remaining after deduction of each Parties’ expenses associated with the
enforcement action.


4.3  Filing, Prosecution,
Maintenance, Enforcement and Defense of Patents Owned or Controlled by Ercole.


(a)                                  Ercole
will have the sole and exclusive right and responsibility at its own expense,
to file, prosecute, maintain, enforce and defend the Ercole Splicing Patents
and the Ercole Invention Patents.  AVI shall provide such assistance, at Ercole’s
expense, as Ercole may reasonably request in pursuing such legal action.


(b)                                 AVI
will promptly advise Ercole if AVI becomes aware of any suspected or actual
infringement of such Ercole Splicing Patents or the Ercole Invention Patents by
any person.


(c)                                  Ercole
will be entitled to all damages and monetary awards recovered as a result of
enforcing the Ercole Splicing Patents and
the Ercole Invention Patents. Notwithstanding the foregoing, if Ercole’s
enforcement of the Ercole Patents and Ercole Invention Patents results from a
Third Party’s unauthorized development, sale or other commercialization of a
Splicing Modulator that targets an AVI Exclusive Target, then AVI shall be
entitled











to receive ***** percent of any
damages or monetary awards recovered and remaining after deduction of each
Parties’ expenses associated with the enforcement action.


4.4  Filing, Prosecution,
Maintenance, Enforcement and Defense of Jointly Owned Invention Patents.


Ercole
and AVI will negotiate in good faith an appropriate arrangement for the use,
prosecution, maintenance and enforcement of any Jointly Owned Invention
Patents.


4.5  Third Party Patents.


(a)          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.


(b)         New Third
Party Royalty Payments.  If
any license agreement or settlement is entered into pursuant to Section 4.5 (a)
that establishes a royalty obligation to a Third Party on sales of Products,
such royalty payment will be made by the Parties as follows.


(i)                                     Ercole-AVI Exclusive Products - If the Third Party patent
for which a royalty is due relates primarily to Ercole technology (and has
therefore been agreed to directly by Ercole pursuant to Section 4.5 (a)),
Ercole shall bear full responsibility for the Third Party royalty payment.  If the Third Party patent for which the
royalty is due relates primarily to AVI technology, Ercole may deduct half of
the Third Party royalty payment from the royalty payments due AVI, provided,
however, that the royalty rate paid to AVI (net of payments due to AGDG) shall
not be less than ***** of Net Sales of the Ercole-AVI Exclusive Product on
which the Third Party royalty is being paid.


(ii)                                  AVI-Exclusive Products - If the Third Party patent for which
a royalty is due relates primarily to AVI technology (and has therefore been
agreed to directly by AVI pursuant to Section 4.5 (a)), AVI shall bear full
responsibility for payment of the Third Party royalty payment.  If the Third Party patent for which the
royalty is due relates primarily to Ercole technology, AVI may deduct half of
the Third Party royalty payment from the royalty payments due Ercole, provided,
however, that the royalty rate paid to Ercole (net of payments due to Isis and
the University of North Carolina) shall not be less than ***** of Net Sales of
the respective AVI Exclusive Product on which the Third Party royalty is being
paid.











Article 5.               CONFIDENTIALITY


5.1  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.


5.2  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 the confidentiality
obligations contained in this Agreement; or


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


(d)                                 Either
Party may disclose (i) a copy of this Agreement on a confidential basis to
prospective investors and (ii) a mutually agreed upon redacted copy of this
Agreement on a confidential basis to prospective collaborators; provided, however, that a Party can never disclose the other
Party’s Exclusive Targets without the express prior written consent of such
Party, it being understood that Ercole may disclose the Exclusive Targets to
Isis.


Article 6.               PUBLICATION
AND PUBLICITY


6.1  Publication.


(a)                                  The Parties agree that it is customary in the
industry to publish results obtained from clinical trials and other studies of
a Product, and that each Party may publish such information obtained, subject
to the provisions of this Section.


(b)                                 Except as provided otherwise herein, the Parties
will be entitled to publish or present on the results of the Research 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.


6.2  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, 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.


Article 7.               INDEMNIFICATION


7.1  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; (b)  breach by
Ercole of its representations and warranties set forth in Article 9; (c)
Ercole’s choice of Ercole-AVI Exclusive Targets pursuant to Article 1; or (d)
the manufacture, use, importation or commercialization (including marketing) of
Ercole-AVI Exclusive Products;  provided, however, that Ercole’s obligations pursuant to
this Section 7.1 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 breach by AVI of its representations and warranties set forth in Section
9. Ercole shall also indemnify AGDG to the extent required by the AGDG
Agreement.


7.2  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; (b)  breach by AVI
of its representations and warranties set forth in Article 9; (c) AVI’s choice
of AVI Exclusive Targets pursuant to Article 1; or (d) the manufacture, use,
importation or commercialization (including marketing) of AVI Exclusive
Products; provided however, that AVI’s obligations
pursuant to this Section 7.2 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 9. AVI shall also indemnify UNC and Isis to the extent
required by the UNC License or the Isis CLA, as the case may be.
















7.3          Notification of Claims;
Conditions to Indemnification Obligations.


As a condition to
a Party’s right to receive indemnification under this Article 7, 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 hereto, (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 7 with respect to claims or
suits settled or compromised without its prior written consent.


Article 8.               TERM AND
TERMINATION OF AGREEMENT


8.1  Termination of Agreement.


This Agreement shall continue in full force and effect for
the License Term unless terminated as set forth in this Article 8.


8.2  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, the rights and licenses
granted to the terminating Party with respect to Gene Targets that are
exclusive targets at the time of termination shall remain exclusive, such that
the breaching Party upon such termination grants to the non-breaching Party an
exclusive, royalty-free (as to the breaching Party), worldwide license, with
the right to sublicense, to practice the other Party’s Patents as described
under Sections 2.2 and 2.3 (in the case where AVI is the breaching Party) or
Sections 2.4 and 2.5 (in the case where Ercole is the breaching Party).  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 extent such payments are required
under a Third Party license agreement (e.g., the AGDG Agreement, the UNC
License or the Isis CLA).  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 or the Isis CLA), 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.


8.3  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.


8.4  Accrued
Rights and Surviving Obligations.


(a)                                  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, obligations
to pay royalties and/or milestones under Article 3, Sections 3.6 through 3.9,
4.1, and Articles 5, 6, 7, 8, 9, 10, 11, 12.


(b)                                 The rights of any sublicensee under any
permitted sublicense granted pursuant to Section 2.3 or 2.4 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.


Article 9.               REPRESENTATIONS AND
WARRANTIES; DISCLAIMER


9.1  Representations and Warranties
of the 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 Research Plan) and
to grant the licenses granted hereunder;













(e)                                  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.


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 Research Plan or otherwise fulfil its
obligations under this Agreement;


(b)                                 The Isis CLA and the
UNC License are in full force and effect, and the copies attached hereto are
accurate and complete. Ercole shall not amend these agreements in a way that
would adversely affect the rights of AVI hereunder to practice the sublicensed
technology without AVI’s express written consent, provided that adding,
removing or replacing Exclusive Targets under the Isis CLA (other than AVI
Exclusive Targets) does not constitute a change requiring notice to or consent
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 Research Plan or otherwise fulfil its obligations under
this Agreement;


(b)                                 The AGDG Agreement is
in full force and effect, and the copy attached hereto 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.


9.2  Disclaimers.


THE SPLICING
MODULATORS AND SERVICES PROVIED UNDER THE RESEARCH 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 10.            Notice


10.1  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:


79 TW Alexander Dr., Bldg
4401, Suite 200


Research Triangle Park,
NC 27709


Attention:  President


Fax No: (919) 536-1700


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, 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 11.            RECORDS


11.1 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 Research
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 5.













Article 12.            MISCELLANEOUS
PROVISIONS


12.1           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.


12.2        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 12.2 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 Section 2.6).


12.3        Entire Agreement;
Amendments.


This Agreement contains the entire understanding of the Parties with
respect to the license, development and commercialization 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.


12.4        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
God. 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.













12.5        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.


12.6        Dispute Resolution


(a)                                  The Parties recognize that
disputes may from time to time arise between the Parties during the term of
this Agreement.  In the event of such a
dispute, either Party, by written notice to the other Party, may have such
dispute referred to the Parties’ respective executive officers designated
below, for attempted resolution by good faith negotiations within 30 days after
such notice is received.  Said designated
officers are as follows:


	
  

  	
  For AVI:

  	
   

  	
  President

  
	
   

  	
  For Ercole:

  	
   

  	
  Chairman

  



 


(b)                                 If the executive officers are unable to reach
unanimous consent with respect to activities conducted under Sections 1.5(b)(i)
or 1.5(b)2(ii), then Ercole or AVI, respectively, shall have the final decision
making authority with respect to matters regarding Ercole-AVI Exclusive
Products or AVI Exclusive Products.


(c)                                  In the event the designated executive officers
are not able to resolve such dispute after such 30-day period, each Party may
pursue its rights and remedies in law or equity in any court of competent
jurisdiction.


12.7        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.


12.8        Captions


The captions to the several Articles and Sections hereof
are not a part of the Agreement, but are merely a convenience to assist in
locating and reading the several Articles and Sections hereof.













12.9        Waiver


The waiver by either Party hereto of any right
hereunder, or the failure to perform, or a breach by the other Party will not
be deemed a waiver of any other right hereunder or of any other breach or
failure by said other Party whether of a similar nature or otherwise.


12.10      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.


12.11      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.


12.12      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.


12.13      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:

  	
   

  	
   

  
											



 













EXHIBIT 1


DEFINITIONS


1.1                               “Active
Program” means with respect to a Gene Target, an Ercole-AVI Exclusive
Target or an AVI Exclusive Target, any reasonable (as defined below) ongoing
research, development, or commercialization (including research, development or
commercialization activities conducted by a Third Party pursuant to a valid
sublicense under this Agreement), of a Product directed to such Gene Target.


For purposes of clarification, research, development
and commercialization efforts with respect to an Ercole-AVI Exclusive Target or
an AVI Exclusive Target or Product shall be deemed reasonable if the applicable
Party’s research and development efforts with respect to such Gene Target or
Product are reasonably comparable with other projects in such Party’s portfolio
at a similar stage of development and of similar market potential.  Reasonable research, development and
commercialization efforts should include preclinical studies, human clinical studies
and development aimed at obtaining regulatory approval for marketing a Product
that modulates such Gene Target.


1.2                               “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.


1.3                               “AVI
Exclusive Product” means a Splicing Modulator that modulates an AVI
Exclusive Target and is Covered by the Splicing Patents and/or an AVI Invention
Patent.


1.4                               “AVI Exclusive Target”
has the meaning set forth in Section 1.2.


1.5                               “AVI Invention” has
the meaning set forth in Section 4.1(b).


1.6                               “AVI Invention Patent” has
the meaning set forth in Section 4.1(b).


1.7                               “AVI
Patents” means the Patents listed in Exhibit 6.


1.8                               “Calendar Quarter” means
the respective periods of 3 consecutive calendar months ending on March 31,
June 30, September 30 and December 31.


1.9                               “Calendar Year” means each
successive period of 12 months commencing on January 1 and ending on December
31.


1.10                        “Collaboration
Term” means the term of the Research Plan as set forth in Section 1.1.













1.11                        “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.


1.12                        “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 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.


1.13                        “EC Approval” means approval of a Product for marketing in the European Union by the
European Commission (“EC”) or, if a Party seeks approval through mutual
recognition therein, by the Ministry of Health of the United Kingdom,
France, Germany, Italy or Spain (each a “Major
European Country”), without the
requirement for price having been approved. 
If a Product can be sold in a Major European Country without EC
or Ministry of Health approval, EC Approval will be deemed to have been obtained
on the first sale of a Product in a Major European Country.













1.14                        “Ercole-AVI
Exclusive Product” means a Splicing Modulator that modulates an Ercole-AVI
Exclusive Target and that is Covered by the AVI Patents and/or an Ercole
Invention Patent.


1.15                        “Ercole-AVI
Exclusive Target” has the meaning set forth in Section 1.2.


1.16                        “Ercole
Invention” has the meaning set forth in Section 4.1(b).


1.17                        “Ercole
Invention Patent” has the meaning set forth in Section 4.1(b).


1.18                        “Ercole
Splicing Patents” means the Patents listed in Exhibit 4.


1.19                        “Exclusive Targets”
means either or both of the Ercole-AVI Exclusive Targets and the AVI Exclusive
Targets.


1.20                        “Gene
Target” means a transcriptional unit of a gene, and any protein product of
such transcriptional unit, including all splice variants.


1.21                        “IND”
means an Investigational New Drug
Application or similar application or submission for approval to conduct human
clinical investigations filed with or submitted to a Regulatory Authority in
conformity with applicable Regulatory Authority regulations.


1.22                        “IND-Enabling
GLP Tox Studies” means, at a minimum,
the pharmacokinetic and toxicology studies required to meet the safety
regulations for filing an IND, as well as any additional studies required by a
Regulatory Authority as a prerequisite to filing an IND.


1.23                        “Initiation
of Phase II Trial” means the dosing of the first patient in the first human
clinical trial conducted in patients and designed to indicate a statistically
significant level of efficacy for a Product in the desired indication, as well
as to obtain some indication of the dosage regimen required.


1.24                        “Invention”
has the meaning set forth in Section 4.1(a) herein.


1.25                        “Isis CLA” means that certain Collaboration and
License Agreement between Ercole and Isis Pharmaceuticals effective May 16,
2003, attached (as redacted) hereto as Exhibit 8.


1.26                        “Jointly
Owned Invention” has the meaning set forth in Section 4.1(d).


1.27                        “Jointly
Owned Invention Patent” has the meaning set forth in Section 4.1(d).


1.28                        
“License Term” has the meaning set forth in Section 2.1.


1.29                        “Major Market” means any one of the following countries: the United States, Japan, the
United Kingdom, France, Germany, Italy or Spain.













1.30                        “NDA” means a New Drug Application or similar application or submission for
approval to market and sell a new pharmaceutical product filed with or
submitted to a Regulatory Authority in conformity with applicable Regulatory
Authority regulations.


1.31                        “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 Licensee reasonably believes are
uncollectible,


“Net Sales” excludes:


(a)                                  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;


(b)                                 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;


(c)                                  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 Marketing Approvals
for Product (unless such Product is subsequently sold); and


Notwithstanding the foregoing, if (i) a Party enters
an arms-length license agreement with a Third Party with respect to a Product
and (ii) the definition of Net Sales is different in such license agreement
than as described above, then, the Parties will use the definition described in
the third party license for the calculation of royalties hereunder.


1.32                        “AGDG Agreement” means that certain agreement between AVI and
Anti-Gene Development Group effective May 19, 1993 and amended in March, 2000  and attached hereto (as
redacted) as Exhibit 7.


1.33                        “Party”  means either Ercole or AVI, as the case may be and “Parties” means both Ercole and AVI.













1.34                        “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 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.


1.35                        “Product”
means an Ercole-AVI Exclusive Product or an AVI Exclusive Product, or both.


1.36                        “Regulatory
Authority” means any applicable government regulatory authority involved in
granting approvals for the marketing and/or pricing of a Product worldwide
including, without limitation, the United States Food and Drug Administration (“FDA”)
and any successor government authority having substantially the same function,
and foreign equivalents thereof.


1.37                        “Research
Plan” is the plan attached hereto as Exhibit 3.


1.38                        “Royalty
Period” has the meaning set forth in Section 3.1(a) for Ercole-AVI
Exclusive Products and 3.2(a) for AVI Exclusive Products.


1.39                        “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.


1.40                        “Splicing Patents” means the Isis
Splicing Patents and the Ercole Splicing Patents.


1.41                        “Third Party” means any Party other than AVI or Ercole and their respective
Affiliates.


1.42                        “UNC License”
means that certain License Agreement between Ercole and The University of North
Carolina at Chapel Hill effective October 15, 2001, attached hereto (as
redacted) as Exhibit 9.













Exhibit 2


AVI Exclusive Targets and Ercole-AVI Exclusive
Targets


AVI Exclusive Targets


	
  Gene Name

  	
   

  	
  ENSEMBL Gene ID

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  



 


Ercole-AVI Exclusive Targets


	
  Gene Name

  	
   

  	
  ENSEMBL Gene ID

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  
	
  *****

  	
   

  	
  *****

  	
   

  



 

















Exhibit 3


Research Plan


1.              Overview


Ercole and AVI
wish to collaborate to develop oligonucleotides that modulate RNA splicing
(Splicing Modulators).  As such, Ercole
and AVI will work together under the direction of the Steering Committee to
identify morpholino and morpholino peptide conjugate oligomers that modulate
RNA splicing of therapeutically relevant genes of interest. These oligomers
will be also used to help address the mechanisms by which Splicing Modulators
can modulate RNA processing and act as therapeutic agents. Ercole and AVI will
also collaborate to identify additional oligomer modifications that can be
exploited to modulate RNA splicing.


2.              Drug Discovery


A.           Ercole and AVI will
design and identify morpholino and morpholino peptide conjugate Splicing
Modulators that modulate the splicing of Ercole-AVI Exclusive Gene Targets and
the AVI Exclusive Gene Targets  (The
“Modulator Commitment”).


·                  For
each Ercole-AVI Exclusive Target, AVI will provide up to 30 Splicing
Modulators, requested by Ercole, to be tested in a cell-based assay for their
ability to modulate splicing.  Ercole
will perform preclinical drug discovery pharmacology on morpholino and
morpholino peptide conjugate Splicing Modulators supplied by AVI for Ercole-AVI
Exclusive Targets.


·                  For
each AVI Exclusive Target, AVI will perform preclinical drug discovery
pharmacology on morpholino and morpholino peptide conjugate Splicing Modulators
supplied by AVI.  Ercole will collaborate
with AVI regarding AVI Exclusive Targets, including but not limited to:
Splicing Modulators identification, selection and targeting, in vitro assays
and preclinical drug development.


B.             Although the desired
efficacy and potency will vary for different targets and cell lines which
express the target, it is generally desired that the Splicing Modulator
promotes at least a ***** decrease in the targeted mRNA splice variant at a
concentration of ***** or lower using electroporation or scrape-loading for
delivery in cell culture.


C.             For Splicing
Modulators selected for further drug development, AVI will provide morpholino
and morpholino peptide conjugates, including negative and positive control
sequences, in sufficient amounts to carry out required rodent pharmacology
studies, not to exceed ***** grams per gene target (the “Study
Materials”).  The initial ***** of Study
Materials will be free of charge.  For
additional amounts, the Study Materials will be provided by AVI at cost.


D.            AVI and Ercole will
transfer bioanalytical methods as needed to one another to support preclinical
pharmacology/pharmacokinetics studies and will provide collaborative advice in
these areas.











E.              Under direction of
the Steering Committee and for their respective Gene Targets, Ercole and AVI
will perform preclinical toxicology/PK studies required for IND filing and
early clinical trial design.


3.              Medicinal Chemistry


A.           To facilitate
improvements of morpholino and morpholino peptide conjugate oligomers as
Splicing Modulators, Ercole will evaluate morpholino and morpholino peptide
conjugate oligomers in Ercole’s RNA processing models.  The oligomers will include molecules
containing modifications as suggested and agreed to by the parties. AVI will
provide over the term of the agreement, but not less than two years, up to 30
different oligomers for cell-based assays (*****) and for in vivo experiments
(*****).


B.             Ercole will evaluate
efficacy of oligomers in Ercole’s cellular and animal RNA processing model
systems.


C.             AVI and Ercole will
discuss and confer on any plans for evaluation in RNA processing model systems
of any additional oligonucleotide modifications.


D.            Those Splicing
Modulators with modifications that show promise in model systems will be shared
by both parties in their application to therapeutically relevant targets.


4.              Further Development


Any
time that Ercole decides to develop an Ercole-AVI Exclusive Product beyond the
stage covered in this Research Plan (for example, to conduct formal GLP
toxicology and clinical testing), Ercole will so notify AVI, and Ercole and AVI
will negotiate and execute a Supply Agreement covering the manufacture of that
particular oligomer 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 to include industry-standard manufacturing margins); or b) the
transfer of the manufacturing process to an acceptable third-party contract
manufacturer (with payment of an industry-standard royalty to AVI on
manufacturing patents and know-how).


5.              Use Of Materials,
Data and Information


A.           Unless
provided otherwise herein, all Splicing Modulators and any related research
materials delivered to Ercole under this Agreement will not be used in research
or testing involving human subjects. The Splicing Modulators and any related
research materials supplied under this Agreement must be used with prudence and
appropriate caution in any experimental work, since not all of their
characteristics may be known.  Ercole agrees
to comply with all applicable laws, rules and regulations in connection with
its use of Splicing Modulators and related research materials provided
hereunder.


B.             Ercole
may use data and information generated pursuant to the testing and evaluations,
or otherwise provided to Ercole by AVI hereunder, for internal drug discovery
purposes only, consistent with the terms of this Agreement.  AVI acknowledges that Ercole may











wish to provide
such data and/or information to a Third Party in connection with a permitted
investment, sublicense or partnering activity under this Agreement.


C.             AVI
may use data and information generated pursuant to the testing and evaluations,
or otherwise provided to AVI by Ercole hereunder, for internal drug discovery
purposes only, consistent with the terms of this Agreement.  Ercole acknowledges that AVI may wish to
provide such data and/or information to a Third Party in connection with a
permitted investment, sublicense or partnering activity under this Agreement.


D.            Consistent
with the foregoing provisions, if Ercole conducts studies comparing the
chemistry Covered By the AVI Patents with the chemistry of a Third Party, all
data and information incorporating or relating to the chemistry Covered By the
AVI Patents that result from such studies is confidential and proprietary to
AVI and will not be disclosed to Third Parties, consistent with the provisions
of Article 4 of the Agreement; provided, however, that Ercole may disclose such
data and information to Third Parties under the terms of a confidentiality
agreement to the extent necessary to enable Ercole to compare the relative
performance or properties of specific Splicing Modulators but only so long as
Ercole does not disclose the chemistry or sequence of such Splicing Modulator.











Exhibit 4


Ercole Splicing Patents


US Patent No. ***** entitled *****.


US Patent No. ***** entitled *****.


US Patent No. ***** entitled *****.


US Patent No. ***** entitled *****.











Exhibit 5


Isis Splicing Patents


US Patent No. ***** entitled *****.











Exhibit 6


AVI Patents


Morpholino Backbone Patents


1.  Attorney Docket No. ***** entitled ***** - U.S.
Patent No. *****


2.  Attorney Docket No. ***** entitled ***** - U.S.
Patent No. *****


3.  Attorney Docket No. ***** entitled ***** - U.S.
Patent No. *****


4.  Attorney Docket No. ***** entitled ***** - U.S.
Patent No. *****


5.  Attorney Docket No. ***** entitled ***** – CA
*****, JP *****, AU *****, EP *****, KR *****


6.
 Attorney Docket No. ***** entitled *****
–EP *****


7.
 Attorney Docket No. ***** entitled *****
– US Provisional Application *****


ESPRIT


8
- 10.  Attorney Docket Nos. *****  entitled ***** – U.S. Patent ***** and pending US
applications *****; corresponding CA, JP, AU, EP applications


Delivery Technology


11
& 12.  Attorney Docket Nos. *****
entitled ***** – U.S. application ***** pending; corresponding CA, JP, AU, EP,
KR applications


13.  Attorney Docket No. ***** entitled ***** -
U.S. application ***** pending; corresponding PCT application


14.  Attorney Docket
No. ***** entitled ***** – U.S. application ***** pending; corresponding PCT
application


15.  Attorney Docket
No. ***** entitled ***** – U.S. application ***** pending; corresponding CA,
AU, EP applications


16.  Attorney Docket No. ***** entitled ***** – US
Application ***** pending; corresponding PCT application











Licensed Intellectual Property


17
& 18.  Attorney Docket No. *****
entitled ***** – U.S. Patent Nos. *****; EP Patent No. *****;
corresponding CA, JP applications *****


19.
 Attorney Docket No. ***** – U.S. Patent
No.  *****


20.  Attorney Docket No. ***** entitled ***** - U.S.
Patent No. *****; AU Patent No. *****; EP Patent No. *****


21.
 Attorney Docket No. ***** entitled *****
– U.S. Patent No. *****


22.
 Attorney Docket No. ***** entitled *****
– U.S. Patent No. *****











Exhibit 7


AGDG Agreement











Exhibit 8


Isis CLA











Exhibit 9


UNC License